China is wooing Malaysia and Indonesia with mega investments. Is the plan working?

KUALA LUMPUR and JAKARTA: If the Association of Southeast Asian Nations (ASEAN) were forced to choose between the world's pre-eminent powers, 71 per cent of Malaysians would prefer China over the United States.
That is according to the State of Southeast Asia 2025 survey, published last month by the ISEAS – Yusof Ishak Institute in Singapore.
Leaving aside United States President Donald Trump's tariffs, one of the reasons for Malaysians' support for aligning with China is its 'growing economic importance' in the region, said former Malaysian deputy minister of international trade and industry Ong Kian Ming.
The transformation of Proton, Malaysia's national car brand, and the forthcoming East Coast Rail Link — with Beijing having a key role in both — are just two examples that may explain why Malaysians feel upbeat about working with China.
Over in Indonesia, a survey in March last year showed that some 73 per cent of Indonesians perceived Beijing's activities in the South China Sea as a threat to their country's sovereignty.
Yet, in the State of Southeast Asia 2025 survey, support for aligning with China was strongest in Indonesia (72 per cent).
Whether Indonesians view China as a military adversary or a reliable economic partner, their country is of strategic importance to Beijing.
Firstly, it is the world's largest Muslim country, cited Centre for China and Globalisation vice president Victor Gao. The second reason is its geopolitical position, which straddles 'a very long distance from the east to the west — so many islands'.
Indonesia has a 'huge economic upside', he added, noting the move of its capital from Jakarta to Nusantara, East Kalimantan. 'That'll involve a lot of hard work and engineering breakthroughs — a huge amount of capital investment.'
The country also has the largest Chinese diaspora community, numbering more than 11 million. That makes Indonesia 'very special' from China's perspective, he said, even as many of them are Indonesian citizens.
Malaysia and Indonesia are two countries where China is making significant inroads with projects including industrial parks, ports, nickel-processing plants, auto factories and more.
As tensions between China and the US continue, Beijing is focusing its market efforts on the Global South, which represents 85 per cent of the world's population.
And the largest Global South economy on China's doorstep is ASEAN. Its combined gross domestic product in 2023 was US$3.8 trillion — the world's fifth-largest economy.
Just this week, both sides, along with the Gulf Cooperation Council, held an inaugural summit to strengthen cooperation.
As Trump's tariffs bring uncertainty to the region, will ASEAN member states such as Malaysia and Indonesia pivot to China, asks CNA series China And The Global South.
THE EAST COAST RAIL LINK
In Malaysia, one Chinese project taking shape is the 665km East Coast Rail Link that runs from Port Klang, the country's busiest port, and crosses to the east coast, with its final stop in Kelantan, near the Thai border.
Once the railway is up and running in January 2027 — with 20 stations altogether — it will whisk freight and people across the country at up to 160kmh.
It is a feat of engineering, with teams from China using mammoth machines to bore tunnels through mountain rock.
Such mega projects are pricey. The construction of the rail link was priced at RM65.5 billion (US$15.5 billion at current rates) under the Najib Razak administration. Under the Anwar Ibrahim government, the cost of construction is expected to be RM50 billion.
This makes it Southeast Asia's most expensive Belt and Road railway project. In comparison, the Laos-China Railway cost US$6 billion.
Chinese mega rail projects elsewhere in the world have also been subject to criticism for not having enough local multipliers and for using materials, labour and technology all from China. The Malaysian government has tried to assuage these concerns.
Malaysian Transport Minister Anthony Loke pointed to the two countries' agreement to involve local companies in at least 40 per cent of the project's civil works.
As to concerns about the project's impact on Malaysia's fiscal health, he said: 'We inherited this project. We don't have a choice, but we try to make the best of it.'
He pointed to a 2019 renegotiation whereby the Chinese side accepted 50 per cent liability, in the form of a joint venture, for any operational losses during the loan period.
But if there are profits, they will take 20 per cent and Malaysia will take 80 per cent to sustain repayments. These are the safeguards, said Loke, to ensure the project 'will be more sustainable and, hopefully, … operationally profitable'.
Noting that the east coast of Peninsular Malaysia is relatively poorer in terms of economic development, he added that with the rail link, the government hopes to bring more manufacturing to the east coast, where land costs are also cheaper.
'There's still a lot of untapped and undeveloped land,' he said.
There is already an industrial park waiting to connect to the rail link: the Malaysia-China Kuantan Industrial Park. It has attracted investments worth more than RM31 billion as of October 2023, which should create over 14,000 jobs.
