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For years, associations with anything Chinese have carried a political risk in Indonesia.

During the Suharto era, China was often stigmatised because of the dictator’s anti-communist stance – with unfortunate results for the nation’s ethnic Chinese community. Chinese-language books were suppressed and the display of Chinese characters was even forbidden by the Bahasa-speaking government. When riots occasionally hit the major cities, Chinatown was usually the first district to go up in flames.

But the Indonesian economy is now looking more open to overseas Chinese investment. Just last week, Hopu Investment Management, the Beijing-based private equity fund, announced that it will buy a 4.9% stake in Indonesian real estate firm PT Lippo Karawaci for $45 million, reported the Financial Times.

The purchase is part of a divestment by China Resources of its entire stake of around 13% in the Indonesian firm.

Hopu – touted as a local heavyweight – is a $2.5 billion fund founded by ex-Golden Sachs dealmaker, Fang Fenglei (see WiC25).

Fang grabbed headlines earlier this year by leading the high-profile acquisition of Chinese bank stock sold by troubled Western financial groups. The Hopu fund also owns stakes in a Chinese iron ore producer and recently acquired a large stake in China Mengniu Dairy.

Lippo Karawaci is Indonesia’s biggest listed property developer, and has built five large hospitals in the country to cater to the rising demand for better quality medical services. Hopu believes that the model could be transplanted to the mainland, where provision of healthcare remains underdeveloped.

“This might be a relatively small deal but it demonstrates that Hopu is not just interested in Chinese companies,” a person familiar with the matter told the FT. “Hopu is planning to branch out into fast growing regional economies like Vietnam and Malaysia, too.”

Analysts believe that the Hopu-Lippo Karawaci deal will be the first of many Sino-Indonesian deals to come. Indonesia attracts Chinese interest primarily because of its natural resources, as well as its geographical proximity. Indonesian firms continue to ship exports like palm oil and coal north. In the past 15 years, Indonesia’s coal exports have grown at a compound annual rate of 15%, the majority of them to China.

In September, China Investment Corp (CIC), the mainland sovereign wealth fund, lent $1.9 billion to PT Bumi Resources, Indonesia’s largest coal mining company by output.

The deal allows CIC to take stakes in a number of projects that Bumi is looking at developing, and gives CIC wider access to Indonesia’s energy sector via an influential local partner, reckons the Wall Street Journal.

Despite their occasionally turbulent relationship with the majority population, ethnic Chinese actually enjoy a disproportionate influence in the Indonesian economy.

Prominent Indonesian Chinese business families include the Salims (owner of Indofood), the Riadys (of Lippo), and the tobacco-based fortunes of the Sampoernas and Rachman Halim.

In fact, eight of the 10 richest people in Indonesia – as measured by Forbes last year – are of Chinese descent. Indonesia is home to one of the most powerful diaspora of overseas Chinese. This may pave the way for further mainland Chinese investment in future, although political sensitivity will be required.

For their part, more Indonesians seem keener to learn the Chinese language too. According to Sidharta Wirahadi Kusuma, an education consultant, Mandarin is fast becoming the nation’s third language after Bahasa and English. A sign of improving ties, perhaps.

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