Indonesia has launched a sweeping policy overhaul that centralizes the export of key commodities under state control, a move that could disrupt global supply chains and challenge China’s economic interests in the region. President Prabowo Subianto announced the new regulation to parliament on Wednesday, mandating that a state-owned enterprise, PT Danantara Sumberdaya Indonesia, will manage exports of coal, palm oil, and iron alloys by September.

The policy aims to bolster tax revenues and combat issues like under-invoicing and transfer pricing, which Prabowo claims have cost Indonesia up to $908 billion. PT Danantara, 99% owned by the country’s sovereign wealth fund, will oversee all trade transactions with foreign buyers by September, marking a significant shift in Indonesia’s approach to managing its resources.

Impact on China’s Supply Chains

As Indonesia’s largest trading partner, China stands to be heavily affected by the new regulation. Indonesia is the world’s largest exporter of thermal coal and palm oil, as well as a critical supplier of nickel, a mineral essential for electric vehicle batteries and stainless steel production. 'Indonesia has become vital to China,' said Li Shuo of the Asia Society Policy Institute’s China Climate Hub, noting that Chinese companies are major investors in Indonesian industries tied to these commodities.

'The future path that Indonesia is taking is highly important for China,' said Lei Xie of Third Generation Environmentalism.

Potential for U.S. Investment

Analysts suggest the move could open doors for increased American investment in Indonesia’s resource sectors. Bhima Yudhistira of the Center of Economic and Law Studies called the policy a 'hostile takeover' of industries previously dominated by Chinese interests, adding that it signals Indonesia’s willingness to pivot toward U.S. partnerships. 'Such a move is a clear signal that U.S. investment is being attracted to come to Indonesia even more,' Yudhistira said.

Private companies will transition their export activities to PT Danantara between June and August, with full implementation expected by September. Airlangga Hartarto, Indonesia’s coordinating economic minister, emphasized that the initial focus is on improving transparency and reporting. However, trade analysts remain skeptical about the government’s ability to seamlessly manage such a complex transition.