The industrial park is connected to the Kuantan Port, which has been expanded and upgraded by yet another Chinese company, the Guangxi Beibu Gulf International Port Group.
Kuantan Port is Malaysia's closest port to China. Cargo ships sailing out take three days to reach the Guangxi region.
A rail connection between Port Klang and Kuantan Port will then create 'a land bridge' between the Straits of Malacca and the South China Sea, said Loke. 'It's important in the sense that it creates infrastructure (that's) readily available.
'From a security point of view, from a supply chain point of view, if there are any tensions in the South China Sea, then this is a major option … that can be used.'
WHAT CHINA'S REVAMP OF PROTON MEANS
On the west coast of Peninsular Malaysia, another ambitious plan is afoot — to transform part of Perak into a national automotive hub and the country into a regional electric vehicle (EV) manufacturer.
'We know that our neighbouring countries are also attracting a lot of EV manufacturers,' said Loke. 'Malaysia has to, of course, step up.'
It is doing so with high-tech robots from China assembling thousands of cars in Proton City, located in Tanjung Malim.
This is the latest step in Proton's transformation since 2017, when China's Zhejiang Geely Holding Group acquired a 49.9 per cent stake in the car brand.
The first was the introduction of the X70, Proton's first sport utility vehicle, in 2018.
'This was part of the technology transformation adopted by Proton,' said deputy chief executive officer Roslan Abdullah. 'We also learnt operational efficiency, thus reducing our operational costs.'
In December, Proton launched its first homegrown EV, the e.Mas 7, with retail prices starting at under RM110,000. Anwar hopes this will be the launch pad for a holistic ecosystem in Malaysia's EV sector.
Geely's partnership with Proton would be a 'great business case study', said Ong, 'for Chinese companies and for others who are interested in seeing how a Chinese company can turn around a local entity in another country'.
Sharing some of the key lessons, Roslan said the first was that the competition is unrelenting, as 'the market is big, and there are so many players'.
To be 'ahead of everything', Proton migrated to new media marketing, besides introducing the latest technology. Secondly, because of the competition, 'everything is urgent', he said. 'We have to be very quick, and thus it improves our operation.'
Motoring journalist Daniel Fernandez, the managing editor of DSF.my, is in no doubt that Geely's investment has been a 'huge success' for Proton.
'Because now there's no bailout from the government. That means the taxpayer isn't paying for Proton to stay alive,' he said.
'The older generation, who used to distrust Proton, … is slowly coming back to the brand. But the biggest change, I feel, is … the new generation of buyers are now happy to go into a Proton showroom.'
WATCH: China's mega-investments in Malaysia as it woos ASEAN (25:40)
Malaysia's investment figures over the past five years show that China is among the top five sources of FDI, with Netherlands, Singapore and the US also featuring on that list.
Still, Chinese investments would not be more than 20 per cent of Malaysia's total FDI inflow — certainly not last year or in 2023 — Ong highlighted. That demonstrates, to him, 'a very balanced approach' to attracting FDI from different countries.
Malaysia's leaders have always spoken of the need for non-alignment, and Loke affirmed that Malaysian foreign policy will remain neutral. 'We know that it's a very challenging situation right now,' he said. 'Hopefully, we can navigate this situation peacefully.
'We can continue to attract investment from both the US and China and … from Europe, from the Middle East, from Japan (and) Korea. These are all our major investors and major trading partners, so this will continuously be our focus.'
A WHOOSH OF PRIDE AND NICKEL-PLATED DREAMS
In Indonesia, a resort centre developed by the Dutch in the early 1900s has seen one Chinese-built structure have a major economic impact in the past two years.
Bandung, the capital of West Java, is crested by hills and has lower year-round temperatures than most other Indonesian cities. It remains a popular holiday destination, but the drive from Jakarta takes at least two and a half hours.
With a US$7.3 billion high-speed rail, Whoosh, now connecting the two cities — and its trains covering the 142km distance in around 40 minutes, zipping through the Indonesian landscape at up to 350kmh — business is booming for many.
At the Mason Pine Hotel, the number of meetings, incentives, conferences and exhibitions has increased by more than 20 per cent, said Bayu Aji, its director of sales marketing until quite recently. 'And these customers keep coming back.'
Many Jakarta-based corporations are hosting events in Bandung nowadays because a day trip to Bandung could even take less time than commuting within Jakarta. Also, the high-speed train is clean, punctual and comfortable.
