Indonesia's upgrading strategy in the EV value chain: a resurgence of the developmental state or a dependency on Chinese multinational corporations?

Abstract:

In 2019, Indonesia announced a ban on raw nickel exports, a decision that revealed to Western countries Indonesia’s strategic role in the supply of this mineral, which is essential for the production of NMC lithium-ion batteries (LiBs), the dominant model in the European Union. The Indonesian authorities justified this measure by their desire to implement a ‘downstreaming’ strategy aimed at improving their position in global value chains, thereby moving away from a ‘resource capitalism’ model reliant on exporting low-value-added raw materials (Warburton 2023). This strategy involves going further than simply extracting. It leads to master the upper stages, such as ore processing, battery production and electric vehicle manufacturing.

As a result, nickel has become a major geo-economic issue. Chinese investment, already growing strongly since the launch of the Belt and Road Initiative (BRI) in 2013, has intensified at all stages of the industry, particularly through the creation of joint ventures in extraction, processing, and battery production. Multinational corporations (MNCs) such as Tsinghshan and Huayou Cobalt have invested in the deployment of High-Pressure Acid Leach (HPAL) facilities, which are essential for converting low-grade nickel ore into materials suitable for industrial use, particularly in battery production. These costly technologies are central to Indonesia’s strategy of industrial upgrading. Other Chinese firms are investing in major projects focusing on more advanced segments of production, including the battery production leader CATL, and the EV producer BYD, thereby forging an "industrial nexus" between the productive systems of the two countries. Other Asian MNCs have also positioned themselves, although their investment capacities are more limited. Although the EU challenged Indonesia’s decision before the WTO, regarding palm oil biofuels disputes, this has not prevented European companies from prospecting in the country. For instance, Eramet, a French firm, extracts nickel at the Weda Bay within the joint venture PT Weda Bay Nickel (Eramet holds 37.8% of the shares), along with Tsingshan (a Chinese firm, holding 51.3% of the shares) and PT Antam Tbk (an Indonesian state-owned enterprise, holding 10% of the shares).

This initiative has enabled Indonesia to consolidate its position as the world’s leading nickel producer and strengthen its capacity to produce processed nickel. Indonesia is positioning itself as a central node in the global nickel value chain. However, the success of the ‘downstreaming’ strategy remains uncertain and depends on external and internal dynamics. The Indonesian industry risks developing a strong dependence on Chinese investment, which could conflict with the objective of moving upmarket to higher value-added segments.

Beyond the risk of dependence on Chinese investments and technologies, Western actors (governments, multinationals, and NGOs) strongly criticize Indonesian nickel production conditions, pointing in particular to the use of coal-fired power plants to power smelters, the destruction of biodiversity at mining sites, and the exploitation of workers (Mariska and Lakshmi 2025). These criticisms are accompanied by threats to boycott Indonesian nickel and are said to have contributed to the abandonment of a large-scale European investment project (Eramet-BASF). Finally, the Indonesian ruling class is often associated with corruption issues, and the extractive sector in particular is marked by cases of personal enrichment. This could further reduce the positive impact of the sector’s growth on local populations.

The success of Indonesia’s strategy therefore depends on two key factors: (1) the ability of the political and economic elites to implement a genuine national industrial strategy, and (2) to convince the core countries of the global economy – especially China –to align with Indonesia's development objectives. This means directing foreign investment towards technology transfer that enables both industrial upgrading and an energy transition of the value chain, from nickel extraction to the production of electric vehicles. If these conditions are met, Indonesia could effectively capitalize on its nickel resources and consolidate its path of socioeconomic development.

The paper will therefore examine Indonesia’s strategic coupling (Yeung & Coe, 2015) and its form (Coe & Yeung, 2019). Due to the world's largest nickel ore reserve, the strategy nexus of the territorial development and industrial players is impacted across the downstream segments of the value chain. The Indonesian state regulates the amount of nickel authorized for extraction using quotas to counteract the downward trend in nickel prices in the global market. This makes NMC technologies more costly for European automakers.

References

Coe, N. M., & Yeung, H. W. (2019). Global production networks: Mapping recent conceptual developments. Journal of Economic Geography, 19(4), 775–801. https://doi.org/10.1093/jeg/lbz018
Mariska, Diana, and A. Anantha Lakshmi. 2025. ‘Indonesia Launches Rare Crackdown on Nickel Mines in “Last Paradise”.’ Financial Times, [London], 13 June. ft.com/content/b8dcbafb-6d67-420c-a9e7-b20d83e655bd.
Warburton, Eve. 2023. Resource Nationalism in Indonesia: Booms, Big Business, and the State. Ithaca, NY: Cornell University Press.Yeung,
H. W., & Coe, N. M. (2015). Toward a Dynamic Theory of Global Production Networks. Economic Geography, 91(1), 29–58.