According to reports, the Indonesian Chinese Chamber of Commerce recently sent an English letter to President Prabowo, criticizing Indonesias lack of stability and continuity in nickel mining policies. The letter accused Indonesia of having excessive regulations and overzealous law enforcement, as well as issues related to official corruption and extortion practices. The letter was also sent to the Chinese Embassy in Indonesia, drawing significant attention from both Chinese and Indonesian political and business circles.
This letter accurately exposes the internal contradictions in Indonesias current development model: there is a need for foreign capital to drive industrial upgrading, yet there is also an urgent desire to regain control from the growth patterns driven by foreign investment. This represents a structural issue where Indonesias governance capabilities fail to match its industrial ambitions, as it aggressively implements the Downstreaming strategy.
Based on the content of the letters and related reports, the specific issues raised by the Chinese companies include six main aspects:
Firstly, the quota for nickel mining has been significantly reduced. In 2026, Indonesias annual production quotas for nickel mining plans and budgets will be reduced from 379 million tons in 2025 to 260 million to 270 million tons. The quotas for some large mines have decreased by more than 70%.
Secondly, the burden of taxes and fees has risen sharply. The royalty rates for mineral rights have been frequently increased. The formula for determining the benchmark price of nickel ore has been revised, with the correction factor increased from 17% to 30%. Additionally, cobalt and iron, among other associated elements, have been included in the pricing system for the first time. This has led to a significant increase in overall costs.
Thirdly, the system for retaining foreign exchange has become increasingly strict. Starting from 2025, Indonesia requires resource-exporting companies to deposit all their foreign exchange earnings in domestic banks in Indonesia for at least one year. In 2026, this requirement was further tightened, with deposits being required to be made in state-owned banks. Additionally, the amount of money that can be exchanged into Indonesian rupiah was also limited.
Its important to only submit the English translation. in the submission.
Fifthly, forestry law enforcement has become more stringent, work visa restrictions have been strengthened, and several major projects have been suspended. As a result, both compliance and operational costs have increased significantly.
Sixthly, the standards for law enforcement are not transparent. At the grassroots level, bureaucrats engage in rent-seeking and extortion practices.
Photo of the Port in Qingshan Park, the China-Indonesia Comprehensive Industrial Park, taken in Morowali Regency, Central Sulawesi Province, Indonesia. Source: Xinhua News Agency
These specific problems reflect the shortcomings of Indonesias business environment.
Firstly, the policies lack coherence and predictability. In Indonesia, industrial policies often have a strong government orders are subject to change nature. They lack long-term stability, which makes it difficult for investors to accurately predict the investment return cycle.
Secondly, the fragmentation of administrative approval processes and bureaucratic rent-seeking still exist. The division of powers leads to companies having to deal with multiple approval procedures, and there is significant room for discretionary decision-making at the legal enforcement level.
Finally, there is a clear tendency among business rules to localize protection. Under the pretext of pursuing industrial autonomy, some policy adjustments lack sufficient consultation with foreign investors. As a result, administrative measures are often used to forcibly change the distribution rules.
The World Banks Business Environment Report (Business Ready 2025) provides us with a quantitative perspective:
; In terms of three key aspectsregulatory frameworks (65.61 points, ranking among the top 60 globally), public services (62.00 points, ranking among the top 40), and operational efficiency (59.01 points, ranking among the top 60)Indonesia ranks mid-tier globally. However, compared to another emerging market economy in the region, Vietnam, Indonesia does not have any advantages. Especially in terms of operational efficiency, Vietnam scored as high as 70.44 points (ranking among the top 20), far exceeding Indonesias scores.
This comparison clearly reveals Indonesias difficulties: in terms of hard power policies, it attempts to intervene through administrative directives. However, in terms of soft services that enhance business efficiency, it struggles to optimize the cumbersome bureaucratic processes.
The deficiencies in Indonesias business environment stem from the countrys industrial strategy and the political-economic structure that underpins it.
As a country with abundant resources, Indonesia has long relied on the export of commodities such as nickel, coal, palm oil, natural gas, tin, and copper as its economic backbone. Its industrial strategy also focuses on resource management. Indonesias resource management model has gone through a complex process, from colonial dependence to state ownership, followed by market liberalization, and ultimately leading towards a downstream approach to resource management.
