In mid-May 2026, an open letter from the China Chamber of Commerce in Indonesia (CCCI) was submitted to President Prabowo Subianto.

The document stated that abrupt policy changes and alleged extortion by officials were affecting confidence in Indonesia and that Chinese businesses expected the government to take action.

The letter was also copied to the Chinese Embassy in Jakarta. The CCCI letter addressed six broad issues: a rise in taxes and levies, a new requirement to retain foreign exchange earnings onshore, reduced nickel ore quotas, what the chamber described as heavy-handed forestry law enforcement, the suspension of major projects, and increased restrictions on work visas.

Following the circulation of the letter, Energy Minister Bahlil Lahadalia confirmed that he had discussed several mining policies directly with China's ambassador, including revisions to Indonesia's benchmark nickel pricing formula.

Finance Minister Purbaya, meanwhile, responded by stating that the government would "prioritise national sovereignty over natural resources", even if stricter policies resulted in investors leaving the country.

This marked the first occasion on which a Chinese business association in Indonesia had collectively and publicly lodged a complaint with the host government in this manner. The decision to copy the letter to the Chinese Embassy indicated that the matter extended beyond a commercial dispute.

What triggered the letter?

The letter was not a response to a single policy but rather the result of pressures and dissatisfaction that had accumulated over several years. In 2026, however, a series of regulatory changes prompted Chinese investors to raise their concerns publicly.

The most immediate issue was the reduction in quotas. The Ministry of Energy and Mineral Resources set the 2026 national nickel ore quota at 260-270 million wet metric tons, down from 379 million the previous year, while also reverting to an annual approval cycle that gives the government tighter year-by-year control over supply. For Chinese companies that had invested heavily in infrastructure based on expectations of stable ore access, this represented a notable policy change.

The combined effect of these policies, together with rising input costs driven by conflict in the Middle East, affected three of China's largest investors in Indonesia during 2026.

Tsingshan, Indonesia's largest single nickel investor, saw the quota for its flagship Weda Bay mine reduced from 42 million tons in 2025 to 12 million tons in 2026, representing a reduction of more than 70%. In response, the industrial park imported ore from the Philippines and instructed its nickel pig iron producers to reduce output in order to redirect power towards aluminium production.

Huayou Cobalt, operator of the Huafei project, suspended approximately half of its production capacity from May 1st, 2026. The revised pricing formula increased smelting costs by an estimated US$ 300 per ton. The challenges were not solely regulatory.

The Huafei project uses wet-process smelting technology, which relies on sulphur as a key input. Most of this sulphur is sourced from the Middle East and shipped through the Strait of Hormuz. Escalating conflict in the region has increased sulphur prices, adding further cost pressures. Brunp Recycling, CATL's battery materials subsidiary, also experienced disruptions to its Indonesian nickel feedstock supply, affecting the upstream segment of an EV battery supply chain.

Why is Indonesia doing this?

To understand Jakarta's position, the quota reductions and tighter regulations must be viewed within the context of a long-term strategy known as hilirisasi (downstream) or downstream industrial development.

The foundations of this strategy were established several years earlier. Indonesia banned all raw nickel ore exports on January 1st, 2020, two years ahead of the original 2022 deadline. The objective was to retain a greater share of the value generated from Indonesia's nickel reserves within the country rather than in overseas processing industries.

In April 2026, President Prabowo inaugurated 13 new natural resource processing projects valued at US$ 7.6 billion. He described downstream industrial development as part of the country's economic strategy, with nickel occupying a central role. Quota controls serve a similar purpose to the export ban by directing ore supply towards domestic processing activities and increasing local value addition.

Beyond strengthening control over its supply chain, Indonesia has also pursued the objective of increasing its role in the global nickel market. The concept of a multilateral framework among major nickel-producing countries to coordinate supply and stabilise prices was first raised in late 2022 by Investment Minister Bahlil Lahadalia, who discussed the proposal with Canada and Australia during the G20 Summit in Bali.

The initiative has since progressed. In the previous month, Indonesia and the Philippines established the IndoPhil Nickel Corridor working group to coordinate mining activities. Together, the two countries account for approximately 75% of global nickel production, a share that could influence pricing if coordination is maintained.

Will Chinese firms withdraw?

Following the circulation of the open letter, public discussion increased, with some commentators calling for Chinese companies to shift investment towards alternative markets and suppliers. However, the feasibility of such a move remains uncertain.

Chinese firms control approximately 75% of Indonesia's nickel refining capacity, with Tsingshan and Jiangsu Delong alone accounting for more than 70%. The estimated US$ 14 billion invested over the past decade is tied to smelters, HPAL processing plants and integrated supply chains designed around Indonesian ore resources. These assets cannot be easily relocated.

However, Chinese companies also have options in responding to the policy changes. Rather than pursuing a complete withdrawal, one possible scenario would involve reducing production to protect profit margins. Such a move could result in lower tax revenues, increased unemployment in industrial regions and negative signals for other foreign investors.

The CCCI letter may therefore be viewed as part of ongoing discussions between the Indonesian government and foreign investors rather than an indication of an imminent withdrawal. The quota revision window scheduled for July 2026 may provide an indication of how both sides intend to proceed. However, tax rates on other categories of vehicles are likely to remain unchanged.