The official designation of KIT Batang as a Special Economic Zone (KEK) marks a significant milestone in Central Java’s growing economic ties with China. While promising substantial investment inflows, it also calls for careful management to ensure sustainable development and local benefits.

On 20 March, Central Java entered a new phase of economic collaboration with China as the Batang Integrated Industrial Zone (KIT Batang) was officially designated a Special Economic Zone (KEK). This upgrade is expected to transform the region into a major investment and manufacturing hub, attracting foreign direct investment—particularly from China. President Prabowo Subianto, who inaugurated the transformation, emphasised its potential to rival industrial centres like Shenzhen while acknowledging his predecessor, Joko Widodo, for laying the groundwork.

Coordinating Minister for Economic Affairs Airlangga Hartarto also noted that while KIT Batang had been operational since 2023, its KEK status was a crucial step to drawing in more investors. The designation offers various incentives, including tax breaks, customs and excise exemptions, and streamlined business licensing. 

So far, KEK Batang has secured IDR 17.95 trillion (USD 1.14 billion) in investment and generated 7,000 jobs. The zone hosts 27 tenant companies, with seven already operational, seven under construction, and 13 in the preparatory phase. China alone has pledged IDR 16 trillion (USD 1 billion) as part of the Twin Parks Initiative with Fujian Province, reinforcing its long-term commitment to Central Java as a strategic economic partner. 

During the launch event, Chinese Ambassador to Indonesia Wang Lutong led a delegation of investors and senior representatives from major Chinese banks to meet with Central Java Governor Ahmad Luthfi. Their visit was more than a formality—it underscored China’s intent to expand its economic footprint in the province. Among the delegation were consultants, seven investors—including members of the China Chamber of Commerce—high-ranking banking officials, and investment firm executives. In response, the governor presented three priority projects for investment: integrated waste management, an international hospital, and the construction of a giant sea wall along the northern coast (Pantura). 

Why Central Java? 

China’s growing interest in Central Java is not without reason. The province boasts a strategic location, a robust industrial base, and a workforce that is both skilled and cost-effective. Additionally, Central Java is home to a significant population of Chinese Indonesians who have long-established business networks with China. This cultural and economic connection has facilitated smoother business transactions and strengthened investment ties between the province and Chinese enterprises. 

Moreover, Central Java’s previous governor, Ganjar Pranowo, maintained close ties with China, fostering an investment-friendly environment that encouraged Chinese businesses to expand their operations in the province. His administration played a key role in securing major investment deals and strengthening economic collaboration with Beijing. In 2024 alone, Central Java received IDR 88.44 trillion (approximately USD 5.5 billion) in investments, with China contributing 16 percent of this figure. The textile industry accounted for nearly half of these investments, followed by the rubber, plastic, and footwear sectors. 

This surge in Chinese investment builds on a steady upward trend in recent years. In 2023, total investment in Central Java reached US$4.6 billion, up from US$4.1 billion in 2022 and US$3.6 billion in 2021. A key milestone that year was the construction of the Batang Industrial Estate under the Two Countries Twin Parks initiative, designed to accommodate 1,000 small and medium enterprises (SMEs) and attract US$12.5 billion in investment. Additionally, Chinese firm Wanxinda committed IDR 1 trillion (US$1.08 billion) to developing the estate, further cementing China’s economic foothold in the region. 

In 2022, Chinese firm PT Hua Hong Home Art Share Indonesia partnered with UD Pandan Arum, signing a Letter of Intent witnessed by then-Governor Ganjar Pranowo. The company set an investment target of US$3.9 billion, with US$3.2 billion already realised. At that time, the energy sector dominated foreign direct investment, while the textile industry ranked first when combining foreign and domestic investments. 

The designation of KIT Batang as a KEK further cements the province’s position as a focal point for foreign investors. The initiative aligns with Indonesia’s broader economic strategy to attract global investment, diversify its industrial base, and generate employment opportunities. 

The bigger picture: China’s expanding presence in Indonesian provinces 

China’s interest in Central Java is part of a broader trend in which Beijing is increasingly engaging directly with Indonesian provinces, rather than focusing solely on Jakarta. Over the past decade, China has expanded its investments into key regional hubs, embedding itself deeply into Indonesia’s industrial and economic landscape. 

Not only in Central Java, but also in Central Sulawesi, Chinese companies have heavily invested in nickel processing, while North Kalimantan has seen large-scale hydropower projects funded by Chinese firms. Moreover, Batam is emerging as another focal point of Chinese investment, with potential developments in the manufacturing and technology sectors. 

By expanding its presence across multiple Indonesian provinces, China is not only strengthening economic ties but also influencing local industrial policies, labour markets, and regional development strategies. This direct engagement demonstrates Beijing’s long-term strategic interest in integrating Indonesia into its broader regional economic framework. 

Maximising benefits and mitigating risks 

To fully leverage Chinese investment while minimising potential downsides, Central Java must adopt a balanced approach. While Chinese-backed projects in Indonesia have contributed to job creation, past investments—particularly in sectors such as nickel processing in Sulawesi—have sparked concerns over the hiring of foreign labour, especially skilled workers from China. Ensuring that job opportunities primarily benefit Indonesians will require strategic workforce development, vocational training, and policies that encourage local hiring. 

Maintaining transparent regulations and robust oversight mechanisms will be crucial to ensuring sustainable industrial growth, preventing environmental degradation, and upholding fair labour practices. While Indonesia has established regulatory frameworks for industrial development, ensuring their consistent enforcement in large-scale foreign-invested projects will be key to balancing economic benefits with social and environmental responsibilities. 

Furthermore, Central Java can encourage greater technology transfer from Chinese firms to Indonesian companies, fostering local innovation and enhancing industrial competitiveness. While some partnerships have facilitated knowledge-sharing, ensuring broader access to advanced technologies and technical expertise will help Indonesian industries move up the value chain. 

By carefully managing Chinese investment and ensuring sustainable economic policies, Central Java can maximise the benefits of its partnership with Beijing while mitigating potential risks. Strengthening local industries, enforcing fair labour practices, and encouraging technology transfer from Chinese firms will be crucial in securing long-term economic gains. By doing so, Central Java can serve as a model for how Indonesia engages with China, balancing economic growth with national interests. 

Dr Muhammad Zulfikar Rakhmat is a researcher at the Center of Economic and Law Studies. His research focuses on China-Indonesia-Middle East relations. Yeta Purnama is a researcher at the Center of Economic and Law Studies.

This article is published under a Creative Commons License and may be republished with attribution.