China, Indonesia fight over nickel control — $50 billion investment pipeline at risk

Indonesia's increasingly assertive control over its vast nickel resources has triggered an unusually public backlash from China, with Beijing warning that regulatory changes in the world's largest nickel-producing nation could jeopardise up to $50 billion in existing and planned investments.

The dispute underscores growing tensions between Indonesia's resource nationalism agenda and China's dominant position in the country's nickel industry, a critical link in the global electric vehicle (EV) battery supply chain.

According to a letter sent by the Chinese embassy in Jakarta to Indonesia's Ministry of Energy and Mineral Resources in April, as reported by Financial Times, recently introduced policies could threaten nearly $30 billion in existing investments and another $20 billion in planned projects.The letter warned that the measures could also reduce annual nickel exports by about $23 billion and affect up to 400,000 jobs across the sector, the report said.

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At the centre of the dispute are new Indonesian regulations that have reduced mining production quotas and introduced a pricing mechanism that has significantly increased the cost of nickel ore used in EV battery manufacturing.

The Chinese embassy said the pricing changes had caused production costs for battery-grade nickel to surge by nearly 200 per cent, raising concerns about the viability of many projects backed by Chinese investors.

"The operational viability of nearly all such projects" could be threatened by the new measures, the embassy warned in the letter.

Battle for control of a strategic metal

The row highlights the growing importance of nickel in the global race to secure supplies of minerals essential for clean energy technologies.

Indonesia controls more than two-thirds of global refined nickel production and has emerged as the world's dominant supplier after imposing export bans on raw ore and encouraging domestic processing.

Chinese companies have played a pivotal role in that transformation, investing tens of billions of dollars over the past decade in mines, smelters, industrial parks, battery material plants and EV manufacturing facilities across Indonesia.

Foreign direct investment from mainland China and Hong Kong reached $18.1 billion last year and stood at $4.9 billion in the first quarter of 2026, making China Indonesia's largest foreign investor.

The relationship, however, is becoming increasingly strained as President Prabowo Subianto's administration seeks to capture a larger share of profits generated from the country's mineral wealth.

Investors alarmed by policy uncertainty

Chinese business groups argue that Jakarta's policy changes have created an unpredictable investment environment.

In a separate letter sent to President Prabowo in May, the China Chamber of Commerce in Indonesia complained about rising royalties, tighter foreign exchange retention requirements, reduced mining quotas and what it described as increasingly aggressive regulatory enforcement, the FT reported.

The chamber said these measures had significantly increased costs and undermined investor confidence in Indonesia's downstream nickel industry.

Industry sources say several Chinese-owned processing facilities have already reduced production due to ore shortages and rising input costs. Some mining operators have also faced land seizures linked to environmental enforcement actions by Indonesian authorities.

Adding to investor concerns, Prabowo's government recently announced the creation of a new state-owned agency to oversee exports of strategic commodities including coal, palm oil and certain nickel products. The move will limit the ability of producers to directly sell to overseas buyers.

The Chinese embassy criticised the "frequency of recent regulatory changes" and urged Indonesia to improve policy predictability.

"It is imperative to calibrate the pace of policy implementation to mitigate adverse impacts on the investment climate and employment stability," the embassy said.

Resource nationalism versus foreign capital

The dispute reflects a broader dilemma facing Indonesia.

Prabowo has made economic nationalism and downstream industrialisation central pillars of his administration. His government wants greater state control over strategic resources and higher revenues from commodity exports to support ambitious welfare and development programmes.

However, Indonesia remains heavily dependent on Chinese capital, technology and expertise to sustain its nickel processing and battery ambitions.

While a large-scale withdrawal of Chinese investment appears unlikely given the billions already committed, companies may delay expansion plans, postpone new smelter projects and demand higher returns to compensate for growing political and regulatory risks.

The Indonesian government has shown some signs of flexibility. Following consultations with industry groups, officials recently postponed planned increases in mining royalties while reviewing alternative proposals.

Yet the broader direction of policy remains unchanged.

For global investors and battery manufacturers, the dispute raises fresh questions about the stability of supply chains centred on Indonesia, which has become indispensable to the world's EV industry.