Why does the Indonesian government opt for China but ignore Japan in the Jakarta-Bandung high-speed rail project?

After the G-20 agenda, Jokowi and Xi Jinping took the time to witness the online trial of the Jakarta-Bandung high-speed rail project jointly by the two countries, in Bali.[1] The project, which is predicted to be completed in the middle of next year in 2023[2], is an Indonesian mega project that has attracted a lot of public attention. This project cannot be separated from the dynamics of competition involving Japan and China in the early stages of its submission.

In this article, I explain why the Indonesian government finally opted for China over Japan in constructing its high-speed train. The reasons behind I resume from the reports of both Indonesian media and government websites. Then I add my opinion to each reason and how much it influence decision-making.

Introduction

The high-speed rail project connects two of Indonesia’s most densely populated cities: Jakarta and Bandung. The program actually has been planned in advance by the Indonesian government since the era of Susilo Bambang Yudhoyono, in 2012.[3]

At that time, Japan was the first to be involved in its development plan. Through the Japan International Cooperation Agency (JICA), Japan has conducted a feasibility study on the project. However, after the era of Indonesian leadership changed, the plans for the project mandate shifted as well.[4]

Under Jokowi, Japan was no longer prioritized to continue the construction of high-speed trains. According to one of the leading Indonesian media, Kompas, Japan whereas has spent 3.5 million US dollars just to conduct the feasibility study since 2014.[5] Japan was disappointed with the decision of new Indonesian government to prefer China over the project. The disappointment was expressed by his ambassador for Indonesia, Yasuaki Tanizaki. He expressed his dissatisfaction with two things. First, the feasibility fund for the study Japan had issued was big enough, and second, technologically, Japan should be undoubted for the project.[6]

The government’s choice over China in the Jakarta-Bandung high-speed rail project in addition to causing disappointment for Japan also emerged in wild assumption in the public that Indonesian state-owned companies in the construction of high-speed trains will be taken control by China if something bad happened later on.[7] One of the Indonesian elites who are worried about this is Yusril Ihza Mahendra, according to him, “If they are (Indonesian state-owned companies) unable to pay, it is not impossible that China will acquire shares in the four state-owned companies consortiums. So, China started to control our state-owned companies”.[8]

The issue that the Jokowi administration had fallen into the grip of Xi Jinping’s Belt Road Initiative (BRI) program, indeed, spreading across the country. The rumor is further strengthened by the number of other infrastructure projects that are financed by China. People then circulated the issue about China’s debt trap. They are worried China’s kindness on the debt will burden Indonesia in the future. However, in my opinion, that perception is not based on solid evidence. Granting debt by China is true as easy and not as strict as the provisions in the IMF or World Bank, which required the implementation of the ‘Washington Consensus’ (a term introduced by John Williamson in 1989[9]). But it does not mean that the financing provided by China is perfunctory, let alone China intends to entrap its borrowing countries with debt.

Negative rumors about China are often used as campaign material for certain political elites to attack the Jokowi government. The decision to choose China over Japan, I believe, is based on careful considerations in terms of economic and political factors, with the former reason playing more important role than the latter.

Therefore, I must emphasize that Jokowi’s decision to award the Jakarta-Bandung high-speed train contract to China cannot be simply concluded that Indonesia has bandwagon against China. Throughout history, Indonesia has never once sided with any major power.

In this paper, I describe at least three reasons behind Indonesia prefers China for the construction of the Jakarta-Bandung high-speed train. I summarize these reasons from various media reports in Indonesia. These arguments include consideration of financing, balancing between the Asian Great Powers, and the implementation of a comprehensive strategy agreement between both countries.

Financing Considerations

According to my analysis, the financing considerationis the most influential factor why Jokowi finally chose China for high-speed train construction. In terms of financing proposals, the Chinese offer is indeed more profitable for the Indonesian government. The reason is Indonesia does not need to use its state budget. All financing is borne by China through a business-to-business (b to b) cooperation mechanism.[10]

On the other hand, the proposal made by Japan is burdensome for the Jokowi administration. Japan only undertakes the project if the financing construction is carried out with guarantees and the project’s risks must also be borne by the Indonesian government.[11]

