Indonesia, the world’s top nickel producer, has recently found a new source of wealth – turning nickel into battery-grade material. With the surge in demand for electric vehicles and energy storage systems, nickel has become the new gold, and Indonesia has capitalized on its rich reserves of the grey metal. By partnering with Chinese industrial investors, the country has managed to ramp up production and transform its economy, all while relying on its abundant natural resources. In this article, we will explore how Indonesia used Chinese investments to create a booming nickel industry and what the future holds for this lucrative sector.
China’s rise to global power is a topic of much debate, yet there is little discussion about how this has happened and what it means. Critics argue that China exports its developmental model and imposes it on other countries. However, Chinese players also extend their influence by working through local actors and institutions, assimilating local norms, and adapting to local practices. With support from the Ford Foundation, the Carnegie Endowment for International Peace has launched a multi-year project exploring Chinese engagement strategies in seven different regions of the world. Through research and strategic convening, the project aims to broaden the understanding of China’s role in the world and generate innovative policy ideas.
One example of Chinese engagement in Indonesia is the Indonesia Morowali Industrial Park (IMIP) in Central Sulawesi, which is one of the largest Chinese investments in the country. While it is touted as a perfect model of Sino-Indonesian collaboration, the park has faced several contestations at the local, national, and even international levels. Chinese players have had to adapt to these rapidly shifting Indonesian cross-currents, which suggests they have learned how to navigate local realities in today’s Indonesia.
Built in a pristine yet resource-rich area in Central Sulawesi, the IMIP brought development in the form of new infrastructure, technology, capital, and employment, attracting migrant workers from Sulawesi. The park was propelled by China’s Belt and Road Initiative (BRI), which elevated the project to a strategic national level of priority and the Indonesian government’s export ban on raw minerals. However, the industrial transformation caused environmental damage and impacted the livelihoods of indigenous communities. One of the main contestations was on labor conditions and the lack of compliance with local laws and customs. These criticisms gave rise to strategies by Chinese companies for adaptation to the local context and a series of corporate social responsibility (CSR) efforts that served to mitigate the Chinese firms’ impact but also to improve their image.
At the international level, the export ban raised criticism on Indonesia’s breach of free trade rules, with the European Union (EU) pushing a claim against Indonesia at the World Trade Organization (WTO) and other Asian steelmaking players like China and South Korea also raising criticism. The park has expanded to accommodate new activities connected to the production of electric vehicle (EV) batteries, which is in turn leading to new shifts and uncertainties in the global nickel supply. Hence, local and international activists as well as observers are raising new concerns about the sustainability of the renewable energy transition.
Indonesia is a strategic country for China’s ambitious vision, as it sits astride the passage to the Strait of Malacca for commercial and other ships and abuts the southern part of the South China Sea. Its large, young, and growing domestic market as well as its vast and largely untapped natural resources make it an alluring market. However, Indonesia’s business environment has remained a difficult one for foreign investors, and for Chinese investors in particular. The lack of infrastructure, the cumbersome regulations and bureaucracy, and the still widespread anti-China sentiment in the country pose obstacles to investment.
Despite these challenges, China’s engagement in Indonesia is likely to continue as the country’s infrastructural deficit hinders its growth potential. Connectivity is a priority for Indonesia’s development agenda, making it a perfect candidate for China’s investments, construction contracts, and other inroads. Indonesia’s support in ASEAN is also essential for China’s posture and relations in the region. Hence, while the IMIP faced contestations, it serves as an example of how Chinese companies can adapt to local realities in Indonesia and play a role in the country’s infrastructural development despite challenges posed by the business environment and anti-China sentiment.
