Indonesia-China and the Future of the Battery Industry

by Subhan Yusuf, S.Kom., M.A., observer on geopolitics and public policy

An article by Climate Home News, "China keeps Indonesia's battery dream afloat but future less certain," offers a crucial reading of the developments within Indonesia's battery industry. The article accurately points out that China has become a decisive actor in Indonesia's nickel ecosystem, mineral processing, and battery manufacturing. Following the withdrawal of LG Energy Solution, a consortium involving Zhejiang Huayou Cobalt and EVE Energy stepped in to assume a pivotal role in ensuring project continuity. Project Titan itself is directed toward building a capacity of approximately 20 GWh, encompassing nickel-based and energy-storage batteries. This reality underscores China's significant footprint in Indonesia's battery industrialization (Climate Home News).

However, viewing these developments solely as evidence of Indonesia's growing dependence on China yields an overly linear conclusion. The Indonesia-China relationship within the critical minerals sector is undergoing a far more complex shift. Indonesia is not in a passive position merely absorbing Chinese capital and technology. At the same time, Indonesia does not yet possess the technological and industrial capacity to stand entirely outside the Chinese ecosystem. A more accurate characterization is that Indonesia is engaged in a recalibration of its interdependent relationship with China. Indonesia still requires China, but it is simultaneously attempting to reshape how that dependency functions.

This shift is significant because Indonesian nickel industrialization is a relatively recent process. The nickel ore export ban catalyzed massive investment in smelters and processing facilities. The results have been substantial: Indonesia is now a primary global hub for nickel production and processing. The IEA noted that Indonesia accounted for over half of global nickel mine production in 2023, while Indonesia and China jointly controlled over 60 percent of global nickel refining in the same year (IEA, 2025) (IEA). These developments are inextricably linked to the investment and technological capabilities of Chinese firms.

Yet this success must be contextualized within a broader framework. Indonesia was initially building industrial downstreaming, not immediately establishing technological sovereignty. There is a fundamental difference between the two:

  • Downstreaming entails shifting economic activities from raw material exports toward higher value-added processing and manufacturing.
  • Technological Sovereignty means possessing the capacity to develop, adapt, produce, and innovate technologies relatively independently.

Indonesia has made major strides in the former phase but remains on a long trajectory toward the latter.

Thus, China's presence should not automatically be interpreted as a failure of Indonesian industrial policy. On the contrary, China can be viewed as an enabling mechanism that allows Indonesia to transition from a resource exporter to an industrial producer. China provides capital, engineering capabilities, equipment, processing technology, supply-chain integration, and market access. In the context of a developing nation aiming for rapid industrial upgrading, these capabilities hold immense strategic value.

If Chinese companies build facilities in Indonesia and employ local labor, but the core technology, intellectual property, engineering capabilities, intermediate inputs, and strategic decision-making remain offshore, Indonesia secures domestic economic activity without necessarily gaining technological sovereignty. Conversely, if foreign direct investment leads to enhanced capabilities among Indonesian engineers, domestic suppliers, local R&D, technology absorption, intellectual property accumulation, and the capacity of national firms to move up the global value chain, then that foreign investment acts as an instrument of industrial upgrading.

Consequently, the metric for evaluating the success of Indonesia-China economic ties should not merely be the volume of incoming Chinese capital. More relevant indicators include:

  • The growth of domestic value capture
  • The extent of technology absorption
  • How far Indonesian firms advance along the value chain
  • Whether reliance on a single source of capital or technology is being systematically reduced

This perspective is equally vital when interpreting LG Energy Solution's exit from its Indonesian venture. The departure cannot simply be translated as "Korea retreats and China takes over." This shift occurred as the global battery industry itself was undergoing technological and market restructuring. The rise of lithium iron phosphate (LFP) chemistry altered foundational assumptions regarding the trajectory of nickel-manganese-cobalt (NMC) electric vehicle batteries. The IEA notes that by 2025, average LFP battery packs were over 40 percent cheaper per kWh than NMC alternatives, though this comparison is also influenced by application profiles---notably LFP's dominance in stationary storage (IEA, 2026) (IEA).

This trend carries direct implications for Indonesia, given that much of its battery strategy was anchored in the comparative advantage of its nickel reserves. If global battery technology moves rapidly toward chemistries that require less or no nickel, the assumption that nickel wealth automatically turns Indonesia into a global battery hub becomes insufficient. However, concluding that Indonesian nickel has lost its relevance is an oversimplification. Nickel-based batteries retain distinct advantages, particularly in energy density and high-performance applications. The core issue is not that Indonesia chose the wrong mineral, but that it cannot lock its industrial strategy into a single battery chemistry.

Strategic Asymmetries & Global Concentration

  • China's Edge: Capital, battery technology, engineering, processing equipment, cathode and anode materials, and an integrated manufacturing ecosystem.
  • Indonesia's Edge: Natural resource reserves, strategic geographical location, domestic market potential, and nickel production scale.

The IEA demonstrates that supply chain concentration for critical minerals is actually intensifying. The average share of the top three countries in refining six major energy minerals rose from roughly 82 percent in 2020 to 86 percent in 2024, with forecasts suggesting concentration will remain around 82 percent by 2035 (IEA, 2025) (IEA). Therefore, the notion that Indonesia can rapidly displace China without first constructing an alternative industrial ecosystem is unrealistic.

