Report on the current situation of Chinese mining enterprises in Indonesia
(1) The basic situation of Chinese mining enterprises in Indonesia
The background of Chinese mining companies in Indonesia is mainly based on the demand for Indonesia's rich mineral resources, as well as the focus on Indonesia's economic growth and investment opportunities. Indonesia is a famous country rich in mineral resources in the world, with rich nickel, copper, aluminum, coal and other resources. Chinese mining enterprises invest in Indonesia not only to meet the domestic demand for mineral resources, but also to expand international market influence and improve international competitiveness.
Chinese mining companies' investment in Indonesia stems from China's large mineral demand and Indonesia's rich mineral resources. Nickel is considered the most promising mineral, and Indonesia is rich in nickel. As a result, many Chinese companies have focused on investing in Indonesian nickel mines by building smelters to produce ferronickel or stainless steel. Investment in coal is mainly international trade, because its value is less stable than nickel ore. However, some Chinese investors have tried to become owners of Indonesian coal mines, but have often faced difficulties and ultimately failed.
It should be noted that Indonesia's mining regulations are increasingly strict and competition is fierce, and Chinese enterprises must face many challenges in order to successfully carry out mining cooperation in Indonesia. Therefore, Chinese enterprises need to pay attention to laws and regulations in Indonesian mining cooperation, rationally plan investment, strengthen partnerships, and make timely adjustments to market changes and technological developments to achieve long-term sustainable investment returns.
Chinese mining enterprises' investment in Indonesia may also be affected by Indonesia's political environment, economic policies, social environment and other factors. Therefore, enterprises also need to evaluate and prepare for Indonesia's political stability, economic environment, social relations and other aspects. In addition, Chinese mining enterprises also need to consider the environmental impact of Indonesia's mining investment and take corresponding environmental protection measures to protect Indonesia's natural environment. In addition, Chinese enterprises investing in Indonesia should also actively cooperate with local enterprises to help the development of the local economy. By strengthening local partnerships, Chinese enterprises can not only better understand Indonesia's economic situation and investment opportunities, but also strengthen their influence in the Indonesian market.
Some Chinese bosses involved in mining partnerships in Indonesia do not necessarily make money. The situation of coal and nickel mining is different, nickel mining is generally profitable through smelting, while coal mining is mainly based on international trade, but because of capital intensive, local enterprises monopoly, easy to be deceived, the people around the mining area are difficult to control and other factors, many Chinese bosses cannot be coal owners in Indonesia.(1) Government regulations and policies
The government departments involved in foreign investment in Indonesia's mining sector are mainly: Ministry of Energy and Mines (MEMR), Investment Coordination Committee (BKPM), Ministry of Industry (Kemenperin), Customs (Bea) Cukai), Ministry of Labour (Kemenaker), Ministry of Trade (MOTR), Ministry of Environment and Forestry (KLHK), Ministry of Justice and Human Rights (MoLHR), Commission for the Supervision of Commercial Competition (KPPU), Immigration (Imigrasi), etc. The laws and regulations involved mainly include: Mineral and Coal Mining Law 2009, Forestry Law 2004, Environmental Protection Law 2009, Energy Law 2007, Investment Law 2007, Company Law 2007, General Provisions of Tax Law 2007, Customs Law 1996, Labor Law 2003, Comprehensive Employment Creation Law 2020, Trade Law 2014 , the Implementing Regulations in the Field of Trade (GR29/2021), the Government Regulations on the Implementation of Activities in the Mining and Coal Industry (GR23/2010), the Ministerial Regulations on the Evaluation of Procedures for the Issuance of Mining licenses (MEMRRegulation43/2015), and the Regional grants and permits in mining and coal mining activities The Ministerial Regulation on the Procedures for Reporting (MEMR Regulation11/2018), the Ministerial Regulation on Minerals and Coal Mining (MEMR Regulation 25/2018), etc.
In accordance with Indonesia's Minerals and Coal Mining Act and related regulations, the relevant mining warrants in Indonesia are issued by the Ministry of Energy and Mines (MEMR). The classification of mining rights in Indonesia is carried out in accordance with the development sequence of mineral resources (investigation, exploration, feasibility study, mining area construction, mining, processing and smelting, transportation and sales, etc.), so there are many types and a certain degree of overlap in the scope of application between each other, which may lead to foreign investors are not very clear about what kind of mining rights to apply.
