On May 12, 2026, the China Chamber of Commerce in Indonesia issued a sharply worded open letter to Indonesian President Prabowo Subianto, saying that Chinese firms operating locally have been burdened by stringent regulations, arbitrary law enforcement, and corruption and extortion by state officials. Those claims were reported by Reuters, Singapore’s Lianhe Zaobao and Indonesia’s Tempo.
Chinese investors in Indonesia have long opted to resolve disputes through quiet, behind-the-scenes negotiations. Thus, the letter’s high-profile public appeal to Jakarta’s top leadership thus marked a notable change in attitude and approach.
After years of disruptions brought by shifting policies and conflicting signals — not least the government’s recent move to centralize commodity trading under state authority —Chinese enterprises and firms apparently will no longer remain passive amid mounting operational pressures on their Indonesian investments.
Broad foreign investor squeeze
Indonesia has rolled out a range of tightening measures, including lower mining quotas, higher export levies and stricter localization requirements. The changes have affected nearly all foreign players, not Chinese companies alone.
Japan’s Sumitomo Metal Mining has faced lengthy approval procedures for its smelting projects. LG Energy Solution has seen its nickel downstream operations hampered by quota cuts. Singaporean investors, especially those active in resources and energy, are grappling with tougher cross-border foreign exchange rules, which have considerably delayed profit repatriation.
As reported by Nikkei Asia, the Japan External Trade Organization has repeatedly raised concerns about Indonesia’s erratic policy landscape. Foreign enterprises engaged in resource processing and related supporting industries are finding their room for maneuver shrinking. For senior Indonesian business leaders of Chinese descent who witnessed past social unrest, the current policy tightening has stirred deep concerns about the predictability of the investment environment.
Waning investor sentiment is reflected in the performance of the Indonesian rupiah. Since the start of 2026, the currency has depreciated sharply against the US dollar, ranking among Asia’s worst performers. In June, the rupiah breached 18,000 against the US dollar, sinking to a historic low — below the level recorded during the 1997-98 Asian financial crisis.
In March 2026, Fitch Ratings revised Indonesia’s sovereign credit outlook from stable to negative, citing weakened policy credibility and growing uncertainty. Continued weekly net outflows from local bonds and equities have further destabilized the currency, sparking broader concerns over regional asset reallocation.
Resource nationalism laid bare
The government’s response to the business chamber’s letter failed to reassure the investment community. On May 14, 2026, Finance Minister Purbaya Yudhi Sadewa stated bluntly: “These minerals belong to us. If investors intend to leave, they can seek resources elsewhere.”
The comment laid bare the administration’s strong resource nationalism, making clear that Jakarta prioritizes its claims over mineral wealth even at the cost of losing foreign investment.
A day earlier, on May 13, President Prabowo acknowledged existing governance flaws in a public address. He conceded that lengthy permit procedures and excessive red tape stemmed from bureaucratic misconduct, with some officials demanding bribes to speed up administrative work. His remarks essentially validated the grievances raised by foreign business groups.
The divergent stances between the president and finance minister have exposed policy inconsistencies within the government, adding to market jitters. This friction highlights a broader debate on whether Jakarta is entering a new era of state interventionism.
Since early 2026, Indonesia has pursued aggressive supply-side curbs in the nickel sector, aiming to maximize gains from its resources and strengthen its bargaining power against foreign investors.
The country cut its 2026 national nickel ore production quota from 379 million tonnes to 250 million tonnes, representing a year-on-year reduction of 34%. It also lifted royalty rates for low-grade nickel ore from 17% to 30%, while introducing new taxes on associated cobalt, iron and chromium metals.
On April 15, 2026, the new royalty rate officially took effect. Faced with a steep rise in overall production costs, major Chinese-backed nickel producers including Tsingshan Group and Huayou Cobalt began adjusting operations in early May, with some moving to scale back output.
The trend dragged down the operating rate across Indonesia’s nickel smelting industry.
Nickel OPEC dreams
Staring down industrial slowdown and looming financial losses, Indonesia sought to build regional dominance via industrial alliances.
On May 7, during the ASEAN Summit in Cebu, the Indonesian Nickel Miners Association (APNI) and the Philippine Nickel Industry Association (PNIA) signed a memorandum of understanding to launch the Indonesia-Philippines Nickel Corridor, witnessed by economic ministers from both sides.
The two nations hold more than 70% of the world’s nickel reserves and sought to create a mechanism akin to a “nickel OPEC” to coordinate supply and guide pricing.
The breakdown stemmed not only from conflicting commercial interests but also from shifting geopolitics. As the alliance between the United States and the Philippines deepens, Manila has little incentive to align its long-term policies with Indonesia’s nickel downstream ecosystem, which relies heavily on Chinese capital.
Throughout May 2026, the Philippines accelerated approvals for new mining rights and expanded production capacity. Lacking a mature domestic smelting industry, it prioritized near-term economic gains.
The bulk of Philippine nickel ore is shipped to China, with only a small volume supplied to Indonesian smelters, according to the Manila Bulletin Industry Report. Further regional friction and strategic realignment can be seen in recent industry updates via The Manila Times and Metal.com.
Faced with production cuts by foreign firms and the collapse of its regional partnership, Indonesia announced a suspension of the royalty hike on May 11, 2026, fully reversing the policy within less than a month.
Many market watchers attribute the policy U-turn to the failure of regional resource coordination. Yet a more fundamental factor lies in the structural shift toward nickel-free production across downstream industries led by China, which has eroded long-term confidence in Indonesia’s resource-focused strategies.