Jokowi’s an objection to the offer from Japan is due to the lack of funds. Indonesia does have an interest in the presence of the first high-speed rail transportation mode in Southeast Asia.[12] However, with high costs and conditions that require guarantees from the government, it will suck up financial allocations for other infrastructure development. The Indonesian government emphasized that the Jakarta-Bandung high-speed rail project should not be a burden on the state budget. The state budget according to Jokowi, will be focused on infrastructure development outside Java. As Jokowi said at the inauguration of the construction, “Since the beginning, the construction of the speed train connecting Jakarta-Bandung did not want to use state funds, why? Because we will focus (the state budget) for infrastructure development outside Java, the budget will go there”.[13]

As quoted from the Cabinet Secretariat Website of the Republic of Indonesia, it was stated that Jokowi emphasized three things regarding the speed train development plan: “1) Not using the state budget; 2) Not with government guarantees; 3) run by business to business (B to B) mechanism, whether it’s among state-owned enterprise or among the private sector”.[14]

So financing a project by fully devolving it into a business-to-business contract mechanism is the most rational choice. It is expected to be able to cover the limited financial gap without interfering with other allocation funds. For more details, in table 1.1 below I show a comparison of the proposals submitted by each party. I summarized this data from the Liputan 6 media.[15]

Table 1.1

Comparison of High Speed Rail Proposals between Japan and China

Source: Liputan 6

From the two proposals submitted, China’s offer for cheaper cost and its ability without involving state finances seems more rational for Indonesian government, so that the money can be used to realize Jokowi’s infrastructure ambitions. Moreover, according to Rini Soemarno, Minister of State-Owned Enterprises, China’s commitment to technology transfer can develop the Indonesian railway industry in the future.[16]

Balancing the Asian Great Powers

Another factor that caused the government’s choice to fall to China in 2015[17] was a strategic step to balance the power between Asian superpowers. As a small country, balancing power by means of hedging – not taking sides with one party, instead of acting opportunistically by embracing both – is the best survival mechanism in an anarchic world. As said by Kuik Cheng-Chwee (2008), that hedging is an act of avoiding risk by not choosing either bandwagoning or balancing against competing superpowers.[18]

When China and Japan are competing for influence in Southeast Asia, there is no other more effective way that ASEAN countries can do, including Indonesia, except by hedging. Hedging can be concluded to be beneficial because, in addition to avoiding provocations with the superpowers on one side, it also makes Indonesia more flexible when dealing with them.

Throughout history, the dynamics of competition between Japan and China in Indonesia have only been seen after China became a Rising Power, especially when the latter tried to further expand its economic influence after successfully carrying out economic reforms under Den Xiaoping’s leadership.[19]

Japan itself has a longer history of economic ties with Indonesia than China. Indonesia-Japan economic cooperation began between 1967-1970, when the investment faucet was first opened in Indonesia.[20] At that time, Japan was the third largest investor over the country after America and the Philippines (Kompas, 1971).[21] However, in 1977, Japan became Indonesia’s first largest investor (Okada Osamu, 1979).[22] Since then until now Japan has always been a partner of Indonesia’s strategic investors.

If it compared, the number between Japanese and Chinese foreign investment in Indonesia when they were fighting for the high-speed rail contract, it can see that at that time, Japanese investment was bigger than China. As of 2014 and 2015, Japan investements respectively are as follows: 2014 (6 Billion US Dollars) and 2015 (2.9 Billion US Dollars), while China: 2014 (1.1 Billion US Dollars) and 2015 (1, 5 Billion US Dollars).[23]

However, the emergence of China as a rising power due to its economic power has forced Indonesia to adjust its behavior towards the country. Slowly but surely, China’s economic influence in Indonesia began to shift Japan’s dominance. It can first be seen from their trade value recorded by the two country which reached US$44.5 billion in 2015, while at the same time, the trade value between Japan and Indonesia only recorded a value of US$31.3 billion.[24]

From those figures, both investment and trade transaction value, I agree with one opinion from the media of VOA Indonesia that concludes Indonesia’s relationship with China and Japan is to balance the two on all sides.[25] On the one hand, Indonesia still views Japan as its important investor partner, on the other hand, Indonesia embraces China as its strategic trading partner.[26] In terms of infrastructure project development in Indonesia, Japan has also been awarded quite prestigious projects such as coal-fired power plants and the MRT (Mass Rapid Transit) construction in Jakarta.[27] Therefore, picking up China for speed train project is balancing step to avoid one side unhappy.

