Indonesia Breaks Ground on China-Backed High-Speed Rail Project

On January 21, Indonesia broke ground on a joint project with China to build Southeast Asia’s first high speed rail service that would link the country’s capital Jakarta with Bandung in western Java.

The groundbreaking ceremony for the $5.5 billion, 142.3 kilometer (88.4 mile) railway, which is being constructed by PT Kereta Cepat Indonesia-China – a joint venture between a consortium of several Indonesian state-owned companies and China Railway International Co. Ltd. – was held in Cikalong Wetan in West Bandung. It was attended by Indonesian president Joko “Jokowi” Widodo and visiting Chinese state councilor Wang Yong.

“All praise to Allah, today we are able to begin construction of the Jakarta-Bandung high-speed train,” said Jokowi who presided the ceremony and signed a large inscription on a large stone at one of the railway’s stations.

The project, which China controversially won in October last year over Japan, is undoubtedly a significant boost for Sino-Indonesian relations under Jokowi’s presidency. In a range of high-level meetings since Jokowi was inaugurated in October 2014 – including four face-to-face meetings between Jokowi and Chinese president Xi Jinping and two telephone conversations – both sides have been stressing the importance of infrastructure to their respective countries, which features in several plans including China’s 21st Century Maritime Silk Road Initiative and Indonesia’s global maritime fulcrum.

“It is in this broad context that Jakarta-Bandung came into reality,” China’s ambassador to Indonesia Xie Feng told the Philippine media outlet Rappler. “[T]his is really very encouraging because it sends out the message that China and Indonesia are very serious about coordinating our respective development plans. We are very serious about expanding our cooperation.”

Unsurprisingly, both sides are also trying to emphasize that the project is also a boost for the Indonesian people and the Indonesian economy more generally. For Jokowi in particular, this is an important point to underscore since it is in line with his “people-oriented” foreign policy. Government statistics so far seem to support this argument. According to a statement by the head of Indonesia’s Investment Coordinating Board Franky Sibarani, the project will employ as many as 20,000 local workers, contribute more than $450 million in state revenue through the procurement of goods and services alone and boost investment in various railway-related sectors including manufacturing, power generation, logistics and real estate.

“With this high-speed train, the movement of goods and people will be speedier and more efficient,” Jokowi said in his speech at the ceremony. “Hopefully, society can directly benefit from this.”

The trains are expected to start operating in early 2019, with speeds of 250 kilometers an hour. The fare is expected to be about $16 and the journey about 40 minutes, much faster than the existing rail system which take around three hours. There will be four stops along the way – Halim, Karawang, Walini and Tegalluar – with government plans for property development projects to support population growth around the route as well. According to a study by the Bandung Institute of Technology, the project could see an estimated 44,000 passengers travel each day between the cities if the ticket price is set at $14.50.

Still, there are some who remain skeptical about the project’s future. Although China has publicized its experience in building thousands of kilometers of high-speed railway over the past few years, its safety standards have come into question, with a 2011 crash killing at least 40 people in one of the deadliest high-speed rail incidents ever recorded. There are also fears that cost overruns and other adjustments further down the line could eventually make the project much less attractive than it currently is. While China won the deal over Japan because it fashioned a business-to-business contract without financing from the state and without a government guarantee, the absence of such guarantees has scuttled projects in the past.

A cautionary tale in this regard, says Takashi Shiraishi, president of the Institute of Developing Economies–Japan External Trade Organization, is the case of a 2005 deal initially reached between China and Indonesia for Beijing to build eight power stations without government guarantees. Speaking at the Carnegie Endowment for International Peace last October, Shiraishi reminded the audience that in that instance, once an 8 percent risk premium was subsequently added to the low soft loan interest rate to account for the lack of government guarantees, Chinese banks eventually hiked the interest rate to a whopping 11.5 percent, and Indonesia withdrew from the deal, no power stations were built.

“I only see this as a first round. There will be a second and maybe a third round of negotiations,” Shiraishi said. “Just wait and see.”

Nonetheless, Xie, the Chinese ambassador, expressed enthusiasm about the future of the flagship project which he said signaled that Sino-Indonesian relations were “better than any time in history.”

“So long as the two sides can accommodate each other, learn from each other and share the risks and benefits together, no difficulty shall stand in our way,” he said ahead of the groundbreaking ceremony.