While immediate pressures such as a weak rupiah and capital flight forced Jakarta to backtrack quickly, China’s technological advances have stripped Indonesia of the leverage to sustain restrictive policies.
From an industrial perspective, the nickel supply game long dominated by Indonesia and the Philippines looks increasingly outdated amid today’s technological evolution, leaving limited room for sustained profit-taking.
China’s tech hedge
First, China has achieved large-scale adoption of nickel-free solutions in new-energy power batteries. High-nickel ternary batteries, once mainstream, are being phased out and replaced by lithium iron phosphate (LFP) batteries that contain no nickel or cobalt.
Official data tracked internationally by S&P Global Mobility Chemical and Battery Ecosystem Insights shows that LFP batteries accounted for 81% to 82% of newly installed power batteries in China in early 2026, while the share of high-nickel ternary products fell below 20%. As the biggest consumption hub for nickel, the new-energy vehicle sector has structurally reduced its reliance on the metal.
Second, the large-scale commercialization of sodium-ion batteries has further diminished nickel’s strategic importance. Major Chinese manufacturers including CATL and BYD have rolled out mass production of sodium-ion batteries free of lithium, nickel and cobalt, with cost and performance levels matching mainstream LFP products.
According to the 2026 global industry tracking released by Energy Iceberg China New Energy Strategic Reports, China commands over 98% of global production capacity for such batteries. These products are now widely used in energy storage, low-speed electric vehicles and entry-level new energy cars, steadily eating into nickel’s market share.
Third, a full range of alternative industrial chains in China has capped potential rallies in nickel prices. Low-nickel and nickel-free stainless steel, alongside alternative formulas for industrial alloys, are now widely used.
Globally, some 65% to 70% of nickel goes into stainless steel production, while batteries account for less than 20% of total demand. High-end stainless steel and aerospace-grade superalloys still depend on high-purity nickel, creating a rigid demand that cannot be fully replaced.
Even so, nickel is no longer an irreplaceable material in the fast-growing new-energy sector, greatly limiting Indonesia’s ability to manipulate supply chains for extra profit.
Argus Media Metals and Alloy Commodity Intelligence notes that any short-term spike in nickel prices will immediately trigger large-scale material substitution by Chinese downstream manufacturers, cooling market demand rapidly.
China has also built a complete recycling system for nickel and cobalt. Reprocessing of retired power batteries and stainless steel scraps has boosted supply from secondary metals, putting continuous downward pressure on prices of primary nickel and cobalt. The well-developed recycling sector has further weakened the long-term value of mineral exports from nickel-dependent economies like Indonesia.
In essence, resource-rich nations in Southeast Asia still stick to the old playbook of cutting output and raising prices to reap resource dividends. Meanwhile, China has completed industrial upgrades centered on material substitution and supply diversification. Nickel still plays an essential role in traditional industries, yet its overall pricing power has been fundamentally shaken.
This structural divide explains why Indonesia’s aggressive policy shifts have failed to lift industrial profits and instead led to production cuts and capital outflows. Decades of bargaining power built on nickel resources are being steadily eroded by China’s technological progress.
Together with a booming recycling industry, China has formed a dual buffer of technological alternatives and a circular economy. For resource exporters reliant on nickel and cobalt, the era of reaping handsome profits solely by controlling mineral supplies is effectively over.
Deeper institutional risks
Against a backdrop of frequent policy changes and fading resource leverage, foreign capital is increasingly reluctant to commit to long-term investments in Indonesia. Multinational firms are gradually diverting new projects to Vietnam, Malaysia and other Southeast Asian economies with more predictable and transparent policy frameworks.
Beyond short-term policy volatility, Indonesia’s bigger challenge lies in its unstable institutional environment. Sudden policy reversals and the departure of market-savvy technocrats have severely dented international confidence.
Investors now question the long-term stability of the country’s business rules and institutional framework, rather than merely assessing individual policies.
In the near term, investor caution and selective industrial divestment will weigh on Indonesia’s core mining and mineral processing sectors. In the longer run, the clash between resource nationalism and global industrial trends risks locking Indonesia’s nickel industry out of the future new-energy supply chain.
The Prabowo administration faces a clear strategic choice: continue chasing short-term resource gains and alienate global capital, or push through institutional reforms to rebuild trust and integrate into the evolving new-energy landscape across the region.
History has shown that no emerging economy can achieve lasting prosperity by monopolizing resources at the expense of investor confidence. As the shift away from nickel gathers pace across emerging industries worldwide, Indonesia must strike a balance between safeguarding national resource interests and embracing industrial cooperation.
Failure to do so will mean not only lost investment opportunities in the short run but also a missed chance to take part in the next phase of Southeast Asia’s new energy industrial development.
Ju Liang is an independent policy analyst with over 20 years of on-the-ground experience in Southeast Asia, specializing in supply chain economics and commodity policy governance across the region. He is currently based at Yunnan Agricultural University, China. All opinions expressed here are personal.
Not the first time the Indonesian government shoot themselves on the foot. Years ago, the Indonesian government banned the export of rattan to help the furniture industries in Indonesia. While for a short time it did help the furniture industries, it caused a plunge in rattan price and it hit the rattan farmers. Not long after that, the Chinese furniture industries came up with a solution, the synthetic rattan. Soon, the Chinese synthetic rattan furniture began to flood Indonesian markets with price cheaper than natural rattan furniture. Synthetic rattan furniture is also more durable and less maintenance than natural rattan furniture. It became a hit.