Japan and China are important in supporting Indonesia’s economic development so that it will be a loss if Indonesia is not able to manage the dynamics of competition between the two. Embracing one side means denying other party. By selecting China as the executor for Jakarta-Bandung high-speed rail project, Indonesia wants to show that the country is not a bandwagon to Japan. Instead, Indonesia is always open to any party offering strategic and mutually beneficial cooperation.

Preferring China is Indonesia’s way of balancing Japan’s influence over the years. Recognized or not, as a former Indonesia’s colonizer, Japan has a great leverage to the country. By being neutral towards both, Indonesia’s bargaining power will be even greater. It can be used to maximize its profits when it comes to bidding for Indonesian interest.

The implementation of the Comprehensive Strategic Partnership

Selecting China for the construction of the Jakarta-Bandung high-speed rail project also can be interpreted as a part of the implementation of the increasingly bilateral relations between the two countries. If in 2005 the ties between Indonesia and China was only limited to Strategic Partnership, in 2013 the relationship increased to a strategic comprehensive partnership. During his visit to Beijing in 2014, while attending the APEC meeting, Jokowi said this in front of Xi Jinping:

“The relationship between Indonesia and China has been going on for hundreds of years. This has become an asset for the two countries to become comprehensive strategic partners. Going forward, I want this comprehensive strategic partnership to be even more concrete”.[28]

Feng and Huang (China’s Strategic Partnership Diplomacy) as cited by Georg Struver (2017), explain that the improvement of agreement to comprehensive strategic partnership ideally must be followed by the realization of cooperation in various fields that are broader and more detailed, and with a formal mechanism.[29] In brief, the countries that have bound themselves in a comprehensive strategic partnership with China literally are ready to cooperate on a more specific and detailed agenda.[30] Futhermore, in implementing a comprehensive strategic partnership, communication channels that will facilitate exchanges between government officials are also established (Feng and Huang, China’s Strategic Partnership Diplomacy).[31]

In the context of Indonesia-China relations, further talks on a comprehensive strategic partnership occurred when Jokowi met Xi Jinping in Beijing in 2015. As announced by the official website of the cabinet secretariat of Indonesia, both agreed to realize the benefits of a strategic comprehensive partnership that were more tangible for the people of both countries.[32] During the meeting, both the Indonesian and Chinese governments issued a joint statement signing of the 8 points of cooperation, and one of these proclamations, as stated in point three, is, “The MoU between the Minister of state-owned enterprises (Indonesia) and the National Commission for Development and Reform (China) for the Jakarta-Bandung High Speed Rail Construction Project”.[33] So, as mentioned earlier, Indonesia’s selection of China in the high-speed rail project is the next step of implementing a comprehensive strategic partnership.

Conclusion

Judging from the various factors above, China’s offer to build a fast train with the cheaper and more profitable is the main ground in choosing the country compared to the factor as balancing forces and further implementation of the commitment to a Comprehensive Strategic Partnership. The reason is very simple. In the midst of ambitions to build infrastructure, Jokowi needs large funds, so reasons other than economic matters do not play a major role.

[1] Rangga Pandu Asmara Jingga, “Jokowi – Xi Jinping Saksikan Uji Coba Kereta Cepat Jakarta-Bandung,” Antara, 2022, https://www.antaranews.com/berita/3248037/jokowi-xi-jinping-saksikan-uji-coba-kereta-cepat-jakarta-bandung

[2] This was conveyed by Luhut Binsar Panjaitan, Coordinating Minister for Maritime Affairs and Investment: “We hope that President Xi Jinping can attend the operational inauguration of the Jakarta-Bandung fast train in the middle of next year together with President Joko Widodo”. The statement quoted from the news by Rangga Pandu Asmara Jingga, “Jokowi – Xi Jinping Saksikan Uji Coba Kereta Cepat Jakarta-Bandung,” Antara, 2022, https://www.antaranews.com/berita/3248037/jokowi-xi-jinping-saksikan-uji-coba-kereta-cepat-jakarta-bandung

[3] Achmad Hanif Imaduddin, “Rekam Jejak Proyek Kereta Cepat Jakarta-Bandung, Dikaji Era SBY dan Peletakan Batu Pertama Jokowi,” Tempo, 2022, https://bisnis.tempo.co/read/1645382/rekam-jejak-proyek-kereta-cepat-jakarta-bandung-dikaji-era-sby-dan-peletakan-batu-pertama-jokowi

