ANALYSIS: Bullet train deal signifies China's influence on Indonesia, end of line for Japan
In 2015, China outbid Japan for the first high-speed rail project in Indonesia, reflecting Beijing’s eagerness to realize its 21st Century Maritime Silk Road initiative.
So what does this signify for the Asia Pacific region?
Indonesia made a big and highly significant decision to award China rather than Japan the Jakarta–Bandung high-speed rail project, which is expected to start construction in early 2016. Jakarta had a dilemma: should it choose between a trusted old friend – Japan – or a new emerging power, China?
Despite an attractive proposition from Japan, China eventually secured the project with terms that Jakarta found hard to refuse. The clincher was China’s willingness to forego a sovereign guarantee by the Indonesian government. (READ: Indonesia defends railway project after ambiguous bidding angers Japan)
Japan criticized China’s proposal as unrealistic. It lacks government funding and is likely to end up making losses as it has to deal with a complex and corrupt Indonesian bureaucracy. But China showed that it will not hesitate to use its greatest weapon to get what it wants: money and flexibility to adapt to the needs of the local government. (READ: China, Japan battle to build Indonesia's first bullet train)
Having completed a feasibility study that took 10 years and cost approximately US$3 million, Japan was initially the frontrunner for the Jakarta–Bandung high-speed railway project. As Indonesia’s second largest investor, Tokyo had also been enjoying strong ties with Jakarta. This is especially so considering Japan’s strong commitment to realizing its investments in Indonesia.
Japan had also presented the best feasible offer, combining high quality products with a cheap bilateral loan for its financing — Indonesia would have to pay only 0.1% interest. Japanese Prime Minister Shinzo Abe also attempted to offer a last-minute deal by lessening the quantum of the Indonesian sovereign guarantee, shortening the completion time to about 5 years, including a transfer of knowledge deal and promising to expand maritime cooperation with Indonesia.
Beijing had offered Jakarta US$5.27 billion, compared to Tokyo’s US$4.4 billion, without a government guarantee and purely as a business-to-business transaction. This offer was followed by other deals such as capacity building and developing local manufacturing industries that would open job opportunities for approximately 40,000 workers.
This means that the Indonesian government will enjoy the results while China does all the heavy lifting. China also promised to complete the project by the 2019 national election. That would be a plus for Indonesian President Joko ‘Jokowi’ Widodo, who will likely run for a second term. The 3-year timeframe is of course more appealing for Jokowi as it would be an enormous political boost for him.
Indonesia’s decision aroused deep disappointment in Japan. Japanese Transportation Minister Akihiro Ota has said that Japan would re-evaluate its overall investment in Indonesia. Although Indonesia has offered Japan a consolation prize through other projects, the decision showed that China’s approach toward developing countries in economic cooperation and investment could prove irresistible. – Rappler.com
Read the rest of the article on Asia Sentinel.
Emirza Adi Syailendra is a Research Analyst with the Indonesia Program at the S. Rajaratnam of International Studies (RSIS), Nanyang Technological University, Singapore.