As for the lack of conversion among ethnic Chinese in Southeast Asia, I think it is important to distinguish between two great migration waves. The first was during the Ming dynasty, when the famous Chinese muslim admiral Zheng made his many expeditions across Southeast Asia, the Middle East and (perhaps) even the East African coast. During his stays in what is now Malaysia he and his (also mainly muslim) crew take note of the fact that there already seem to be quite a number of Chinese muslims living in the area, which means that around the 15th century there were already quite a number of Chinese muslim communities in the Malay area. This was primarily caused by the extensive trade networks between China and the muslim world, through which many traders converted to Islam. Some of their descendants still live in northwestern China and are commonly referred to as Hui Chinese.

As to why there are relatively few ethnically Chinese muslims in Malaysia (and also Indonesia for example) right now, that is quite simply because from the fall of Ming in 1644, due to famines and floods in Southern China and also importantly, British and Dutch colonial demands for workers and economic opportunities for merchants resulting from their presence, a huge amount of Chinese from especially Fujian and Guangdong province moved towards these regions and started making up the vast majority of the Chinese community in Southeast Asia. This is the main reason why Malaysia right now has such a large Chinese population (similarly, many Chinese also moved to Thailand, but mixed more with the local population and were forced to change their surnames to Thai surnames by royal order at a certain point, which is why their presence their is a little less noticeable, although a significant amount of the population can claim Chinese heritage). They brought with them their own religions (essentially a mix of Confucian ancestor worship, folk and buddhist rituals, Taoist practices, which is still very visible in contemporary Taiwan for example) and had very little to do with islam, which among ethnically Chinese was more popular in northwestern China and Yunnan (where Zheng He himself was from). As a result the proportion of Chinese muslims in Southeast China by 1908 had already shrunk to about 3% of the total Chinese population in Malay areas.

For more information, I can recommend the following page. The author does a decent job of providing statistics and sources for her claims and she is sure a lot more knowledgeable on the subject than me! http://210.0.141.99/eng/malaysia/ChineseMuslim_in_Malaysia.asp#Early%20presence%20of%20Chinese%20Muslims%20%A1V%20Zheng%20He,%20the%20Muslim%20Eunuch

I'll leave the question of when and how Islam made its way to Southeast Asia to the experts, I'm unfortunately just an East Asia guy!

I started writing this post as a reply to one that has since been deleted, but I thought I'd still post this here.

One of the reasons that the Indonesian people adopted Islam was that it resulted in them no longer being in the hindu caste system, as in a mosque, they are all equal.

It was in raced so readily by the populace as previously the majority religion was Hinduism, and the embracing of Islam allowed them to escape the castes as in a mosque, they are all equal.

These paragraphs are both incorrect and misleading.

1. The Hindu caste system was not practiced in Indonesia, rather an occupation-based system was used. This was due to SE Asia archipelago's tendency to pick and choose external cultural influence in ways that fit their model and preference.

2. The spread of Islam to become the dominant religion took centuries. In early 1400s the north coast of Sumatra was Islamic but Java was still mostly Hindu-Javanese, and with pockets of Islamic communities in coastal east Java. By early 1600s there were still local Hindu-Buddhist powers in Java. This was consistent with the report by Tomé Pires.

3. While there is still debate as to why and how Islam became the majority religion by the 1500s, it is generally agreed that part of the success is its ability to conform to local customs. See above with SE Asian archipelago's tendency to pick and choose from external cultural influences. So one should always view Islam in SE Asia not as a monolithic religion but rather a diverse one with local specifications.

4. The Islam that spread to Indonesia in the 13th-18th centuries was heavily influenced by South Asian culture. It was not until the 19th century that Indonesian muslims started to take pilgrimage to Mecca and Medinah, where they learned a more Arabic ("pure") form of Islam and brought it back to Indonesia. Even then, the influence of adat, or local customs as they are called in Java, was and is still very strong.

References:

• Raden Abdulkadir Widjojoatmodjo, Islam in the Netherlands East Indies, The Far Eastern Quarterly, Vol. 2, No. 1 (Nov., 1942), pp. 48-57.

• Vincent J. H. Houben, Southeast Asia and Islam, Annals of the American Academy of Political and Social Science, Vol. 588, Islam: Enduring Myths and Changing Realities (Jul., 2003), pp. 149-170.

There are some similar questions in the wiki which might help

https://www.reddit.com/r/AskHistorians/wiki/asia#wiki_why_are_some_parts_of_southeast_asia_muslim.3F

To add upon /u/Thommunism's answer, I would like to propose several possible answers for the lack of conversion among the more recent Chinese migrants in Indonesia:

1. As /u/Thommunism has explained, there were several waves of Chinese migration into SE Asia. The earlier waves did convert into Muslims or they were already Muslims when they first came to Indonesia. An Indonesian historian contends that several revered Islamic holy men in Java (popularly believed to be the original propagators of Islam on the island) were of Chinese descend. These Muslim Chinese migrants then assimilated themselves into the bigger native population and their descendants today are no longer distinguishable as Chinese.

2. Lack of incentive and/or appeal. Later Chinese migrants came when there was already a foreign colonial power in Indonesia, primarily the Dutch East India Company (VOC) and the Dutch East Indies colonial government after 1800. These migrants primarily worked either as laborers or as merchants servicing the colonial economy. There was no longer any incentive to convert into Muslims like there was before when Indonesia was still ruled by Islamic kingdoms.

3. The Colonial power's segregation policy between the Chinese and native population. In 1740, the VOC authority in Batavia launched a massacre on its Chinese population. The survivors ran east to central Java and later joined forces with troops of the Javanese Mataram king against the Dutch. After this massacre, the colonial authority put restrictions the Chinese population in terms of residence, profession, movement, and interaction with the native population.

4. Legal segregation. The Dutch East Indies colonial government later on classified the Chinese as second class citizens above the native population. Further segregating the two populations by lessening the appeal or advantage to assimilate (and convert).

5. Hostility from the native population. In contrast to the mid 18th century when the Chinese joined forces with the Javanese in a war against the Dutch, from the 19th century onward the native population began to view the Chinese migrants in negative light. The fact that some Chinese were working as tax farmers and toll gate collectors for the Dutch were some of the reasons for this change in perception. During the Java War of 1825-30 there were several Chinese massacres by Javanese troops.