[4] Eiben Heizier & Dwi Arjanto, “Hari Ini 6 Tahun Lalu: Kilas Balik Proyek Kereta Cepat Jakarta-Bandung Dimulai,” Tempo, 2022, https://bisnis.tempo.co/read/1552433/hari-ini-6-tahun-lalu-kilas-balik-proyek-kereta-cepat-jakarta-bandung-dimulai

[5] Muhammad Idris, “Kilas Balik China-Jepang Rebutan Proyek Kereta Cepat Jakarta-Bandung,” Kompas, 2022, https://money.kompas.com/read/2022/07/30/081759826/kilas-balik-china-jepang-rebutan-proyek-kereta-cepat-jakarta-bandung?page=all

[6] Fiki Ariyanti, “Jepang Kecewa dengan RI Karena Proposal Kereta Cepat Ditolak,” Liputan 6, 2015, https://www.liputan6.com/bisnis/read/2309629/jepang-kecewa-dengan-ri-karena-proposal-kereta-cepat-ditolak

[7] Idris Rusadi Putra, “Yusril Khawatir 4 BUMN Pembangun Kereta Cepat Dikuasasi Cina,” Merdeka.com, 2015, https://www.merdeka.com/uang/yusril-khawatir-4-bumn-pembangun-kereta-cepat-dikuasai-china.html

[8] Idris Rusadi Putra, “Yusril Khawatir 4 BUMN Pembangun Kereta Cepat Dikuasasi Cina,” Merdeka.com, 2015, https://www.merdeka.com/uang/yusril-khawatir-4-bumn-pembangun-kereta-cepat-dikuasai-china.html

[9] Stephen R. Hurt, “Washington Consensus,” Britannica, https://www.britannica.com/topic/Washington-consensus or See: Shidarta “Antara Washington, Beijing, Dan Jakarta,” Binus University, 2017, https://business-law.binus.ac.id/2017/04/16/antara-washington-beijing-dan-jakarta/

[10] Muhammad Idris, “Ini 3 Alasan China Dipilih Jokowi Garap Kereta Cepat Jakarta-Bandung,” Kompas, 2021, https://money.kompas.com/read/2021/10/31/180449326/ini-3-alasan-china-dipilih-jokowi-garap-kereta-cepat-jakarta-bandung?page=all

[11] Ilyas Istianur Praditya, “Perbedaan Proposal Proyek Kereta Cepat Cina dan Jepang,” Liputan 6, 2016, https://www.liputan6.com/bisnis/read/2440916/perbedaan-proposal-proyek-kereta-cepat-china-dan-jepang

[12]Even though, the dream was realized earlier in Laos as reported by CNBC Indonesia. The media mentioned Laos had inaugurated its high-speed train on December 2, 2021. Read here:  https://www.cnbcindonesia.com/news/20211203165155-4-296523/ri-disalip-laos-negara-pertama-punya-kereta-cepat-di-asean

[13] Disfiyant Glienmourinsie, “Di Depan China, Jokowi Pamer Kereta Cepat Tak Pakai APBN,” Sindo News, 2016, https://ekbis.sindonews.com/berita/1078962/34/di-depan-china-jokowi-pamer-kereta-cepat-tak-pakai-apbn

[14] Humas Kementerian, “Tunggu Tawaran Investor, Presiden Jokowi Bantah Batalkan Kereta Cepat Jakarta-Bandung,” Setkab, 2015, https://setkab.go.id/tunggu-tawaran-investor-presiden-jokowi-bantah-batalkan-kereta-cepat-jakarta-bandung/?yop_poll_tr_id=&yop-poll-nonce-1_yp566770c865861=585cd070f7

[15] Ilyas Istianur Praditya, “Perbedaan Proposal Proyek Kereta Cepat Cina dan Jepang,” Liputan 6, 2016, https://www.liputan6.com/bisnis/read/2440916/perbedaan-proposal-proyek-kereta-cepat-china-dan-jepang

[16] Ilyas Istianur Praditya, “Perbedaan Proposal Proyek Kereta Cepat Cina dan Jepang,” Liputan 6, 2016, https://www.liputan6.com/bisnis/read/2440916/perbedaan-proposal-proyek-kereta-cepat-china-dan-jepang

[17] Intan Umbar Prihatin, “Indonesia pilih China garap proyek kereta cepat, Jepang marah-marah,” Merdeka, 2015, https://www.merdeka.com/peristiwa/indonesia-pilih-china-garap-proyek-kereta-cepat-jepang-marah-marah.html

[18] Ahmad Nurcholis, “Indonesia Joins The AIIB: Bandwagoning or Hedging Strategy?,” (Thesis, Shandong University, 2020), 7.

