Chinese firms warn Indonesia's nickel quotas, tax hikes threaten investment

China’s President Xi Jinping / Reuters-Yonhap

Chinese companies operating in Indonesia are urging more business-friendly policies, warning tighter nickel ore quotas, higher taxes and a new pricing formula are driving up costs and threatening investment in the world's biggest nickel producer.

In a letter to President Prabowo Subianto, copied to China’s embassy and seen by Reuters, the China Chamber of Commerce in Indonesia said Chinese firms faced "excessively stringent regulation, over-enforcement", and alleged corruption and extortion by authorities.

Five sources with knowledge of the matter confirmed the letter, requesting anonymity because they were not authorised to speak publicly.

The complaint highlights tensions between Jakarta's push to extract more value from its natural resources and the Chinese capital that has powered Indonesia's rapid expansion in global nickel supply.

The letter cited higher taxes and royalties, planned foreign-exchange retention rules, stricter forestry enforcement, work-visa restrictions and suspensions of major projects.

Its strongest warning focused on nickel, where Chinese firms dominate downstream processing after years of investment in smelters, stainless steel plants and battery-material projects.

Nickel ore mining quotas have been sharply reduced this year, with cuts for large mines exceeding 70% and total reductions reaching 30 million metric tons, the chamber said.

It also criticised Indonesia's revised nickel ore benchmark pricing formula, known as HPM, saying the changes had raised costs and could undermine existing projects and future investment.

The government has delayed planned increases in mineral royalties and export duties while it works on what officials have described as a fairer formula for the state and miners.