China's bet on Indonesia's resources: it's not just nickel

Indonesia is renowned for its abundance of other resources besides nickel: palm oil, coal and wood pulp also figure strongly in the relationship with China, its largest trading partner.

Our first chart shows how China has gained share - surpassing the ASEAN bloc as a destination for Indonesian exports starting in mid-2021. But the upward trajectory started a decade ago. Indonesia banned the export of unprocessed nickel ore in 2014, wanting to promote a domestic smelting and processing industry. China stepped in with investment, seeking a reliable source of nickel for its burgeoning electric-vehicle and battery industries.

As our second chart shows, this has almost tripled the share of base metals in the Indonesian export mix over the past decade; this category now stands at 14.4% of exports, trailing only the largest segment -- "mineral products" -- which includes Indonesia's gradually declining oil production.

The third-largest slice of the export pie in both 2014 and 2024 is the edible-oils category, which contains palm oil.

China is particularly dependent on Indonesia for this key agricultural ingredient, as our third chart shows. China's palm oil "trade dependency" on Indonesia exceeds the equivalent for coal, petroleum, wood pulp. (We calculate trade dependency based on percentages of goods coming from a given country; for more please see our Jan. 16 story.)

In turn, this chart also gives a sense of Indonesia's dependence on China: nickel figures strongly, of course, but Chinese demand is even more important for Indonesia's wood pulp production.

We've also visualized the other side of this deeply intertwined trading relationship: Indonesia's imports from China, which are dominated by machinery and appliances.

We conclude with two charts on "trade diversion," which address how US-China trade tensions have resulted in manufacturing moving to "third-party" ASEAN countries over the past decade. We've previously written about how Vietnam has especially benefited from this trend, but Indonesia has too.

We examine the auto and toy industries, adding a dotted line to show when President Trump's first round of tariffs on China kicked in in mid-2018. Since then, China has shifted production of both categories of goods to Indonesian factories, driving rapid growth in "intermediate goods" imports from China that are used to manufacture the final product. Meanwhile, US-China trade interdependence in both categories has fallen.

(China's BYD, the world's biggest electric-vehicle maker, is currently developing a large manufacturing plant in on the Indonesian island of Java; these vehicles are effectively barred from the US, however, and will be sold elsewhere.)