Indonesia's policy risks spawn capital outflow from China's nickel industry: Africa and the Pacific become new destinations

Indonesia's Policy Tightening: A Turning Point for Chinese Nickel Investment

Indonesia, leveraging its abundant nickel ore resources and the export ban implemented in 2020, has successfully attracted Chinese enterprises to set up smelters and industrial parks there, boosting its share of global nickel production from 30% in 2020 to over 60% in 2025. However, with President Prabowo Subianto taking office at the end of 2024, the policy direction has taken a sharp turn. The government is focusing on increasing revenue and expenditure, planning to bring coal, palm oil, and ferroalloy exports under central control, and proposing to raise mining taxes and revise mineral benchmark prices. Although nickel pig iron was ultimately excluded from the control list, a series of measures have severely shaken investor confidence.

The Chinese Chamber of Commerce in Indonesia once wrote to Prabowo, warning that these measures could dampen future investment. Data shows that in 2025, Indonesia's foreign direct investment fell by 6% year-on-year, compared to a 19% increase the previous year. After mining investment peaked in 2024, new investment in base metals smelting has stalled. Policy uncertainty has directly translated into a reversal of capital flows.

First Overseas Diversification for Chinese Nickel Enterprises

Faced with the deteriorating environment in Indonesia, China's two leading nickel companies—Tsingshan Group and Lygend Resources—have begun actively seeking alternative investment destinations.

Tsingshan Group has submitted a multi-billion-dollar industrial park proposal to the government of Madagascar, covering nickel, cobalt, and various other minerals. Madagascar's Minister of Mines, Carl Andriamparany, stated that the proposal was inspired by Tsingshan's projects in Morowali and Weda Bay in Indonesia, but is still under review and no mining permits have been issued. Tsingshan signed a memorandum of cooperation with Madagascar in February 2025, and the details of this proposal have been disclosed for the first time.

Lygend Resources, meanwhile, is pursuing opportunities on two fronts: Africa and the Pacific. According to sources familiar with the matter, Lygend is in talks to acquire a stake in the Kabanga nickel project in Tanzania—one of the world's largest undeveloped nickel sulfide deposits—which is held by US-based Lifezone Metals. In addition, Lygend has made an offer to the state-owned mining group SMSP of New Caledonia to acquire its idle Koniambo nickel project stake, and both parties have conducted site inspections.

If these projects materialize, they will mark the first time Chinese nickel enterprises have ventured into nickel assets outside Indonesia.

Opportunities and Risks of Alternative Investments

The policy changes in Indonesia have already triggered a chain reaction in the global nickel market: supply expectations have tightened, driving nickel prices to two-year highs, which provides a window for restarting idled projects like Koniambo. Koniambo produced over 28,000 tons at its peak in 2018 but was shut down in 2024 due to price collapses, after which Glencore sold its 49% stake.

However, greenfield development in Madagascar and Tanzania faces distinctly different risks.However, greenfield development in Madagascar and Tanzania faces distinctly different risks. Madagascar experienced a coup last year and is now ruled by a transitional military government, which only lifted a 16-year moratorium on new mining permits in January 2025. The country’s existing nickel-cobalt project, Ambatovy, has been suffering long-term losses and is being sold at a loss by Sumitomo Group. Tanzania's Kabanga project, while rich in reserves, has high development costs: Lifezone estimates an initial investment of nearly $1 billion, a construction period of 6 years, and an annual capacity of about 50,000 tons. BHP sold its 17% stake in 2025, reflecting market concerns about nickel price prospects.

Compared to Indonesia, African projects lack ready-made infrastructure, large-scale ore supply, and a mature industrial ecosystem. The success of Chinese companies in Indonesia largely benefits from government cooperation and industrial park-based operational models, but replicating this in Africa faces political, governance, and geo-economic challenges.

Trends in Global Nickel Supply Chain Restructuring

The outward migration of Chinese nickel capital is essentially another adjustment of the global nickel supply chain amid the intertwining of geopolitics and industrial policies. Indonesia has risen as a major nickel producer through resource nationalism, but policy volatility is weakening its appeal. At the same time, the global nickel market oversupply has been exacerbated by China's low-cost capacity, forcing high-cost producers (such as Glencore, BHP, and Sumitomo) to exit, creating space for Chinese companies to expand overseas.

From a broader perspective, the diversification of Chinese companies' overseas nickel investments echoes the strategic game of Global South countries in critical minerals. Resource-rich countries like Madagascar and Tanzania are attempting to attract Chinese capital and technology to build downstream processing capacity and secure a place in the new energy value chain. However, these countries often face issues such as weak infrastructure and insufficient policy continuity, making the successful replication of the Indonesian model highly uncertain.

Conclusion

Indonesia’s tightening policies have become a catalyst for the outflow of Chinese nickel capital. The overseas explorations of companies such as Tsingshan and Lygend mark a shift in China's investment strategy in the nickel sector from concentration in a single country to regional diversification. However, the high risks and high costs of alternative destinations will limit the scale of capital transfer in the short term. In the long run, the global nickel supply chain may become multipolar, but Indonesia will still maintain its dominant position in the short term. For investors, policy stability, infrastructure support, and host country governance capacity will become more critical decision-making variables than mere resource endowment.