Beyond China and India: Indonesia's Bid for Regional Power

Jakarta’s rising influence threatens to disrupt the Beijing-New Delhi rivalry, positioning Indonesia as Asia’s unexpected third hegemon.

We often associate the word hegemon with global dominance, but Asia’s political story is fundamentally different. For centuries, the region lacked a central axis of power, unlike today’s U.S.-led global order.

Even China—often perceived as Asia’s historical center of gravity—experienced prolonged periods of fragmentation, with intra-state conflicts shaping its trajectory. It appears the region is hearing echoes from its past.

As Mark Twain once noted, "History doesn’t repeat itself, but it often rhymes."

Asia’s power structure is shifting toward greater multipolarity. Countries like Indonesia have the potential to leverage their strategic position to disrupt the India-China rivalry and emerge as a third pillar of influence in the region.

There are four dimensions through which Indonesia will continue to grow its influence and be able to resist - at least for now - the bifurcating effects of the US-China rivalry:

1. Favorable demographics

2. Strategic geographic positioning

3. Increased defense spending

4. Optimized international relations

Favorable Demographics

Indonesia stands at a demographic advantage—young enough to fuel economic growth while large enough to sustain long-term expansion. Compared to its regional peers, its median age reflects both opportunity and momentum:

• China: 39.5 years

• Thailand: 40.1 years

• Vietnam: 33.3 years

• Indonesia: 30.1 years

• Malaysia: 30.0 years

• The Philippines: 25.3 years

The Philippine has the youngest population, but Indonesia’s scale gives it a stronger demographic edge. With 277 million people, its working-age population far exceeds that of the Philippines, despite a slightly higher median age.

Where Indonesia can capitalize on its demographic advantage in modern geopolitics is the increasingly precarious position China is in. The Asian giant’s median age has climbed from 30 in 2005 to 39.5 in 2023, while Indonesia’s has moved more gradually from 25 to 30.1 over the same period.

Furthermore, Indonesia’s lowest minimum wage stands at IDR 2,169,348 (US$139) in Central Java, while Jakarta’s reaches IDR 5,396,760 (US$346). In China, Guangdong has the lowest at RMB 1,620 (US$223), with Shanghai topping out at RMB 2,690 (US$370).

Indonesia’s lower wage floor offers a cost advantage for labor-intensive industries. However, at the upper end, Shanghai’s minimum wage is only marginally higher than Jakarta’s, suggesting that labor costs in major cities are more comparable. The wider wage gap in Indonesia (US$139 to US$346) signals greater regional disparity than in China (US$223 to US$370).

This divergence has made the island nation more attractive for labor-intensive industries, especially as China transitions toward higher-value manufacturing and automation. De-risking trends of moving supply chains away from China also further amplify Indonesia’s growing advantage.

Indonesia can absorb much of the low- to mid-tier manufacturing that China once dominated, but moving up the value chain presents challenges.

In other words, Indonesia can take over much of China’s early-stage, low-cost manufacturing, and it's already attracting companies in textiles, electronics assembly, and EV supply chains.

• Manufacturing investment in Indonesia reached $15.4 billion in 2023, up 40% from 2020.

• Nike, Adidas, and Uniqlo have expanded production in Indonesia, shifting operations from China and Vietnam.

• Foxconn and Pegatron, key Apple suppliers, have explored expanding in Indonesia as part of a broader “China+1” strategy.

• Indonesia’s minimum wages remain 30–60% lower than China’s, reinforcing its labor cost advantage.

But for higher-value industries, there’s still a gap. If Indonesia wants to follow China's trajectory, it will need major investment in education, vocational training, and industrial infrastructure.

By 2045, Indonesia’s working-age population will still be expanding, while China’s will have shrunk by over 100 million. This would therefore position Indonesia as a key player in global supply chains, provided it continues investing in infrastructure, logistics, and workforce development.

Strategic Geographic Positioning

But demographics alone don’t explain Indonesia’s potential. Geography amplifies its importance, as the world’s largest archipelagic nation controls some of the most critical sea lanes on the planet. Here’s how and why: