Highlights

• China views Indonesia as a strategic hub for nickel, cobalt, and critical minerals.
• Bilateral trade between China and Indonesia is expected to reach $135 billion in 2024.
• China holds dominance over 75% of Indonesia's EV battery technology.
• Indonesia's downstreaming success relies heavily on Chinese capital and midstream inputs.
• This reliance creates a structural dependency despite government efforts to diversify towards Australia, the U.S., and Japan.
• Indonesia is emerging as a contested supply-chain battleground.
• Western and regional investors are quietly challenging Chinese dominance in REE prospects and downstream processing.

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This analysis originates from The Interpreter (opens in a new tab), the geopolitical commentary platform of Australia’s Lowy Institute (opens in a new tab), one of the Indo-Pacific’s most influential foreign-policy think tanks. Lowy often provides sharp, data-backed assessments of regional power dynamics—and this piece is no exception. But it also deserves scrutiny, especially where critical minerals and rare earths intersect with geopolitics, economics, and supply-chain dependence.

China’s Long Game: Indonesia as a Strategic Fulcrum

According to Lowy, China views Indonesia not as an ally, but as a “hub”—a critical node securing Beijing’s access to nickel, cobalt, rare earths, and downstream battery supply chains. Indonesia’s mineral-forward economy, they argue, has become structurally entangled with China’s industrial and technological ecosystem. Bilateral trade reached US$135 billion in 2024, with China becoming Indonesia’s largest trading partner and second-largest investor.

For rare earth and critical mineral investors, the key point is this: Indonesia’s “downstreaming success story” is, in many ways, built atop Chinese technology, Chinese capital, and Chinese midstream inputs. The industrial parks, smelters, and battery plants proudly showcased in Jakarta often remain extensions of Beijing’s global production architecture.

When “Industrial Sovereignty” Meets Reality

The Lowy authors highlight a stark statistic: up to 75% of the technological know-how Indonesia relies on for EV and battery industrialization is controlled by Chinese companies. This aligns with rare earth sector data—Indonesia’s REE deposits are promising but remain undeveloped, and the country lacks the complex separation, purification, and metallization systems that China perfected decades ago.

Indonesia’s government wants to diversify toward Australia, the U.S., and Japan. But so far, diversification has been symbolic, not structural. Even South Korea’s LG Energy Solution exit from an Indonesian battery JV is expected to be filled—once again—by a Chinese firm.

Indonesia’s dependence on China for nickel, EV batteries, and critical minerals is genuine and well-documented, with Chinese firms firmly dominating midstream processing, rare earth separation, and metallurgical know-how—consistent with Beijing’s preference for long-term industrial linkages rather than formal alliances. But parts of the narrative overreach: Indonesia is not a passive actor and routinely uses Chinese investment as leverage; claims of irreversible “path dependency” overlook expanding Japanese, Australian, Indian, and even U.S. interest in Indonesian minerals; and the suggestion that competitive space is narrowing for non-Chinese players ignores the quiet but growing push by Western and regional investors into Indonesian REE prospects.

Why This Matters for Rare Earth Markets

Indonesia is emerging not as a rare earth superpower—but as a contested arena where global players will battle for influence over EV metals, smelters, and downstream processing. The Lowy Institute is right that Beijing prefers Indonesia “tied up” rather than formally aligned. But whether Jakarta remains in China’s gravitational pull or rebalances will determine the Indo-Pacific’s next major supply-chain pivot point.

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