The Indonesian government's restrictions on nickel investment are mainly in the export and access of raw ore. Since 2010, the Indonesian government has gradually tightened its raw ore export policy, hoping to attract foreign capital to participate in the construction of its mining industry chain and increase employment and tax revenue. The export tax rate was increased in 2012, the export of nickel ore was fully banned in 2014, the export of nickel ore was conditionally allowed in 2017, the export ban of raw ore that took effect earlier in 2019, and the export tax on nickel products may be added in 2022.
The Indonesian government's regulations and policies on the mining industry may have an impact on the operations and sales of Chinese coal miners in Indonesia, as these regulations and policies determine the rules that mining companies must comply with, such as permits, environmental protection, taxes, etc. If Chinese coal mining enterprises fail to comply with Indonesian regulations and policies, they will face corresponding consequences, affecting their business in Indonesia, for example, if the Indonesian government promulgates stricter environmental protection laws and regulations, Chinese coal mining enterprises must strengthen the control of exhaust gas emissions, wastewater treatment and other aspects, or they will face corresponding penalties. If the Indonesian government raises taxes, the tax burden of Chinese coal mining enterprises will increase, affecting their economic efficiency. If the Indonesian government more strictly reviews the licenses of foreign coal miners, Chinese coal miners may encounter difficulties in applying for licenses, affecting the speed and efficiency of their entry into the Indonesian market. The regulations and policies of the Indonesian government may affect the operation of Chinese coal mining enterprises in Indonesia in the following aspects:
1. Mineral resources management: The government may issue regulations to set rules for mining and marketing of mineral resources, which may require higher standards of compliance for Chinese coal mining enterprises, thus affecting their production and sales.
2. Environmental protection: The government may issue regulations requiring mining enterprises to protect the environment in the mining and production process, which may increase the cost of Chinese coal mining enterprises and affect their operating efficiency.
3. Tax regulations: The government may issue new tax policies, which may require Chinese coal mining enterprises to bear more tax burden, thus affecting their profitability.
4. Trade restrictions: The government may issue policies to restrict foreign trade, and for Chinese coal mining enterprises, they may face sales restrictions, which will affect their sales revenue. These changes in regulations and policies may directly affect the operations and sales of Chinese coal mining enterprises in Indonesia, reducing their operating efficiency and profitability.
(2) Competition with local and foreign companies
In Indonesia, competition between Chinese mining companies and local and foreign companies may create the following problems: Price competition: Local and foreign companies may attract customers with low prices, making Chinese companies less price competitive. Quality issues: Local and foreign companies may produce minerals of lower quality than Chinese companies, leading to customer dissatisfaction. Knowledge and technology gaps: Local and foreign companies may lack the same technology and knowledge as Chinese companies, affecting the quality of their products. In order to avoid these problems, Chinese coal mining companies can take the following measures: Improve product quality: attract customers by constantly improving product quality. Partnering with local merchants: By partnering with local merchants, make full use of local advantages to improve competitiveness. Carry out technical training: Provide technical training to employees to improve product quality.
To illustrate, let's take an example. The Indonesia Morowali Industrial Park(IMIP) Nickel Mine Smelter Company has launched a Fero Nicel coal with higher caloric value, lower pollution and better combustion efficiency. However, the price of the product is higher than that of local competitors, and the production volume is less than that of foreign competitors. As a result, IMIP companies were unable to attract enough customers and were at a disadvantage in the market.
In order to solve this problem, IMIP Coal Mining Company needs to take a series of measures. First, the company can attract more customers by continuously improving and upgrading the production process, reducing production costs, and improving product quality. Secondly, the company can strengthen the communication with customers, understand the needs and expectations of customers, and provide more thoughtful service to increase customer satisfaction.
In addition, IMIP Coal Mining companies can improve production efficiency and reduce costs by working closely with partners and suppliers to protect their interests to the greatest extent. For example, the company can cooperate with technologically advanced foreign companies to obtain more advanced production technology and equipment.
(3) Economic instability and fluctuations in commodity prices
On the 8th, the London Metal Exchange nickel futures price surged for two consecutive days, the largest increase reached 242%, breaking the record high price of $100,000, becoming a hot event in the mining field of international concern. On the one hand, the skyrocketing price of London nickel futures cannot be ruled out as the malicious operation of the futures market trading body to force short opponents, on the other hand, but also objectively reflects the current strong demand for nickel resources and the international market's concerns about the supply of nickel mineral products. Chinese nickel smelters in Indonesia face numerous challenges from volatile prices and economic instability. Price fluctuations can lead to instability in raw material and production costs, which can affect a company's profitability. For example, if raw material prices rise, the company may need to increase selling prices to cover the increased costs. But if the selling price is too high, customers may choose alternatives, causing the company's sales to drop.
