Is Indonesia limiting Chinese nickel investments to gain US trade benefits?

The government denies placing restrictions even as it seeks to meet US tax credit rules that penalise Chinese-sourced batteries and EVs

Reading Time:5 minutes

A worker in a protective suit pokes a metal rod to tap slag from a smelting furnace at PT Vale Indonesia’s nickel processing plant in Sorowako, South Sulawesi, Indonesia, Photo: (AP Photo/Dita Alangkara)

Published: 12:00pm, 2 Aug 2024

Indonesia is sending mixed signals about Chinese investment in its nickel industry as it aims to align its policies with US tax credit eligibility under a trade deal with Washington, with the government denying placing limits on Chinese involvement even as reports suggest new deals are being structured to minimise their ownership.

Experts say Indonesia’s approach reflects a desire to balance national interests against geopolitical tensions as Jakarta attempts to diversify its investment partners and export markets to reduce its dependency on China.

Septian Hario Seto, deputy coordinating minister for investment and mining, told This Week in Asia on Wednesday that “there are no [efforts] by the government to limit [Chinese investments]” in the industry.

His statement came in response to questions raised by a July 26 report in the Financial Times, citing three unnamed sources, saying the Indonesian government and nickel industry players are trying “to structure new nickel investment deals with Chinese companies as minority shareholders”.

The report said the reason behind this is Washington’s classification of China as a “foreign entity of concern” under its Inflation Reduction Act (IRA), signed by President Joe Biden in 2022, which dictates that electric vehicles containing China-sourced batteries and metal components would not be eligible for US$7,500 tax rebates.

Workers at the Indonesia Weda Bay Industrial Park’s compound in Central Halmahera, North Maluku. Photo: AP

EV batteries containing Indonesia-sourced components would thus not qualify for the tax credits as China heavily dominates the country’s nickel extraction and processing industry, particularly after Jakarta banned the exports of raw nickel ore in 2020 as part of a value-added strategy to generate more revenue by requiring miners and producers to build refining facilities onshore.