Under these conditions, Indonesia's tightening nickel policies should not be reflexively read as a geopolitical turn away from China. Indonesia has rational domestic imperatives to strengthen governance in the sector. Nickel industrialization moved rapidly, creating challenges around environmental impact, energy consumption, production governance, state revenues, and reserve sustainability. Reuters noted that Indonesia's processing industry expanded heavily alongside the use of captive coal power, even as global markets demand lower carbon intensity and stricter traceability (Reuters).

Such regulatory adjustments represent a standard phase in state capacity building:

  1. Early Industrialization: Priorities center on attracting capital and technology.
  2. Established Industrial Base: Priorities pivot toward value capture, technology absorption, environmental governance, local supplier development, and domestic R&D.

If Chinese investment yields smelters without technological learning, Indonesia risks reproducing dependency. If it yields industrial infrastructure, skilled domestic engineers, robust local suppliers, R&D capabilities, and the capacity for Indonesian firms to enter higher-value segments, that reliance becomes a transitional dependency yielding strategic autonomy.

Indonesia must ensure that current timelines are leveraged to convert foreign investment into domestic capability. Within this horizon, China's involvement remains necessary. The bilateral relationship can serve as a conduit toward strategic autonomy if Indonesia successfully transforms capital into capability, technology into knowledge, investment into domestic capacity, and resource advantages into bargaining power. Conversely, dependency is reproduced if Indonesia remains a site for extraction and initial processing while technology, intellectual property, engineering, high-value manufacturing, and strategic decisions reside elsewhere.

Evaluating the Partnership

The critical metrics for evaluating Indonesia-China economic ties extend beyond the volume of Chinese firms operating in the country. Substantive evaluation depends on whether:

  • Indonesian enterprises enhance their standing in global value chains
  • Domestic R&D expenditures and outputs increase
  • Indonesian technical personnel master core technologies
  • Local suppliers ascend to higher supply-tier levels
  • Environmental performance metrics improve
  • Domestic value capture expands
  • Indonesia diversifies its pool of strategic partners

If these metrics improve, deepening Chinese investment does not equate to deepening dependency; it becomes part of a transition toward managed interdependence.

China serves as an indispensable industrial enabler for Indonesia, yet it could become a structural constraint if Indonesia fails to achieve technological upgrading. Indonesia does not need to adopt an adversarial stance toward China to secure strategic autonomy, nor does it need to cede strategic control to reap the benefits of cooperation. The task facing the state is exercising the governance capacity to determine where China is needed, where dependencies must be trimmed, where technologies must be diversified, and where domestic capabilities must be built.

Economic Transformation & Trade Structure

The bilateral nickel and battery partnership must also be framed within Indonesia's shifting position in global supply chains. Prior to downstreaming policies, Indonesia primarily exported raw nickel ore with limited economic value addition. Following the enforcement of the raw ore export ban and subsequent investment inflows---largely into smelters and processing plants funded by Chinese capital---Indonesia's export profile shifted dramatically. Government reports indicate that the export value of nickel-related products rose from approximately IDR 17 trillion prior to downstreaming to roughly IDR 326 trillion in 2021, projecting beyond IDR 468 trillion in 2022. By 2023, total nickel export value reached an estimated IDR 520 trillion (Cabinet Secretariat of the Republic of Indonesia, 2022; President of the Republic of Indonesia, 2024) (Setkab).

Recent trade data indicates that Indonesian ferronickel exports alone reached US$14.06 billion in 2024 and rose to US$16.39 billion in 2025, while exports of other intermediate nickel metallurgical products stood at US$5.41 billion in 2025 (Ministry of Trade RI, 2026; World Bank WITS, 2026) (World Integrated Trade Solution). Analysis from the USITC illustrates that while one metric ton of raw Indonesian nickel ore averaged roughly US$60 in 2022, its processed value climbed to approximately US$2,357 per ton for ferronickel and US$3,784 per ton for intermediate metallurgical products (USITC, 2024) (USITC). While Chinese involvement introduces questions regarding technology ownership and equity control, the collaboration has practically delivered the industrial infrastructure required for Indonesia to transition from a raw material supplier into a producer of processed and intermediate goods in global supply chains.

From a strategic perspective, this shift carries implications beyond trade figures. Industrial collaboration with China helped construct the material base for downstream nickel operations---spanning mining, smelting, refining, nickel pig iron, ferronickel, and inputs for stainless steel and batteries. World Bank data notes that downstreaming policies shifted Indonesia from a raw ore exporter to an exporter of higher-value processed goods, replacing raw exports (which averaged US$1.5 billion annually prior to 2014) with domestic processing output (World Bank, 2026) (World Bank).

The primary strategic challenge for Indonesia is no longer simply whether China is dominant in the sector, but how to leverage established capacity to upgrade into next-stage manufacturing:

The goal is to move beyond intermediate processing toward cathode active materials, battery cell fabrication, energy storage systems, battery recycling, R&D, and sovereign technological capability.

In the context of long-term development, Indonesia is navigating a structural transition from a resource power to an industrial power. This transformation requires time to refine institutions, manage externalities, develop human capital, enforce environmental governance, strengthen domestic industry, and advance technological capabilities. Regulatory shifts today should not be interpreted merely as geopolitical signals of Indonesia moving toward or away from China, but as step-by-step state capacity building.