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Q&A: Chinese-Dominated EV Supply Chains in Southeast Asia Grapple With Abuses

File image taken on February 10, 2023 of a nickel smelter operated by the Virtue Dragon Nickel Industry in Morosi, on the eastern Indonesian island of Sulawesi. The company is a subsidiary of De Long Nickel Co.LTD from Jiangsu, China. Adek BERRY / AFP

Since the 2010s, China has moved swiftly to secure mineral resources around the world to feed its gigantic electric vehicle (EV) battery manufacturing industry. In the Democratic Republic of the Congo, China was reported to own 15 of the 17 cobalt operations in the country, producing tons of refined cobalt, a crucial ingredient for EV batteries. 

In Southeast Asia, two countries in particular, Indonesia and the Philippines, are emerging as the key mining hubs for Chinese companies which now have large operations to extract and process the minerals and metals needed to manufacture batteries used to power electric vehicles.

In Indonesia, Chinese companies have built massive industrial parks that house the processing facilities for nickel, also used in EV batteries, namely in Indonesia Weda Bay Industrial Park (IWIP) and Indonesia Morowali Industrial Park (IMIP), which are located on the eastern islands of Halmahera, Maluku, and Sulawesi, respectively. 

Reports of human rights and environmental abuses in these complexes are growing. Respiratory problems, forest destruction, water pollution, and Indigenous peoples’ displacement are among the most pressing issues.

Nickel and cobalt have always been dirty businesses, even far before the EV demand began to steeply rise. Chinese companies are not unique in how resource extraction activities have been conducted in the past four decades. 

But given China’s scale and growing dominance in the mining and refining of these critical resources — that some have referred to as the ‘New Gold’ calls are now mounting for greater transparency and accountability throughout the battery-making supply chain.

Pochoy Labog, a researcher at the Business and Human Rights Resource Centre in Manila, has detailed these social and environmental abuses in a new report, where he linked the battery metal supply chains in the Philippines and Indonesia to many of the world’s largest automakers including Ford, Tesla, Hyundai, and Volkswagen. 

I spoke with Pochoy for some insights on how the supply chains were developed that led to these abuses, and what mining companies, EV makers, and governments, can do to hold suppliers from China and other countries accountable. His comments have been lightly edited for brevity and clarity.

ANTONIA TIMMERMAN: What are the key differences that you see between the Philippines and Indonesia, in terms of how the supply chain is developed and organized in these two places, that lead to these abuses? Maybe, you see how in one country the foreign company simply takes advantage of policy loopholes, and in the other, they work with the local elites, for example? And when I say Indonesia, I mean specifically in the context of China’s investments here, as we want to understand how Chinese companies compare to others when they operate as foreign entities in Southeast Asia.

POCHOY LABOG: The Philippine constitution generally limits business operations involving the exploration and development of natural resources to Philippine corporations. However, foreign companies have found ways to operate indirectly through different corporate structures involving domestic corporations. The same limitations are not found in Indonesia. Perhaps, this is the reason why Chinese companies seem to be more visible in their transactions in Indonesia. 

They have fewer restrictions in setting up shop compared to the Philippines.

In addition, since the domestic processing of nickel has been encouraged in Indonesia, more Chinese companies have become interested in investing in Indonesian Industrial Parks. The increase in investment and business operations also increases human rights and environmental risks, if regulations are not strictly implemented and enforced.

In general, Chinese companies tend to work with the local elites both inside and outside China. In this sense, there might not be significant differences regarding Chinese companies’ performance in the Philippines and Indonesia, and the degree of rights abuses may be more associated with local authorities’ (un)accountability and impunity.

However, opacity and lack of willingness to engage with stakeholders (particularly those who are affected) are chronic issues in Chinese overseas investment. 

While we do not have granulated data about foreign companies in the region, Chinese companies generally have a lower response rate when approached by the Business & Human Rights Resource Centre about environmental and human rights-related allegations.

Chinese companies had a very low response rate to our survey at just 24% overall, lower than the Resource Centre’s overall response rate from other Asian companies (53%), particularly companies from major economies such as Japan (68%), India (47%), and Indonesia (41%).

ANTONIA: Given the tension and rhetoric from Western governments about Chinese suppliers — can Western EV companies like Tesla, Ford, Volkswagen etc. who buy from Chinese nickel firms hold their suppliers accountable? How can they do this, and have they taken the steps to? Actually, do we have evidence that these companies do hold their Chinese suppliers accountable when problems arise?

POCHOY: As major buyers of the products produced in Indonesia and the Philippines, downstream EV companies have the obligation to hold their suppliers accountable for the social and environmental impacts caused. 

Although some EV companies have human rights and environmental policies in place, seeing the longstanding issues in the countries where they are sourcing from, it is questionable whether they have conducted adequate robust due diligence across their supply chains and or exerted enough pressure on the supplier companies when issues are being identified. These processes should be implemented throughout the business cycle, built on worker and community engagement that is safe and inclusive. 

File image of a worker at a factory for Xinwangda Electric Vehicle Battery Co. Ltd, which makes batteries for electric cars and other uses in China’s eastern Jiangsu province. Many of the resources used to manufacture these batteries come from countries like the Philippines, Indonesia and the DR Congo among others. STR / AFP

From our own engagements, Tesla never responded to our requests regarding allegations linked to it, suggesting the challenges are not solely on Chinese or emerging market companies. 

There are also sporadic positive examples of voluntary initiatives launched by upstream and downstream companies in mineral supply chains. Drive Sustainability is an initiative with a group of automobile companies aiming at embedding sustainability into company procurement processes.  

The Responsible Cobalt Initiative (now renamed as “Responsible Critical Mineral Initiative”), initially aimed to tackle child labor issues in DR Congo. But it is difficult to assess if these initiatives are effective due to challenges to collecting evidence on the ground and relatively short-term international attention and pressures. However, the effectiveness of such initiatives is difficult to determine with in-depth third-party research and assessments. 

ANTONIA: What would be your recommendations for the Indonesian and Filipino governments? 

POCHOY: Enforce laws, particularly those ensuring that environmental quality standards are complied with, as well as those imposing sanctions on abusive companies. Stop nickel mining activities in essential ecosystem areas, such as forest and coastal areas, as well as in areas of community water sources, to prevent toxic pollution in accordance with Indonesia’s existing regulations. Respect and protect affected communities’ rights to health, land, food, livelihood, and freedom of expression. Investigate the alleged human rights and environmental abuses, and, if evidence of abuse is found, hold them accountable, along with other companies in their value supply chain.

Pochoy Labog is the Southeast Asia Researcher and representative at Business & Human Rights Resource Centre based in the Philippines. He is the author of BHRC’s report Powering Electric Vehicles: Human Rights and Environmental Abuses in Southeast Asia’s Nickel Supply Chains. 

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