[19] Ezra F Vogel, “China under Deng Xiaoping’s leadership,” East Asia Forum, 2011, https://www.eastasiaforum.org/2011/09/27/china-under-deng-xiaopings-leadership/

[20] Miftakhul Rizki, “Investasi Asing Jepang Di Indonesia Masa Orde Baru Tahun 1967-1974,” Avatara, Volume 1, Nomor 2 (Mei, 2013): 235

[21] Miftakhul Rizki, “Investasi Asing Jepang Di Indonesia Masa Orde Baru Tahun 1967-1974,” Avatara, Volume 1, Nomor 2 (Mei, 2013): 235.

[22] Miftakhul Rizki, “Investasi Asing Jepang Di Indonesia Masa Orde Baru Tahun 1967-1974,” Avatara, Volume 1, Nomor 2 (Mei, 2013): 235.

[23] Data is processed from various sources: Kata Data (https://databoks.katadata.co.id/datapublish/2016/08/03/5-negara-investasi-terbesar-di-indonesia-2014), Tempo (https://bisnis.tempo.co/read/738350/singapura-teratas-dari-5-investor-asing-terbesar-ri-2015), Kata Data (https://databoks.katadata.co.id/datapublish/2016/08/04/5-negara-dengan-investasi-terbesar-ke-indonesia-2015), Loka Data (https://lokadata.beritagar.id/chart/preview/5-negra-dengan-nilai-investasi-asing-terbesar-di-indonesia-2015-2020-1597724790)

[24] Kata Data, “2015, Perdagangan Indonesia-China Capai 15 Persen,” Kata Data, 2016, https://databoks.katadata.co.id/datapublish/2016/12/07/2015-perdagangan-indonesia-cina-capai-15-persen

[25] VOA, “Indonesia Lebih Suka China daripada Jepang untuk Proyek Kereta Api,” VOA, 2015, https://www.voaindonesia.com/a/indonesia-lebih-suka-china-daripada-jepang-untuk-proyek-kereta-api/2939028.html

[26] VOA, “Indonesia Lebih Suka China daripada Jepang untuk Proyek Kereta Api,” VOA, 2015, https://www.voaindonesia.com/a/indonesia-lebih-suka-china-daripada-jepang-untuk-proyek-kereta-api/2939028.html

[27] VOA, “Indonesia Lebih Suka China daripada Jepang untuk Proyek Kereta Api,” VOA, 2015, https://www.voaindonesia.com/a/indonesia-lebih-suka-china-daripada-jepang-untuk-proyek-kereta-api/2939028.html

[28] Rustam Agus, “Jokowi Ingin Kerja Sama Dengan Tiongkok Lebih Nyata,” Bisnis.com, 2014, https://kabar24.bisnis.com/read/20141109/19/271461/jokowi-ingin-kerja-sama-dengan-tiongkok-lebih-nyata

[29] Georg Struver, “China’s Partnership Diplomacy: International Alignment Based on Interests or Ideology,” The Chinese Journal of International Politics, (2017): 45.

[30] Ibid., 45.

[31] Ibid., 45.

[32] Humas Sekretariat Kabinet, “Disaksikan Presiden Jokowi dan Presiden Xi Jinping, RI-RRT Tandatangani 8 Kerjasama,” Setkab, 2015, https://setkab.go.id/presiden-rrt-xi-jinping-sambut-presiden-jokowi-dengan-upacara-kenegaraan/

[33] Humas Sekretariat Kabinet, “Disaksikan Presiden Jokowi dan Presiden Xi Jinping, RI-RRT Tandatangani 8 Kerjasama,” Setkab, 2015, https://setkab.go.id/presiden-rrt-xi-jinping-sambut-presiden-jokowi-dengan-upacara-kenegaraan/