After gaining independence in 1945, during Sukarnos tenure, economic nationalism was the main policy. Dutch businesses were nationalized. During Suhartos tenure, Indonesia shifted towards an open-door policy, allowing foreign investment while maintaining state control over key sectors. In 2009, Indonesia introduced the Mineral and Coal Industry Law, which stipulated that mineral resources must be processed within Indonesia before being exported. This marked the beginning of the downstream strategy. This indicates that Indonesia no longer satisfied with simply exporting raw minerals. Instead, it promoted the development of the industrial chain from mining to processing and manufacturing by banning the export of raw minerals and forcing the construction of smelters domestically.
This strategy reached its peak during Jokowis ten-year tenure in office. With the influx of Chinese capital, Indonesia has become home to the worlds largest nickel smelting industry cluster. From 2021 to 2025, Chinese investments in Indonesia primarily focused on the basic metal processing industry, accounting for 44% of total investments. These investments were concentrated in the downstream nickel smelting industry, with cumulative investments reaching $13.9 billion. Leading Chinese companies such as Qingland Holdings, Huayou Cobalt, and have deeply integrated into Indonesias nickel industry chain, helping Indonesia transform from a country that exports raw minerals to a global hub for nickel processing.
After taking office at the end of 2024, Prabowo significantly strengthened state control over resources, continuing the downstream strategy. He publicly stated that the Indonesian people do not want to become others fields of rice. He emphasized that Indonesias wealth should be owned and utilized by the Indonesian people themselves.
October 20, 2024, in the Indonesian Peoples Consultative Assembly Building in Jakarta, Indonesia, President Prabowo Subianto (leftmost) and Vice President Jusuf Kalla (third from left) attended the inauguration ceremony. Photo provided by Xinhua News Agency.
Since taking office, Prabowo has continuously expanded the downstreamization strategy, aiming to extend its application to various sectors such as agriculture. The Indonesian Investment and Downstreamization Department released a Strategic Plan for 2025-2029. The core goal is to attract a total investment of 3414.8 trillion Indonesian rupiah by 2029. Among these investments, the amount allocated to manufacturing industries is expected to double. The strategy aims to promote the downstream industrialization of minerals, energy, agriculture, and marine resources, thereby transforming Indonesia from a country that exports raw materials into one that specializes in high-value-added industries. To support this effort, Prabowo established a dedicated working group for downstream industrialization in 2025. This group is composed of representatives from various departments, including the Downstreamization Department, the Mineral and Energy Department, the Forestry Department, the Marine Fisheries Department, and the Agriculture Department. The group focuses on the downstream industrialization of 36 types of goods.
More significant than this is the nationalization of export control measures. Recently, Prabowo announced that all exports of strategic natural resources must be managed through government-owned enterprises operating under a unified system. These measures indicate that the Indonesian government is systematically reducing the opportunities for foreign investment, moving from an approach of welcoming investments to one where investors must follow Indonesian rules.
However, this series of strategic measures faces inherent contradictions that are difficult to resolve during implementation.
The primary internal tension faced by Indonesias resource downstreamization strategy lies in the gap between real-world constraints and strategic goals.
At present, Indonesia itself does not possess the technical capabilities or capital resources necessary to independently carry out vertical integration within the nickel industry chain. From nickel ore to nickel-iron, from nickel-iron to stainless steel, and from stainless steel to materials for new energy batteriesevery step of this industry chain requires highly specialized technologies, substantial long-term capital investments, and well-developed market sales channels. These are precisely the core competitive advantages that Chinese enterprises have accumulated over the past decade or so. It is under such circumstances that Chinese enterprises have entered Indonesias nickel industry on a large scale, establishing smelters, hiring workers, generating taxes, and effectively helping Indonesia implement its policy of banning the export of raw ore.
In other words, Indonesias resource downstreamization strategy is largely carried out by foreign investors, especially Chinese ones.
However, when these enterprises become deeply integrated into the industrial system, the Indonesian government begins to seek a larger share of profits by increasing taxes and fees, reducing quotas, and strengthening regulations. This approach can be understood from a game theory perspective. However, if handled improperly, it can easily lead to a vicious cycle of attracting investment – locking in profits – harvesting benefits, ultimately undermining the overall confidence in foreign investment in Indonesia.
A deeper contradiction lies in the fact that Indonesia truly desires to achieve industrial autonomy, but this does not mean simply replacing foreign capital with domestic capital. Instead, it involves the accumulation of local technological capabilities and the growth and development of domestic enterprises. However, without systematic industrial policy support, domestic enterprises often struggle to fill the gaps in technology and management that foreign investors may leave behind. This creates a real obstacle between driving out foreign investment and achieving autonomy.
