Plans to jointly produce the missiles first emerged this July, and the conversation was continued when Chinese Foreign Minister Yang Jiechi visited the Indonesian capital Jakarta last week.
The Defense Ministry has confirmed that a contract for the missile production will be signed between Indonesia and China in March 2013.
Indonesian Foreign Ministry spokesperson Michael Tene said the cooperation is part of a broader goal to expand Indonesia's military capabilities.
"Certainly we are developing close relations with all friendly countries to develop our defense capacity, not just through procurement but joint investment, joint production to develop our own capacity to develop the defense industry and of course with China also, we have a range of cooperation to develop our industries in that area," said Tene.
The joint missile production plans come as tensions flare in the South China Sea. ASEAN ministers failed last month to agree on a multilateral code of conduct to resolve overlapping territorial claims.
Analysts say the failure to produce the multilateral code will better position China to dominate bilateral disputes with its smaller regional neighbors.
China's Foreign Minister Yang Jiechi (let) walks with his Indonesian counterpart Marty Natalegawa after a bilateral meeting at the Foreign Ministry office in Jakarta on Aug. 10, 2012. /ReutersThe Indonesian Defense Ministry denies that its plan to produce 120-km-range naval missiles with China's help, however, is about developing stronger alliances in relation to the maritime dispute.
University of Indonesia defense analyst Yohanes Sulaiman said Indonesia is just pushing for the best deal it can get -- and remains wary of relying on the United States for its military hardware.
"If things are going bad in Papua, the United States is just going to put another military embargo and we got the short end of the stick. That is why the military is trying to expand its relationships, especially with China, as another weapons supplier," he said.
The U.S. imposed a six-year military embargo against Indonesia in 1999 following human rights concerns in East Timor.
Sulaiman said many Indonesian military officers and generals have expressed concern that alleged human rights abuses in mineral-rich West Papua could trigger another embargo.
At the same time, he said, Indonesia lacks a grand strategy on how to respond to current regional power plays between the U.S. and China.
Mely Caballero Anthony, a professor of international relations at Singapore's S. Rajaratnam School of International Studies, has view about the partnership.
She said Indonesia has consistently acted as a neutral leader within ASEAN, such as by helping to resolve a border dispute between ASEAN states Cambodia and Thailand. She said Indonesia does not believe that building relations with China weakens its ties to any other allies.
"Indonesia, like any other ASEAN member, does not want any major power competition to escalate in the region," she said. "Many of the foreign policies of ASEAN member states prefer a free and active foreign policy that does not have to choose between China or the U.S. So the brokering role does not fit in this regard."
While Indonesia cultivates relations on all sides of the South China Sea dispute, the U.S. this week warned against efforts to 'divide and conquer' in the South China Sea, and reiterated its support for a multilateral code of conduct in the global trading route.
Indonesia allocated $15.8 billion between 2010 and 2014 to modernize its weaponry systems, and currently buys arms from Korea, Russia, Germany and Britain, and F-16 fighter planes from the United States.