This study examined the actual conditions of Chinese diaspora settlement in Indonesia and Malaysia through a survey. According to the survey results, Chinese diaspora in Indonesia can not speak ethnic language and their ethnic identities has been weakened. They have become the other excluded from mainstream society and then formed daunted overseas Chinese community. While Chinese diaspora in Malaysia has inherited ethnic language and traditional culture well, and formed their own community by enhancing ethnic identity. There are many similarities between the two countries in terms of language, culture and religion, whereas each Chinese community has been formed differently. This is because the government’s approach to immigrants, that is to say, Chinese policies are different. The Indonesian government promoted forced assimilation policy in order to incorporate Chinese diaspora into the mainstream society. However, Chinese diaspora in Indonesia has formed daunted overseas Chinese community owing to persistent conflicts with the native people, and still lived as a stranger instead of complete assimilation. On the contrary to this, the Malaysian government accepted them as a member of society through an engagement policy towards Chinese diaspora. The acceptable policy stance not only promoted the development of Chinese community, but also helped Chinese diaspora to grow as a true member of society by building harmonious relationships with the native people.