The unstable economic environment may also have an impact on the company. For example, in a bad economy, consumers may cut back on high-value products, reducing demand for companies. This will lead to lower sales and affect the company's profitability. In addition, fluctuating exchange rates may also have an impact on the company. If the rupiah falls against the dollar, it will increase the cost for companies to export nickel products. This will reduce the company's competitiveness and cause customers to choose other suppliers.
In order to meet these challenges, Chinese nickel smelters in Indonesia need to adopt diversified marketing strategies. For example, the company can expand its product line to introduce more low-value products to suit the market. Qingshan Group takes the following steps to achieve monopoly: Technology leadership: Invest in technology research and development to ensure efficient production processes, reduce costs, and improve product quality. Supply chain Management: Improve supply chain management to ensure a stable supply of raw materials, reduce costs, and increase efficiency.
The Indonesian government implemented a plan to ban crude nickel exports in January 2021 with the aim of increasing the value of domestic nickel products. Indonesia is one of the world's largest producers of nickel reserves, accounting for 37% of global production. However, this market intervention not only reduces economic efficiency, but also disrupts the global supply of nickel, potentially leading to trade conflicts. The EU has filed a case with the WTO, and Indonesia is currently facing a lawsuit. As the world's largest producer and owner of nickel ore reserves, Indonesia plays an important role in the nickel trade. Indonesia produces 1 million tonnes of nickel, 37% of the world's total nickel production (about 2.7 million tonnes). To take advantage of this, the government banned the export of raw materials to increase the value of domestic nickel products.
1. A surge in derivatives investment and exports
The implementation of the export ban policy has not been smooth. In 2014, the government effectively banned the export of mineral products. But the government lifted the ban in 2017 due to reduced nickel production, slow refinery construction and a trade deficit. With several domestic refineries coming on stream, the government banned exports of low-grade nickel ore in 2020. The government claims that the ban on nickel ore exports has succeeded in increasing investment in the base metals sector, especially in nickel refineries.
When the government first banned nickel ore exports in 2014, the value of mining investments fell as incentives were reduced due to the inability to export to foreign countries. However, the data for 2021 shows another increase in mining investment compared to 2020, indicating that the export ban has not hindered investment flows as existing supply is still absorbed by domestic demand. The government also claims to have exported derivatives of raw minerals, particularly nickel, such as stainless steel. With the increase in investment in the base metals industry, the production of nickel-based products has also risen sharply. With the ban in 2014, the relaxation in 2017, and the redefinition of the original nickel export ban in 2020, growth in nickel derivative production has also fluctuated.
These two indicators, namely investment in downstream mining and increased exports, convinced the government to extend the ban on mineral exports to other products such as tin and copper. However, it remains questionable whether investment and exports are the right indicators to judge the success of an export ban strategy.
2. Value-added dynamics
In order to measure added value, more detailed calculations of value chain transfers are needed, especially when intervention policies or state interventions (such as export bans) are involved. The potential loss of tax revenue is the first issue to consider. The ban on nickel exports means a loss of tax revenue for nickel mining companies and commodity exports. Revenue from the downstream nickel industry must make up for losses. To attract refining investors, tax cuts are needed in addition to a ban on nickel exports. Oil refineries can enjoy income tax breaks. The resulting products also receive relief in the form of export tax exemptions. The second problem is the transfer of value from mines to refineries. The export ban forces mining companies to sell nickel ore to domestic refiners at well below the global market price, especially with nickel prices high today. The mining industry lost value because of the ban on nickel ore exports. This is exacerbated by the process of determining the domestic nickel purchase price and the level of nickel that is still being discussed. The third issue is Labour. The government believes that the high value-added will increase the demand for Indonesian workers. In addition to increasing the number of workers in the refining industry, the government must also calculate the likelihood of a reduction in the mining workforce due to restrictions on nickel exports. Unfortunately, data on the mining workforce is still hard to find. At the same time, the proportion of people working in the metals industry has not increased.
The implementation of Indonesia's nickel export ban has encountered multiple difficulties, including the difficulty of calculating the value increase, the appropriateness of the value transfer, licensing management, rising energy demand, and environmental issues such as water pollution. The ban also invites the EU to bring a case to the WTO, where Indonesia would face the risk of trade retaliation and difficult access to global markets, potentially affecting its attractiveness as a battery production hub. In Indonesia, the momentum to benefit from higher nickel prices has been lost, with nickel prices surging nearly fivefold in early February and March. The increase is due to the conflict between Russia and Ukraine, which are also major nickel suppliers.
