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View all search resultsAnalysis: China Chamber’s letter exposes Indonesia’s regulatory uncertainty
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Defense Minister Prabowo Subianto (right) and Chinese President Xi Jinping pose for a photo-op during their high-profile bilateral meeting in Beijing, China on April 1, 2024. During his visit, the president-elect reiterated a commitment to maintain the close partnership that his predecessor, President Joko (Courtesy of Xinhua/-) (Courtesy of Xinhua/-)
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s the country’s investment climate deteriorates, the China Chamber of Commerce in Indonesia (CCCI) took the unusual step of writing directly to President Prabowo Subianto to complain about shifting regulations, nickel quota cuts, royalty hikes and alleged extortion. This raises troubling questions: Is the government losing control of policy consistency or quietly yielding regulatory authority to its largest investor?
In the letter, Chinese investors laid out a familiar catalog of concerns, arguing that the investment environment in Indonesia had become increasingly difficult to navigate due to inconsistent regulations and heavy-handed enforcement. The investors criticized what they described as excessive and non-transparent law enforcement, where authorities possessed overly broad discretionary powers that created uncertainty for businesses.
They also raised allegations of corruption, extortion and a growing reliance on expensive “third-party intermediaries” to resolve licensing and operational disputes. At the same time, they alleged that successive hikes in royalties, taxes, tax inspections and multimillion-dollar fines had created panic among mining and downstream processing companies. These concerns were further amplified by the government’s mandatory foreign exchange retention policy, requiring exporters to keep 50 percent of their export proceeds in domestic banks for one year, which investors said disrupted liquidity and long-term operational flexibility.
Much of their frustration centered on Indonesia’s nickel sector, where Chinese firms dominate much of the downstream smelter and battery supply chain. For example, investors protested the government’s decision to slash nickel ore quotas more than 70 percent, arguing that it could reduce production by roughly 30 million tonnes a year and severely disrupt the downstream industrial ecosystem.
They also criticized the new formula for calculating the mineral benchmark price (HPM), which they claimed caused nickel ore prices to surge as much as 200 percent, thereby worsening operational losses across the supply chain. The investors noted that these policies threatened existing projects, would discourage future investment and put more than 400,000 jobs linked to the sector at risk.
Aside from mining, investors also complained about tighter visa rules for foreign workers, which they described as increasingly costly and restrictive for technical and managerial personnel. Other issues related to proposed export levies, reduced electric vehicle incentives and curbs to tax relief in special economic zones, all of which contributed to a growing sense of regulatory unpredictability, they said.
At its core, the CCCI’s concerns reflect a deeper shift in Indonesia’s economic direction under the current administration. Policies such as mandatory retention of foreign exchange earnings in state-owned banks, tighter control over mineral exports, mandates for downstream industries and rising state intervention suggest that Indonesia is moving away from its traditionally liberal foreign exchange regime toward a model based more on state capitalism.
