Summary of Key Points
Indonesia, with the world's largest nickel reserves, initially attracted a large amount of investment from Chinese companies to establish factories across the entire industrial chain, from smelting to battery production. However, this year it suddenly tightened its policies (reducing nickel quotas, raising benchmark prices, and charging for associated metals) in an attempt to extract more revenue from these resources and strengthen its domestic industries. This has led to soaring costs for Chinese companies, making it difficult for smaller firms to continue operations. After discussions between the two parties, Indonesian officials have repeatedly stated their welcome for Chinese investment and clarified that the policies are not targeted at China. Meanwhile, China is calling for a fair business environment in Indonesia. As a result, Chinese companies are beginning to diversify their investments in Africa and Oceania to reduce their reliance on Indonesia.
Why Did Indonesia Suddenly Tighten Its Nickel Policies?
Indonesia controls 42% of the world's nickel reserves. Previously, it used policies to attract Chinese companies to set up factories with the aim of keeping the industrial chain within the country (from mining raw materials to manufacturing batteries). Now that the factories have been established, Indonesia wants to share in the profits more significantly. On one hand, it seeks to extract a portion of the profits through higher nickel prices; on the other hand, it aims to strengthen local enterprises by forcing foreign investors to either increase their investment in downstream industries or make room for domestic companies. In other words, the strategy has shifted from inviting foreign investment to gaining more benefits from the existing industrial base.
The Impact of Policy Changes on Chinese Companies
This year's policy changes have hit Chinese companies hard:
1. 30% reduction in nickel quotas: Quotas were cut from 379 million tons to 250-270 million tons for 2026, leading to a shortage of raw materials and restricted production.
2. Almost doubling of nickel prices: The benchmark price adjustment coefficient was increased from 17% to 30%, nearly doubling the cost of purchasing nickel.
3. Charging for associated metals: Companies previously assumed that cobalt and iron, which are found in nickel ore, were free; now the government has decided to charge for them, further increasing costs.
4. Increased policy instability: Quota approval periods have been shortened from three years to one year, making it difficult for companies to plan long-term.
These changes have put many smaller firms at a critical juncture—with rising mining costs but not corresponding increases in product prices, resulting in situations where the cost of purchasing nickel exceeds the selling price. As a result, companies are forced to shift from expansion to simply surviving.
Communication Between the Two Parties
Indonesia has expressed its welcome for Chinese investment, while China is demanding a fair business environment:
- Chinese companies have taken the initiative to negotiate: In May this year, the Indonesian-China Chamber of Commerce wrote to the president, requesting improved policy continuity.
- Indonesian officials have clarified their stance: Economic Coordinating Minister Airlangga and Investment Minister Rosan both reiterated their welcome for Chinese investment, stating that the policy adjustments are aimed at improving industry governance, not targeting China specifically.
- China has addressed misunderstandings: The Ministry of Foreign Affairs has denied reports that President Joko Widodo accused China of resource exploitation, noting that his comments referred to the colonial period and not China. Minister Wang Yi also expressed the hope for a fair environment for Chinese companies in Indonesia.
These communications indicate that both parties do not want to lose each other's investment: Chinese companies bring technology and supply chains, while Indonesia benefits from their presence. Both sides are interested in maintaining stable policies for continued cooperation.
How Are Chinese Companies Responding?
Having experienced these policy fluctuations, Chinese companies are taking steps to diversify their risks:
- Diversifying investments: Many nickel-related companies in Indonesia are looking to Africa (e.g., the Democratic Republic of Congo) and Oceania (e.g., Australia) to reduce their dependence on Indonesia.
- Adjusting strategies: Some companies are either reducing expansion or increasing investment in downstream industries (such as battery materials) to comply with Indonesian policy requirements.
- Continuing communication: They are working through chambers of commerce and government channels to advocate for more stable policies.
For Indonesia, it must weigh the potential consequences of too strict policies, as they could lead to the departure of Chinese investors and undermine the industrial infrastructure that has been established. Whether there will be policy adjustments in the future depends on the outcome of these negotiations.
The Logic Behind This Situation
This is not an isolated case. Many resource-rich developing countries initially attract foreign investment with favorable policies but later seek to extract more benefits from their resources, a common manifestation of "resource nationalism." Chinese companies need to seize opportunities while preparing for potential policy risks. Indonesia, on its part, must balance short-term profit gains with the long-term development of its industries, recognizing that Chinese investments bring not only financial benefits but also technology and job creation.
In summary, the overall direction of cooperation between China and Indonesia in the nickel industry remains positive, but a more stable policy environment is needed for a mutually beneficial outcome.