Anarchy and the geoeconomy: How China's adjustment impacts Indonesia

China's evolving geopolitical situation is reshaping the Southeast Asian economy, with far-reaching consequences. As great powers compete for security without any overarching global authority, the risk of conflict in East Asia has risen significantly. John Mearsheimer, in his 50th-anniversary essay for International Security, warns that this competition could easily escalate into war.

The United States-China rivalry is now the most dangerous flashpoint, as China's assertive claims over Taiwan and the South China Sea are driven by a potent mix of nationalism and cold strategy.

Unlike historical models, East Asia lacks a rigid barrier system like the Iron Curtain, making military skirmishes more plausible than land wars in Europe. Yet, the immediate battleground is not military, but rather geo-economic. A middle power faces systemic anarchy through fluctuating prices, capital flows, and exchange rates before any naval confrontation occurs.

Michael Froman highlights the scale of this dynamic in a Foreign Affairs article, predicting that China's 2025 trade surplus of nearly $1.2 trillion could spell the next global economic crisis. China commands roughly 30% of global industrial output and is projected to reach 45% by 2030. This imbalance in global GDP growth, projected at just 3.1% in 2026, is primarily due to China's export surplus surging over 20% year-on-year.

The imbalance is not solely industrial; nearly 30% of Chinese industrial firms operate at a loss, and 34% in sectors targeted by Made in China 2025. These zombie enterprises survive due to local provincial revenues that depend directly on their existence. Shifting the economy towards domestic household consumption would devastate local tax bases overnight, ensuring that Beijing's reforms remain half-hearted.

China maintains 55 million units of automotive capacity for a global market of 90 million, and solar manufacturing capacity now exceeds the entire world's annual installations. A producer at this scale dictates global prices rather than taking them. As China's power grows, its impact on the global economy becomes increasingly significant.