Data showing the success of the government's plan to support a nickel export ban is scant. The potential loss of tax revenue, possible trade retaliation by importing countries, and reduced revenue for miners from having to sell to domestic smelters at lower prices are all obstacles to calculating the value of downstream nickel based on the export ban. Related to this, the government needs to carefully calculate the downstream value of the project and not just use export data. Governments must combine these calculations with the downstream roadmap needed to paint a long-term picture of success. With transparent data, the program could become one of the successful government programs. Under the current plan, it would be better to treat the benefits of downstream nickel products skeptically on the basis of an export ban.
1. Economic factors affecting the survival of Chinese nickel mining companies in Indonesia
Market competition is an important factor affecting the survival of nickel ore manufacturing companies in China. There is stiff competition in the Indonesian nickel market, with companies from all over the world vying for market share. Chinese nickel ore manufacturing companies must remain competitive in the competition to ensure their survival in the market.
Trade policies and regulations are also important factors affecting the survival of nickel mining companies in China. The Indonesian government has implemented strict trade policies and regulations to protect domestic businesses and eliminate advantages for foreign companies. Chinese nickel mining companies need to understand and comply with these policies and regulations to ensure their legitimate operations in Indonesia.
2. Political factors affecting the survival of Chinese nickel mining companies in Indonesia
First, political stability and security are important factors affecting the survival of Chinese nickel mining companies in Indonesia. The political environment in Indonesia is unstable and the security situation is also less stable, which will have a negative impact on the operations of nickel mining companies. Second, China's relationship with Indonesia also has implications for the survival of nickel mining companies. If relations between China and Indonesia are strained, it will affect the environment for nickel mining companies. In addition, government policies and regulations are also important factors affecting the survival of nickel mining companies in Indonesia. Government policies and regulations in Indonesia may not be conducive to the operations of nickel mining companies or may make it difficult for nickel mining companies to survive. Finally, the influence of interest groups is also a factor affecting the survival of Chinese nickel mining companies in Indonesia. Interest groups in Indonesia can have an impact on the survival and operations of nickel mining companies. In short, nickel mining companies face a number of political factors in the process of survival in Indonesia
3. Social factors affecting the survival of Chinese nickel mining companies in Indonesia
The survival of Chinese nickel mining companies in Indonesia is also influenced by various social factors that play an important role in the success of these companies. The following are some of the social factors affecting the survival of Chinese nickel mining companies in Indonesia:
(1). Local community support and opposition
The support or opposition of the local community can greatly affect the success of Chinese nickel mining companies in Indonesia. A positive relationship with the local community can make a company run smoothly, while opposition from the community can lead to protests and disruption of company activities. Therefore, these companies must build good relationships with local communities and communicate effectively to address their concerns.
(2). Working conditions and employee relations
Labor conditions and employee relations in Indonesia's nickel industry also play an important role in the survival of Chinese nickel mining companies. Companies that offer good working conditions and treat their employees fairly are more likely to attract and retain a skilled workforce, which contributes to their success. On the other hand, companies with poor labor conditions and employee relations are more likely to face challenges in attracting and retaining skilled labor, which can negatively impact their success.
(3). Corporate Social responsibility and environmental impact
Corporate social responsibility and environmental impact are also key factors affecting the survival of Chinese nickel mining companies in Indonesia. Companies that have a strong commitment to corporate social responsibility and minimize their environmental impact are more likely to receive positive attention from local communities and other stakeholders. This can bring more support and a better reputation to the company, thus contributing to their success.
(4). Indonesian public's perception of Chinese enterprises
Finally, the Indonesian public's perception of Chinese companies has also played a role in the survival of Chinese nickel miners in Indonesia. If the public has a positive view of Chinese businesses, this can increase support for the company and a better reputation, thus contributing to their success. On the other hand, if the public has a negative perception of Chinese companies, it may lead to opposition and challenges to the company, which can negatively impact its success.
In short, the survival of Chinese nickel mining companies in Indonesia is influenced by a combination of economic, political and social factors. Companies that can effectively manage these factors are more likely to succeed in the Indonesian nickel industry.
4. Conclusion
By analyzing the multiple factors that affect the survival of China Nickel Mining company in Indonesia, this paper reveals the challenges and opportunities that China Nickel Mining company faces in the Indonesian nickel industry. On the economic front, market competition, trade policies and regulations, currency exchange rates, and access to resources and infrastructure all have an impact on the survival of Chinese nickel mining companies in Indonesia. On the political front, it is also influenced by political stability and security, China-Indonesia relations, government policies and regulations, and the influence of interest groups. On the social front, support and opposition from local communities, labor conditions and employee relations, corporate social responsibility and environmental impact, and the Indonesian public's perception of Chinese companies also play an important role.