After months of speculation, Indonesia has chosen China over Japan for a lucrative high-speed rail contract. The high-speed rail line, estimated to cost from $5-6 billion, will connect Jakarta and Bandung, the capital of West Java province. It will be Indonesia’s first high-speed railway.
Japan and China have been vying for the contract since Indonesia announced that China submitted a bid in April 2015, much to Japan’s dismay. Things took a strange turn in early September, however, when Indonesia scrapped the idea altogether. Minister Rizal Ramli said Jakarta had decided not to request a high-speed train at all, but a “medium-speed” one that allows for more stops along the route.
Ramli also said that the Indonesian government did not want to use any state funds for the project. According to Bloomberg, Japan’s bid was based on getting funding from Indonesia’s government and a low-interest loan offered by Japan; China offered to provide a loan and have Indonesian state-owned firms provide the remainder of the costs.
In the end, it appears it was the financing question that decided the issue in China’s favor. Indonesia’s National Development Planning Minister Sofyan Djalil told Japan’s chief cabinet secretary, Yoshihide Suga, that Indonesia’s wish to see the project completed under a business-to-business model (without any guarantee of funding from the state) precluded Japanese involvement. Japanese companies would not be able to meet that requirement.
“Japan’s business model and regulations have made it impossible [for Indonesia] to give a concession credit to Japanese companies,” Sofyan said, according to Indonesian media.
China, meanwhile, submitted a new proposal – still for a high-speed train – that would not require a funding guarantee from Jakarta. That proposal was accepted, winning China the contract. An Indonesian minister told the Wall Street Journal that a Chinese team is already in Jakarta and will break ground on the project by the end of the year. The railway is scheduled to begin operating in 2019.
China’s proposal, at an estimated $5.5 billion, was also significantly cheaper than Japan’s $6.2 billion bid.
China welcomed Indonesia’s choice, which meshes well both with Beijing’s call for Chinese companies to “go global” and for increased infrastructure investments from China along the planned “Belt and Road routes.”
“The Chinese side has a wealth of experience in building and operating high-speed railways and enjoys an edge in terms of cooperation model, financing conditions, technology transfer and construction period,” Foreign Ministry spokesperson Hong Lei explained in a press conference on Wednesday. “The Chinese side looks forward to deepening practical cooperation with Indonesia on infrastructure facilities and production capacity.”
Japan, predictably, was disappointed with the decision. Suga called the choice “extremely regrettable,” and cast doubt on the feasibility of completing the project as designed, on a purely business-to business level.
“It defies common wisdom” to undertake such a massive project without government funding, Suga said. “I doubt if it would be successful.”
Indonesia, meanwhile, sought to reassure Japan that its investments were still welcome on other projects. Sofyan told Suga that Indonesia would still welcome Japanese cooperation in building the Cilamaya port in West Java. Indonesia’s presidential chief of staff, Teten Masduki, also told reporters that Japan could still invest in another high-speed rail project linking Jakarta and the capital of East Java, Surabaya.