Countering the Digital Silk Road: Indonesia

Project Overview

This year marks the 10th anniversary of the Digital Silk Road (DSR), China’s ambitious initiative to shape critical digital infrastructure around the world to advance its geopolitical interests and technology leadership. A decade after its launch, digital infrastructure and emerging technologies have only grown more vital and contested as demand for connectivity, digital services, and emerging technologies like artificial intelligence (AI) expand. Against this backdrop, the DSR has become increasingly central to China’s broader strategy to challenge and ultimately supplant the U.S.-led digital order, and in doing so, reap potentially vast security, economic, and intelligence advantages. To assess the DSR’s impact 10 years after its inception—and explore how the United States and its allies can offer a more compelling and coherent alternative—the CNAS Technology and National Security team has undertaken a major research project that will produce in-depth case studies of four diverse and geostrategically critical nations—Indonesia, Brazil, Kenya, and Saudi Arabia—and culminate in a full-length report.

The first case study focuses on Indonesia. For the study, researchers from the CNAS Technology and National Security team spent a week in the country interviewing local policymakers, journalists, technology firms, civil society, and academics, along with U.S. diplomats, development experts, and companies. Drawing on these interviews and desk research, this case study seeks to shed light on the current dynamics and stakes of the U.S.-China competition to shape Indonesia’s digital ecosystem.

Executive Summary

Indonesia has become a key front in the U.S.-China competition to shape critical digital infrastructure and ecosystems around the world. Both the United States and China recognize Indonesia’s growing importance: The country boasts the world’s fourth-largest population, abundant energy and mineral resources, Southeast Asia’s largest digital economy, and 17,000 islands strategically stretching from the Pacific Ocean to the Strait of Malacca. Indonesia’s transition to President Prabowo Subianto, who has prioritized increased digital connectivity and economic diversification through a stronger tech sector, gives both the United States and China a powerful opportunity to align with Jakarta’s agenda to pull the country closer to its digital ecosystem.

Both Washington and Beijing now compete fiercely to become Indonesia’s technology partner of choice—recognizing not only the commercial benefits, but also the implications for Indonesia’s longer-term security, society, and governance.

Jakarta has long pursued a policy of strategic autonomy. For years, Indonesian officials have sought to achieve this by embracing China as its unofficial partner of choice for investment, infrastructure, and trade on the one hand, and the United States as its preferred security partner on the other. As the lines between commercial digital infrastructure and national security blur, this balancing act could soon prove untenable. Jakarta’s ambition of independence also conflicts with the reality of ubiquitous Chinese-built infrastructure, investment, and political ties following shrewd cultivation of Sino-Indonesian relations over the past decade.

Until recently, China had the edge in shaping Indonesia’s digital ecosystem. Chinese firms were early investors in Indonesia’s tech startups and homegrown giants such as Gojek and Bukalapak, as companies like Huawei supplied the hardware for the country’s terrestrial telecommunications networks and subsea cable infrastructure. Massive physical infrastructure projects, exemplified by the Jakarta-Bandung high-speed railway, underscored China’s growing sway. Indonesia’s notorious corruption and bureaucracy, combined with the informal networks of its large ethnic Chinese population, have also facilitated key relationships and contracts for Chinese firms.

U.S. tech companies have been active in Indonesia for decades but have seen the aggressive push by Chinese firms—working closely with state entities—challenge their market share. However, the United States now has a rare and powerful opportunity to recover lost ground as Indonesia looks to grow and diversify its economy with actions to become a regional hub for subsea cables and data centers, accelerate digitization and cloud adoption, and embrace AI in business and government. Unlike the race to 5G, where the United States lacked competitive alternatives to China, American companies now dominate cloud services and frontier AI. The question is whether Washington will seize this rare and potentially fleeting advantage to shore up its position, not only as Indonesia’s partner of choice for security, but also for emerging technology and digital infrastructure. The outcome will hinge on whether Washington can marshal a newly ambitious, strategic, and collaborative form of techno-economic statecraft to box out China’s Digital Silk Road (DSR) and help Indonesia realize its ambitions to become an advanced 21st-century digital economy while staying true to shared democratic values.

To that end, key recommendations for U.S. policymakers and industry are to:

• Seize the generational opportunity to secure key public and private contracts as Indonesia accelerates its cloud migration. U.S. companies should expand their existing lead in cloud services and advanced AI to secure priority, security-critical partnerships and bids while they have the qualitative advantage.
• Proactively engage Jakarta about the Department of Commerce’s January 2025 AI diffusion rule to assuage concerns among Indonesian officials and companies, support the participation of U.S. and Indonesian firms in the Bureau of Industry and Security’s Validated End-User program to deploy AI computing infrastructure in-country, and articulate clear steps for Indonesia to move up to Tier 1 in the future, allowing it to significantly expand such infrastructure.
• Leverage the power of U.S. sanctions and incentives to erode Chinese advantages in strategic, multiparty technology transactions. In 2022, a combination of sanctions and financial inducements from Washington successfully dislodged HMN Tech (formerly Huawei Marine Networks) from a contract to build a major subsea cable from France to Singapore. Washington should replicate this model for other major, multiparty transactions for sensitive digital infrastructure where appropriate.
• Empower the International Development Finance Corporation (DFC) to better support digital infrastructure projects. Congress should reauthorize the DFC with more flexibility to invest in strategic digital infrastructure projects that involve but do not principally benefit high-income countries. This restriction has limited opportunities for the United States to support, for instance, subsea cable projects with landing points in Singapore—a major interconnection hub for Southeast Asia.
• Mitigate China’s structural advantage in relationships and regulations. Indonesia’s infamous corruption and bureaucracy had privileged Chinese firms unconstrained by the Foreign Corrupt Practices Act (FCPA). The answer is not a race to the bottom by failing to enforce the FCPA, as the Trump administration has proposed, but more support for Jakarta’s ambitions to digitize government services—including through AI—to curb graft through improved transparency and accountability.
• Support the Indonesian government’s AI and data protection policy development to reflect shared democratic values. U.S. diplomats and companies should intensify engagement with Indonesian counterparts to ensure the country’s longer-term AI and data policies reflect shared democratic values for countering China’s AI ecosystem of surveillance and social control.
• Expand U.S. support for Indonesia’s smart city ambitions. The U.S. State Department and the U.S. Trade and Development Authority should support feasibility studies and technical assistance to build in principles that reflect shared democratic values and raise procurement standards to privilege secure and trustworthy vendors.