The true cost of China’s hold on Indonesia’s nickel – Asia Times
This content was originally published by Pacific Forum, and it has since been republished. Learn the original , around.
During the 43rd , ASEAN Summit in Jakarta on September 5-7, 2023, Indonesian President Joko Widodo and Vice President Kamala Harris discussed the potential for a US-Indonesia Critical Minerals Specific , Free Trade Agreement , ( CMS-FTA ).
In addition to the tax incentives for EV chargers, this FTA do allow Indonesia to benefit from the US’s Inflation Reduction Act, which the US Congress passed in 2022.
Achieving this CMS-FTA is a target for US-Indonesia relationships under the , Comprehensive Strategic Partnership , established in November 2023.
However, on October 24, nine US lawmakers sent out a , republican letter , addressed to the US business consultant, treasury secretary, energy minister, and commerce secretary expressing concerns regarding the CMS-FTA.
These include poor work protections in Indonesia, Chinese supremacy of its miners industry, economic implications, and absence of community engagement among Chinese and Indian workers.
Indonesian policymakers should consider this as a wake-up phone to recognize and address the lack of useful environmental, social, and management practices in its metal business, including accounting for the role of Chinese investments.
Unpacking Indonesia’s metal
Indonesia, an emerging middle energy in the Indo-Pacific, is a global hub for essential mineral reserves and generation, with different resources including copper, gold, tin, silver, metal, iron and nickel.
One major to Indonesia’s mining business is metal, with substantial reserves in the Kalimantan, Sulawesi and Maluku islands, soaring manufacturing rates and exports of various forms of nickel.
Nickel produced in Indonesia is suitable for EV chargers and stainless steel. From 2020 to 2022, Indonesia ranked first among global copper manufacturers, accounting for 20.6 % of the world complete. Indonesia was  , expected to produce , nearly 2 million tons annually in 2023 and 2024.
Indonesian policymakers have changed their policies regarding exporting natural metal ore in response to the Covid-19 downturn of 2020 and have adopted “resource nationalism” policies.
The Minister of Trade of the Republic of Indonesia’s Rules, 96/2019, aimed to increase private control and increase the copper supply chain’s value by boosting local processing and increasing economic capacity.
The Indonesian government has acknowledged that the country’s full economic potential is limited by directly exporting raw nickel ore. Consequently, the regulation bans exports of raw mineral ore not first processed domestically.
Prior to the pandemic, raw nickel ore extracted in Indonesia was directly exported to foreign countries, with 90 % going to China whose robust supply chain could support their economy by producing innovative technology and industrial construction. Prior to 2019, Indonesia’s government had proposed a full export ban of raw nickel ore.
China’s direct access
However, China continued to have direct access to Indonesian nickel even with the export ban. In order to develop Indonesian smelters and processing facilities, then-president Widodo pushed for foreign direct investment.
Chinese companies quickly and vastly invested in nickel and critical minerals-processing facilities, equivalent to US$ 30 billion in Chinese investments and commitments in downstream Indonesian nickel, in a situation where they were in desperate need of immediate access to affordable Indonesian nickel.
As of July 2023, under China’s Belt and Road Initiative, 43 nickel smelters , are operating, including Asia’s largest nickel processing park: Indonesia Morowali Industrial Park ( IMIP ). Due to a restrictive export ban and, consequently, substantial Chinese investments, Indonesia ‘s , annual global total share , in nickel production has skyrocketed from 16 % ( 2019 ) to 42.9 % ( 2024 ).
How much of Indonesia’s success, according to the Jakarta government, includes making the most of Chinese technology and capital to dominate the global nickel market while enhancing domestic processing capabilities? What are the true costs of China’s investments in Indonesia’s nickel industry?
Indonesia has ambitious goals to become a sustainable, developed nation by 2045, with a focus on transitioning to renewable energy. Indonesia’s position as the global hub for EV production depends on its success in this area. Unfortunately, the rapid shift toward renewable energy brings negative impacts as well.
Indonesia faces a paradox: it has the potential to succeed in the global EV market, but this success may amplify domestic inequalities. Also, Chinese-invested nickel smelters have dominated Indonesia’s nickel industry, leading to significant pushback from local communities and major environmental complications.
