China Issues Danger Warning to Indonesia: Do Not Underestimate!

Jakarta, CNBC Indonesia – China’s economy has lost momentum once again. In Q2 2026, growth in the Bamboo Curtain country slowed to its lowest level since the end of 2022.

According to the latest data, China’s gross domestic product (GDP) grew only 4.3% year on year in the April–June 2026 period. The figure came in below economists’ forecast of 4.5%, and slower than Q1 2026, which still grew at 5%.

The slowdown has piled further pressure on Beijing. The Chinese government has targeted economic growth of around 4.5%–5% this year — already among the lowest targets in recent decades — yet the Q2 data show the Chinese economy is beginning to run harder.

The problem is not only slowing growth; the structure of the economy also looks increasingly lopsided.

Exports and industrial production remain strong, but investment has fallen deeply and household consumption has not properly recovered.

Investment Becomes the Biggest Burden

The greatest pressure has come from investment. China’s urban fixed-asset investment, including property and infrastructure projects, fell 5.7% throughout the first half of 2026 compared with the same period a year earlier. The decline was deeper than the market’s projection of a 4.9% contraction.

Broken down, investment in the property sector plunged 18%. Infrastructure investment fell 2.4%, while manufacturing investment weakened by 1.2%.

The property slump has long been China’s core problem. House sales have not recovered strongly, many developers remain under strain, and public confidence in the property sector has not returned to its former level.

Meanwhile, local governments are no longer as free as before to push infrastructure projects. Many regions are now busier managing debt burdens and restructuring their finances, making it difficult for new projects to move quickly.

Yet for years, property and infrastructure investment have been one of China’s main growth engines. As this engine weakens, the Chinese economy loses a major source of momentum.

Consumption Remains Listless

Household consumption has also failed to provide solid support. China’s retail sales grew only 1% year on year in June 2026. Although better than May’s 0.6% decline, the figure still shows that people’s purchasing power remains weak.

Chinese consumers remain cautious about spending. Among the causes are income pressure, job insecurity, and the lingering effects of the property crisis.

When house prices weaken and employment prospects are not entirely secure, households typically hold back on spending. They save more as a precaution rather than buying expensive goods or boosting consumption.

This makes it difficult for China to shift its sources of growth from investment and exports towards domestic consumption.

Exports Become China’s Temporary Saviour

Amid collapsing investment and weak consumption, exports have become the brightest side of China’s economy.

In June 2026, Chinese exports surged 27% year on year in US dollar terms.

The jump far exceeded the market’s forecast of 18.2% and was faster than May’s 19.4% growth. Imports also rose sharply by 36%, higher than the projected 24%.

The export surge has been largely underpinned by global demand for technology products. Shipments of chips, computers, components, electrical equipment, and artificial intelligence (AI)-related products have all supported China’s export performance.

Demand from the AI supply chain has become an important cushion. As many countries and global companies scale up investment in data centres, chips, and computing devices, Chinese factories have received a boost.

Strong exports give China a buffer amid the weakness of its domestic economy.

While household spending has not recovered and property investment continues to fall, demand from abroad helps keep production activity alive.

China’s trade surplus also widened to around US$125.6 billion in June 2026, up from US$105.4 billion the previous month.

However, excessively strong exports bring risks of their own. The more Chinese goods flood global markets, the greater the potential for trade friction with major partners such as the United States and the European Union.

China’s trade surplus with the European Union also widened in the first half of 2026, largely driven by shipments of machinery and vehicles. This keeps the risk of trade conflict high, particularly as many countries grow wary of a flood of cheap Chinese goods.

What Does This Mean for Indonesia?

China’s economic slowdown is not solely Beijing’s concern. The domestic market needs to watch closely too, given the sheer scale of economic ties between the two countries.

China has long been one of Indonesia’s main export markets. It is also Indonesia’s largest source of imports and one of the most important investors in various industrial projects, including downstream processing.

Between January and April 2026, Indonesia’s non-oil exports to China reached US$22.76 billion, or about 25.93% of total national non-oil exports. Meanwhile, Indonesia’s non-oil imports from China were far larger, at US$30.79 billion, or around 41.84% of total non-oil imports.

Several impacts could be felt in Indonesia:

• Commodity exports could come under pressure

China remains Indonesia’s largest non-oil export destination.

From January to May 2026, China was still the largest destination for Indonesia’s non-oil exports. The value of non-oil exports to China was recorded at US$28.54 billion, or about 25.90% of total national non-oil exports.

China’s share far exceeds that of other major export destinations. The United States ranks next with an 11.56% share, followed by the European Union at 7.25% and India at 6.74%.

Given this proportion, Indonesia clearly needs to monitor China’s economic slowdown. If China’s economy slows, demand for raw materials and commodities from Indonesia risks weakening. This particularly concerns commodities closely tied to China’s industrial, property, and infrastructure sectors.

Products such as coal, iron and steel, metals, and nickel derivatives could be affected. Pressure could come from two directions: reduced demand and falling commodity prices.

• Chinese investment could become more selective

China also plays a major role in investment in Indonesia. In Q1 2026, realised Chinese investment in Indonesia reached approximately US$2.2 billion.

If China’s economy grows heavier, Chinese companies may become more cautious about expansion. Major projects such as smelters, batteries, electric vehicles, industrial estates, and downstream processing may continue, but selection could become stricter.

• Chinese imported goods could flow into Indonesia more heavily

If domestic demand in China weakens, Chinese producers may become more aggressive in selling goods abroad, including to Indonesia.

For consumers, this could make goods cheaper. For local industry, however, conditions could become tougher, as it must compete with Chinese products arriving in large volumes at competitive prices.

China’s slowdown is not entirely bad news. When its domestic market weakens, Chinese companies may become more aggressive in seeking new markets overseas. Indonesia remains attractive due to its large market, available raw materials, and the government’s push for downstream processing. So while risks exist, opportunities for new investment remain open.