China's Kadin vents over a 'rotten' investment climate in Indonesia in front of Bahlil and Purbaya
JAKARTA – Chinese businesspeople have finally been given time to air their grievances directly to the Indonesian government. Bahlil Lahadalia, the Minister of Energy and Mineral Resources (ESDM), summoned Chinese businesspeople to his office. He was accompanied by Purbaya Yudhi Sadewa, the Minister of Finance.
“This is, you know, with Chinese entrepreneurs, to capture the problems they face. There are oversights on their part, and yeah, we’ll listen. If we can fix them, we will,” Purbaya said at the ESDM Ministry, on Tuesday (19/5).
He acknowledged there were many grievances directed at the government, most of which were already laid out in the open letter that has just been published. “There are many, the China Chamber of Commerce (Kadin China) who drafted the letter to the President,” he said.
Earlier, the China Chamber of Commerce with Chinese companies investing in Indonesia wrote an open letter to President Prabowo Subianto, requesting improvements to the business climate in the country, particularly in the mining and energy sectors. The investors judge that various government policies are starting to curb company operations and disrupt long-term investment confidence.
One of the main focuses in the letter was tax and levies increases, including mineral and coal royalties that are said to be rising. They also referenced tax audits that are deemed aggressive, with penalties reaching tens of millions of US dollars.
Additionally, Chinese investors protested the foreign exchange retention policy on export earnings from natural resources, which requires exporters to place 50% of foreign exchange in state-owned banks for at least one year. The policy is seen as potentially disrupting corporate liquidity.
In the nickel sector. The investors say nickel ore production quotas have been slashed drastically this year, with reductions exceeding 70% or about 30 million tonnes. According to the businesspeople, this condition disrupts downstream industries such as electric vehicles, new energy, and stainless steel, which have long been the focus of Indonesia’s downstream strategy.
The investors say this worsens the supply chain for downstream industries like electric vehicles, new energy, and stainless steel, which has been Indonesia’s focus for downstream processing.
Moreover, Chinese companies also highlighted tightened enforcement of forestry law. The letter mentions fines of up to US$180 million against Chinese investment companies related to forest-use permits.
They also pointed to the suspension of several hydroelectric power plant projects (PLTA) accused of damaging forest areas and worsening floods.
Sharp criticism was also directed at the Ministry of Energy and Mineral Resources’ policy on nickel’s Mineral Reference Price (HPM). Investors say the price formula now includes co-minerals such as cobalt and iron, causing production costs to soar.
The Chinese investors say the sharp rise in production costs represents a driver of increasing operational losses and an imbalance in the supply chain. This will not only harm projects already under way but also affect future investment, exports, and jobs for more than 400,000 people in the sector’s supply chain, while also undermining global investor confidence in Indonesia’s nickel sector.
The latest policy issued by the related authorities in Indonesia is seen as lacking stability and continuity. Enforcement standards in taxation, environment, forestry, and other areas are considered non-transparent and granting excessive discretionary powers.
Meanwhile, when companies face problems, the normal complaint channels are clogged, agencies pass the buck and respond slowly, and some issues can only be resolved through third parties charging very high fees.
This situation not only increases operational risks for companies but also damages Indonesia’s image as a fair, transparent, rule-based business environment with a strong international reputation.
“Chinese-investment companies in Indonesia remain optimistic about Indonesia’s development potential and are ready to continue supporting bilateral economic cooperation,” the letter said.