The second internal tension faced by Indonesias resource downstreaming strategy stems from the deep-seated constraints of its political and economic structure.
Indonesia is one of the few democratic countries in the world where the oligarchic economic structure is quite pronounced. A handful of political and business families control a wide range of industries, from mining and port logistics to media and financial services, through complex ownership relationships. This oligarchic structure began to take shape during Suhartos era. After the democratic transition, this structure not only remained intact but became even more fragmented and difficult to track. In the field of resources, the exchange of benefits between oligarchs and political elites is particularly evident. The approval of mining licenses, the allocation of mining quotas, and the determination of royalties are all often influenced by political and business relationships.
It means that those who benefit from policy adjustments are not always the state as an abstract entity, but rather specific interest groups. Foreign-funded enterprises often find themselves in a weak position within this political and business ecosystem: they lack local political resources, and it is difficult for them to obtain effective remedies through formal legal channels. They must also cope with frequently changing policy rules, while at the same time avoiding non-market tactics from competitors. This structural inequality makes fair business practices much more complex in reality than described in government documents.
At the Qingshan Park in the China-Indonesia Integrated Industrial Park, located in Morowali Regency, Central Sulawesi Province, Indonesia, workers are working on the nickel-iron production line. Photo: Xinhua News Agency
In response to this joint open letter, the Indonesian governments reaction presents a rather intriguing multi-faceted approach.
President Prabowo did not respond directly to the letter. However, he immediately acknowledged that foreign investors generally expressed dissatisfaction with too many approval processes and lengthy procedures. He also announced the establishment of a special task force to streamline regulations, thereby overcoming issues such as complex regulations, overlapping authorities, and high business costs. He also pointed the finger at the inefficient bureaucratic system, saying, Some rules are designed not to serve national development goals, but rather to create opportunities for bureaucrats to engage in rent-seeking behavior. This statement not only aligned with foreign-friendly diplomatic policies but also catered to public expectations regarding the reform of bureaucracy. It demonstrates the presidents political skill in maintaining multiple political balances.
The Finance Minister, Purbaya, spoke in a relatively tough manner. He clearly stated that national policy adheres to the principle of prioritizing national interests. This represents, to some extent, the views held within Indonesias policy circles regarding resource nationalism. In other words, Indonesia has access to key mineral resources such as nickel, and thus has sufficient market bargaining power in this global energy transformation context.
Minister Bachlers position is more neutral. He emphasized that communication channels with the Chinese side remain open. Some policies are currently only undergoing minor adjustments. The proposal to increase royalties has not yet been officially implemented and is still in the policy planning stage. This approach neither completely denies the demands of Chinese companies nor explicitly acknowledges any inappropriate policies. It attempts to leave room for negotiation between both sides.
The above-mentioned positions of the three parties reflect the real differences in strategic approaches within Indonesias decision-making process: Should Indonesia adopt a more open approach to attract foreign investment, thereby maintaining its reputation as a global mining investment destination? Or should it take a more stringent stance to protect national resources and promote the rapid development of domestic industries? Both approaches have their merits, but also come with their costs. This disagreement is likely to remain unresolved in the short term.
In fact, the more crucial and long-term issue lies not in whether we should make concessions to foreign investors. Instead, its about finding a sustainable balance between openness and autonomy. This is a policy challenge with no standard answers. But history provides some clues as a reference point.
Looking at the development practices of resource-based countries around the world, those who succeed have made efforts in both directions. On one hand, they have clearly defined the states sovereignty over resources, ensuring sustainable sharing of local interests through legislation. On the other hand, they have established transparent and predictable policy frameworks, reducing institutional risks associated with foreign investment and long-term operations. This helps to maintain sufficient inflows of capital and technology.
Not only that, true industrial autonomythat is, the substantial growth of local enterprises in terms of technology, management, and market capabilitiescannot be achieved merely by imposing pressure on foreign investors. It requires a well-developed set of industrial policies: vocational education and training, investment in research and development, financial support, and market development. And these are precisely the areas where Indonesia currently has weaknesses.
If foreign investment is removed too early, before alternative local industries have been established, its likely that the companies filling the void wont be Indonesian companies at all. Instead, its likely to be industrial chains from competing countries. Ultimately, those who suffer will not only be foreign companies, but also Indonesias own historical opportunities for industrialization.
