- A report from a U.S. government-funded think tank, C4ADS, has raised concerns about Indonesia’s nickel refining capacity being controlled by Chinese companies, many with ties to the Chinese government.
- The report says China’s dominance could limit Indonesia’s control over pricing and supply while giving China geopolitical leverage, particularly over countries like the U.S. that rely on nickel for electric vehicle production.
- Chinese-owned nickel processing facilities in Indonesia are also major environmental polluters, relying heavily on coal power, contributing to deforestation, and facing scrutiny over poor labor conditions and workplace fatalities.
- While Indonesia has expressed interest in diversifying investment, C4ADS noted that reducing China’s influence will require significant foreign investment and structural changes in the industry.
JAKARTA — More than 75% of the nickel refining capacity in Indonesia, home to the biggest reserves of this critical mineral, is controlled by Chinese companies, many with affiliations to the Chinese government, according to a U.S.-government funded think tank.
C4ADS, a Washington, D.C.-based security nonprofit funded largely by the U.S. Agency for International Development and U.S. Department of State, looked at 33 companies involved in nickel refining in Indonesia and traced their ownership structures.
It found that most of these firms are ultimately controlled by a small number of Chinese companies, some of them connected to both Chinese defense contractors and government entities. Many of these firms operate through a complex network of Indonesian subsidiaries that are ultimately controlled by parent companies in China, often with ties to Chinese state-backed lenders.
Together, Chinese entities controlled about three-quarters of smelting capacity as of 2023.
“There has been prior reporting on Chinese influence within the sector, but we believe this is the first time the level of control has been quantified,” C4ADS told Mongabay.
The report identified two Chinese companies — Tsingshan Holding Group and Jiangsu Delong Nickel Industry Co. Ltd. — as key players; combined, they accounted for more than 70% of Indonesia’s refining capacity.
Both groups were among the earliest investors in Indonesia, at a time when the country had just started pushing for domestic processing of nickel ore.
Tsingshan, the world’s biggest nickel producer, holds shares in at least five of the major nickel smelting companies in Indonesia, including the third-largest smelter.
Jiangsu Delong, meanwhile, has significant ownership stakes in three of the top refining companies — PT Virtue Dragon Nickel Industry, PT Obsidian Stainless Steel and PT Gunbuster Nickel Industry — which together account for more than 38% of Indonesia’s nickel refining capacity as of 2023.
This ownership concentration raises a number of concerns, according to the report.
For one, the dominance of Chinese companies could limit Indonesia’s ability to independently dictate pricing and supply decisions, C4ADS said.
“A lack of domestic control leaves Indonesia reliant upon Chinese investment and continued support of the industry, which may limit the government’s ability to hold the industry accountable and shape the sector for its own economic benefit,” C4ADS said.
China’s dominance might also have global implications for the supply chain, as Indonesia currently supplies more than half of the world’s nickel, a key metal used in electric vehicle batteries and other renewable energy technologies. This could give China leverage for geopolitical influence, particularly on countries that rely on nickel for EV manufacturing such as the U.S. and EU member states, according to C4ADS.
“For example, China has previously restricted the United States’ access to rare earth and other minerals in response to changes in trade policies, potentially making nickel vulnerable to similar future efforts,” C4ADS said.
Environmental and social concerns
And then there are the environmental and social issues associated with Chinese companies operating in Indonesia, particularly in Sulawesi and North Maluku, where they control vast nickel mining, smelting and refining projects.
Many nickel processing facilities, including those controlled by Tsingshan and Jiangsu Delong, are powered by coal-fired power plants, making them major greenhouse gas emitters. Tsingshan’s Indonesia Morowali Industrial Park (IMIP) and Jiangsu Delong’s Indonesia Weda Bay Industrial Park (IWIP) are two of the largest coal-consuming industrial zones in Indonesia.
