cross-posted from: https://lemmy.sdf.org/post/60404850

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Indonesia is the world’s largest nickel producer, accounting for a dominant share of global output and making the country increasingly central to the global critical-minerals supply chain.

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Indonesia's rise as a nickel power is inseparable from its resource nationalist downstreaming strategy. Jakarta restricted exports of unprocessed nickel ore and pushed companies to process the mineral domestically. The policy transformed Indonesia from a major raw-material supplier into a global processing hub.

But Indonesia did not build this transformation alone. Chinese capital, technology, and industrial expertise became deeply embedded in the country's smelting and refining ecosystem. Today, Chinese firms control about 75% of Indonesia's nickel-refining capacity, illustrating the depth of this dependence.

This creates Indonesia's central paradox: Jakarta has greater control over the resource, but much of the capacity required to convert that resource into higher-value products remains connected to Chinese investment and technology. Resource nationalism therefore has not eliminated dependence; in some respects, it has created a more sophisticated form of it.

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Indonesia is now trying to change that equation. President Prabowo Subianto's government has tightened oversight of strategic commodities and is seeking greater control over how resources are priced and traded.

In August 2026, Prabowo announced plans to launch the Strategic Minerals and Commodities Exchange that would establish domestic reference prices for strategic resources including nickel, with operations expected to begin in January 2027.

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He argued that Indonesia should move beyond being merely a resource exporter and become a price-setter. These policies have created friction with Chinese investors. In May 2026, Chinese companies operating in Indonesia warned that reduced nickel quotas, higher taxes and revised pricing arrangements were making operations more expensive. The China Chamber of Commerce in Indonesia raised concerns directly with the Indonesian government, with several major Chinese-linked companies also facing the impact of these policy changes. But this is where the story moves beyond Indonesia and China.

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The United States increasingly sees Indonesia as important to its effort to build more diversified critical-mineral supply chains. In February 2026, Washington and Jakarta signed an Agreement on Reciprocal Trade containing a section 5 intended to align Indonesia with the U.S. on sanctions, export controls, investment security, and measures targeting third-country economic practices, strengthening bilateral economic-security cooperation on critical minerals.

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This does not, however, mean that Indonesia has chosen America over China. Calling the relationship a US–Indonesia “alliance against China” would oversimplify Jakarta's strategy. The agreement is fundamentally an economic and strategic partnership, while Indonesia continues to maintain substantial economic relations with Beijing. The distinction is crucial. Indonesia does not necessarily need to replace China; it needs alternatives to China.

If China remains Indonesia's dominant source of investment, processing technology and industrial partnerships, Jakarta's ability to impose tougher terms has limits. But if American, Japanese, Korean, European and other investors can provide additional capital, technology and markets, Indonesia acquires greater room to negotiate. This is the essence of Jakarta's strategy: diversification as leverage.

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Indonesia's nickel policy is therefore not simply about who mines nickel or who owns a smelter. It is about who gets to set the terms of participation in the value chain. Indonesia may not be choosing between Beijing and Washington. It is attempting something more ambitious: making both compete for access while Indonesia strengthens its own position. The success of that strategy will ultimately depend on whether Jakarta can convert its geological advantage into industrial and technological capability. The real prize is not simply higher revenues from nickel but the ability to decide who participates, under what conditions, and how much value remains within Indonesia.

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