IMIP, located in Central Sulawesi, perfectly exemplifies this paradox. Due to its large site and workforce ( IMIP has approximately 120 000 workers, 90 % Chinese and 90 % Indonesian ), the company is highly efficient at processing nickel.
The majority of the workforce is made up of Indonesians, who hold managerial and technical positions. Indonesian workers report instances of exclusive and , preferential treatment , for Chinese employees, reflected in living conditions and salary scales, with Chinese managerial treatment further highlighting these inequalities.
Furthermore, working conditions at IMIP are unsafe, with numerous workplace fatalities and a lack of accountability.  , In 2023 alone,  , 34 workers died due to fires and explosions, with 39 others severely burned, resulting in disabilities.
Ironically, though intended to reduce the country’s overall carbon emissions, IMIP has a , significant ecological footprint , due to submarine waste disposal and air pollution from coal-generated power.
Local water quality is compromised by pollution and wastewater runoff, which causes a decline in fish and marine life populations. This has severely impacted fishers, causing them to lose their livelihoods. Additionally, power plant emissions cause toxic respiratory conditions and illnesses in the neighborhood.
A game of monopoly
These nickel processing plants have no reason to believe they harmed safety standards, let alone mitigated environmental effects. However, it seems as though neither the Indonesian government nor the companies have taken any steps to address these issues.
Tsingshan Group,  , due to assorted joint ventures with Chinese and Indonesian subsidiary companies, essentially owns 66.25 % of IMIP and , Bintang Delapan , Investment ( a domestic Indonesian firm ) holds 33.75 % of shares.
Smaller local Indonesian mining companies can no longer sell nickel to other foreign buyers because of Indonesia’s 2019 export ban on raw mineral ore and the significant influx of Chinese-invested industrial parks that have dominated Indonesia’s processed nickel markets.
These massive industrial parks, alongside the export ban, have resulted in an , “oligopsony” market– where Chinese-concentrated buyers disproportionately influence a great extent of Indonesia’s nickel market, which is really only catered and sold to China.
This makes Chinese companies able to monopolize Indonesian nickel’s demand, forcing domestic miners to sell it for less than the market value. Indonesian businesses are forced to reduce costs in favor of environmental and safety practices as a result of this dramatic decrease in profit loss.
The Indonesian market’s monopolization and unequal distribution of shareholder stakes highlights the size and nature of the Chinese-controlled” Indonesian” nickel industry. One of the many nickel processing facilities that is experiencing similar issues is IMIP.
The BRI is profoundly entangled with positive connotations that boost Indonesia’s economy and create jobs, however, in reality, these smelters and processing facilities have induced more domestic issues.
Smelters primarily benefit a small group of individuals, largely centered within the government and conglomerates based in Indonesia’s capital city, Jakarta. Meanwhile, workers on the ground struggle to make ends meet.
Indonesian government officials should demand greater transparency regarding accidents and environmental harm from Chinese businesses.
Domestic stakeholders could develop strict regulations mandating full accountability for any harm caused and active involvement in remediation efforts.
Indonesia could turn to China for investment and/or accelerate ongoing investments from nations with higher labor and environmental standards, such as Japan, South Korea, and the US, if Chinese companies object to these demands.
Diversifying investments would help Indonesia combat its Chinese counterparts ‘ monopolistic influence, improve competition, and promote more fair and competitive markets while also improving labor and environmental practices.
Kayla Anandia ([email protected] ) is a research intern at Pacific Forum and is an incoming Master of Arts student, studying Political Science at the University of Hawai’i at Mānoa.
Prior to joining Daniel K. Inouye Asia Pacific Center for Security Studies, she interned at the Indonesian Coordinating Ministry for Maritime and Investment Affairs, the President of Indonesia’s Executive Office, and the Indonesian Coordinating Ministry for Maritime and Investment Affairs. Her research interests are Southeast Asian Politics, Maritime Security, and Renewable Energy.  ,
This content was originally published by Pacific Forum, and it has since been republished. Learn the original , around.