Op-Ed: China’s victory over the first Southeast Asia high-speed rail project in Indonesia and what does it signifies to the Asia Pacific Region?

Indonesian and Chinese officials pose for photographs at the joint venture agreement-signing ceremony for the high-speed railway line between Jakarta and Bandung in Jakarta. (File photo/Xinhua)

China victory against Japan over the bidding war to handle the first Southeast Asia high-speed rail project in Indonesia has signified its tremendous eagerness to realize its 21st Century Maritime Silk Road (MSR). The two Asian giants have presented very competitive deals with each own sweetening terms to the Indonesia government – an emerging middle power with approximately 250 million total populations and significant political clout in ASEAN. Despite a tough proposition from Japan, China is prepared to its utmost to achieve its objectives. Japan criticized China’s proposal as unrealistic, especially without government funding and is likely to end up making losses as it has to deal with a complex and corrupt local bureaucracy in Indonesia. However, China overall strategic aims override project details and ready to go the distance. This victory was important stepping stone to build up its credentials. 

Courting Jakarta

Favoring China over Japan was big decision for Indonesia. Jakarta was in dilemma to choose between a trusted old friend and a new emerging power with an undeniable interesting offer. In so doing, China has also shown that it will not hesitate to use its greatest weapon to get what it wants: money and flexibility to adapt to the needs of ruling government.

Having completed a feasibility study that took 10 years and cost approximately US$3million, Japan was initially the frontrunner of the Jakarta – Bandung high-speed railway project. As Indonesia’s second largest investor, Tokyo had also enjoyed stronger ties with Jakarta. This is especially so considering Japan’s strong commitment in realizing its investment to Indonesia. It has been proven by huge ratio of investment implementation that according to Indonesia Investment Board’s statistic amounted 51 percent between 2010 and 2014. Japan has also presented considerably the best feasible offer, combining high quality products with a cheap bilateral loan for its financing whereby Indonesia would have only paid for 0.1 percent interest rate and kept the risk of the project was a failure. Japanese Prime Minister, Shinzo Abe, has also attempted to offer a last minute deal by lessening the guarantee and shortening the completion time into around five years, with a transfer of knowledge deal and promises to expand maritime cooperation with Indonesia.

Beijing had offered the Jakarta bigger investment value of US$5.27 billion in comparison with Tokyo that was around US$ 4.4 billion, without a government guarantee and was done purely as a business to business transaction. This offer was also followed by other deals such as capacity building and the development of local manufacturing industries that will open massive job opportunities for a local population of approximately 40 thousand workers. In other words, the Indonesian government will enjoy the results while China does all the heavy lifting. Not to mention, China also promised to complete the project by 2019, the year of a national election. That would be a plus for the Indonesian President, Joko “Jokowi” Widodo, who in all likelihood will run for a second term. The three year timeframe is of course more appealing for Jokowi as it would be an enormous political boost for him.

The decision aroused deep disappointment in Japan. Akihiro Ota, Japanese Transportation Minister, has said that Japan would reevaluate its overall investment to Indonesia. Although Indonesia has sought to give Japan a consolation prize by offering other projects, Indonesia’s decision has shown that China’s method in approaching developing country was irresistible. This is also marked departure from the usual position that Indonesia as middle power has sought to maintain, a strategic distance with China in order to preserve its image of neutrality, especially due to some of ASEAN members that are in conflict with Beijing over South China Sea’s territorial claim.