While there was 'a lot of discussion and polemic' on the high-speed rail — the first in Southeast Asia — before its completion, the uptake in its use has been 'very fast and very incredible', said former Indonesian trade minister Mari Pangestu.
'It's a very technologically advanced high-speed train, so in that sense, we're proud that this could be done in Indonesia,' added Mari, who is deputy chair of Indonesia's National Economic Council.
'And it wasn't just Chinese engineers. There were also Indonesian engineers, and there was a partnership there. There was a lot of capacity building and training.'
China is also Indonesia's main partner in building its nickel sector. The Southeast Asian country has the world's largest reserves of this mineral, a key component for EV lithium batteries.
Besides investors from China building smelters to refine nickel in places such as Sulawesi — adding value to Indonesia's metal exports and creating jobs — they are helping to build plants that produce battery materials and, soon enough, cars.
China's BTR New Material Group and Singapore's Stellar Investment jointly invested US$478 million to build one such plant, which opened last August. Another US$299 million has been committed in a second phase of investment.
Further downstream, Chinese electric car manufacturer GAC Aion is opening its Indonesian factory this year, targeting an annual production capacity of 50,000 units; and EV giant BYD is building a US$1 billion plant, with operations set to commence early next year.
The biggest investment is coming from Chinese battery material maker CNGR Advanced Material Co, which plans to build an integrated production facility worth US$10 billion.
These are all part of an economic development policy known as downstreaming, a critical pillar of Indonesian President Prabowo Subianto's plans for the country.
And Chinese companies are playing a major role in Indonesia's efforts to add to the value chain because they have 'the most advanced and efficient technology', said National Economic Council executive secretary Septian Hario Seto.
They make up the world's top 10 lithium battery companies, along with three from South Korea and 'one or two' from Japan. 'It is what it is today,' said the former deputy minister of investment and mining coordination.
'One thing that we can make sure is, we have a commitment (to) international cooperation. … The commitment from Indonesia is that we want our product to be freely sold to any country. So, it's not only to China.'
TWO SIDES OF THE COIN
Another recent priority for Indonesia was to join BRICS. The country became an official member on Jan 7 — the first in Southeast Asia to be part of the organisation.
The group has been a growing political force in the past two decades, building on its desire to create a counterweight to Western influence.
Some observers view Indonesia's membership as an indication that Jakarta is tilting towards Beijing. But Carlyle Thayer, an emeritus professor at the University of New South Wales, Canberra, sees more than that.
Indonesia also wants to join the Organisation for Economic Co-operation and Development, he highlighted. 'The broader picture is to expand Indonesia's influence.'
The country's foreign policy position is clear and based on national interests, said Septian. 'We don't want to lean towards (any one) axis.'
But according to Ryan Hass, the director of the Brookings Institution's John L Thornton China Center, the Chinese strategy is to 'make other countries dependent upon them economically'.
'At the same time, China would like to establish military dominance over them,' he said. 'This combination of economic dependence and military dominance, (the Chinese) believe, should compel other countries to become more accommodating … (to) China and its long-term goals.'
Indonesia is one of the countries China's territorial interests will 'run up against', he added. In this case, Beijing's nine-dash-line map of the South China Sea overlaps with Indonesia's exclusive economic zone near the oil- and gas-rich Natuna Islands.
Gao, however, described claims of Chinese military ambitions against Indonesia as 'barking up the wrong tree'.
'We've been here for hundreds, if not thousands, of years. And between China and Indonesia, there have never been territorial adventures against each other,' he said.
Indonesia is bulking up its defence regardless. In January, when Japanese Prime Minister Shigeru Ishiba visited Jakarta, it was announced that Japan would give Indonesia two high-speed patrol boats and boost regional maritime security cooperation.
In 2023, the Indonesian military was the only one from ASEAN that participated in a two-week training exercise between Australia and the US. Experts have pointed out that these war games, called Talisman Sabre, are designed with China in mind.
It is a balancing act, however, for Indonesia: Jakarta and Beijing have plans for joint military exercises this year.
Indonesia sees the two sides of the coin, according to Mari. 'We do see China as an important market, also an important source of goods, components, investments and tourists, so there's the positive side,' she said.
On the downside, there are, among other things, labour-related issues involving Chinese workers. 'In the 70s, we had kind of similar issues when there was a lot of Japanese investment,' she said. 'Both sides need to … accept each other's differences.'
As for the perceived potential military threat and the Natunas issue, she hopes economic pragmatism will prevail. 'Can we look at whether we can develop this jointly?' she said. 'That's a more pragmatic view.'

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