According to U.S.-based advocacy group Mighty Earth, IMIP is expected to have an annual coal-fired power capacity of 5 gigawatts, or nearly as much coal power as Mexico generates. Besides their high emissions, these coal plants also pollute the air, water and community lands, threatening the livelihoods of local communities.
Despite the global push for low-carbon supply chains, these companies have made few commitments to transitioning away from coal.
Nickel mining to supply the smelters has also resulted in large-scale deforestation, especially on the islands of Sulawesi and Halmahera. According to an analysis by Greenpeace Indonesia, more than 8,700 hectares (21,500 acres) of rainforest have been cleared in the district of North Morowali, where IMIP is based, since 2000 to make way for mines, smelters and the infrastructure needed to support the industrial park.
Labor conditions within these facilities have also come under scrutiny, with reports of inadequate safety protocols leading to numerous fatalities and injuries.
Between 2015 and 2023, more than 90 deaths and 100 injuries were reported in processing facilities. In 2023 alone, at least 60 deaths or accidents were reportedly linked to Tsingshan, including a fire that killed 21 individuals and injured 38 at PT Indonesia Tsingshan Stainless Steel.
The actual figure could be much higher as accidents often go unreported.
Weak standards
C4ADS said it’s difficult to tell if these problems and lack of enforcement are unique to Chinese companies or not, given that much of the nickel industry is dominated by Chinese shareholders.
But conditions might be different if the dominant foreign investors were from the U.S. or EU due to their stricter ESG (environmental, social and governance) and labor compliance standards, which typically include more rigorous safety protocols and higher fines for noncompliance, said Muhamad Saleh, a legal researcher at the Jakarta-based Center of Economic and Law Studies (CELIOS).
The EU, for instance, in 2023 adopted a battery regulation that set environmental protections throughout the entire life cycle of batteries, from the sourcing of raw materials, to production and recycling. As a result, companies selling batteries in the EU must comply with rules designed to prevent environmental, human rights and labor abuses in their supply chains. The law requires battery makers to identify, prevent and address a wide range of issues, spanning water pollution to community rights.
They’re also obliged to provide carbon footprint data on nickel products they sell to EV battery value chain serving the European market.
“But China doesn’t have such regulation. It doesn’t mandate ESG standards,” Muhamad told Mongabay. “By complying with environmental standard in Indonesia, that’s good enough for China. But there are water and air pollution problems in Morowali [where IMIP is based]. All these don’t become an issue [for China].”
That’s why China should implement a more robust ESG standard, and not rely on compliance with Indonesian standards. The latter are even more relaxed, especially after the passage in 2020 of an omnibus law on job creation, which weakened environmental and social safeguard for businesses, Muhamad said.
“We hope China becomes a key actor in transition [toward sustainable businesses] in Indonesia, and we hope they can push for improvement in nickel industry’s management in Indonesia,” he said.
Yet even non-Chinese companies operating in Indonesia’s nickel sector aren’t guaranteed to uphold stronger ESG standards, C4ADS acknowledged.
“For example, we have seen poor labor conditions and environmental challenges from Canadian mining companies operating in other jurisdictions,” it said.
Way out
Indonesia has expressed interest in reducing China’s grip on its nickel industry. But this will be challenging given that Chinese ownership is deeply entrenched in the industry, which is further solidified by the financial and political backing of Chinese banks and government entities, C4ADS said
“Changing the balance of power will require an overhaul of the industry and additional investment from other countries,” C4ADS said.
Yet doing so will be crucial to push Indonesia to adopt stronger ESG standards, Muhamad said.
“Our hope is that with more investors [from countries other than China], we can push Indonesia to shift to a much better standard,” he said.
NOTES (04/03/2025): The headline has been adjusted to reflect the fact that while a significant portion of C4ADS work relates to defense, they focus on a wide array of global security issues.
Banner image: A coal-fired power plant at night in the nickel industrial area in Halmahera. Image by Rabul Sawal/Mongabay Indonesia.
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