Change of heart: Indonesia drops high-speed rail bombshell

15 October 2015 (Last Updated October 15th, 2015 18:30)

In September, Indonesia dealt a blow to China and Japan, when it decided to drop the idea of a high-speed rail link between the Indonesian cities of Jakarta and Bandung – a project which may have relied on Chinese or Japanese technology and expertise. Gary Peters looks into the implications now that the dust has begun to settle, and asks whether a medium-speed alternative is the way forward.

Change of heart: Indonesia drops high-speed rail bombshell

The original high-speed rail (HSR) project, which was to link Indonesia’s capital Jakarta and Bandung in the West Java province, saw China and Japan engaged in a fierce battle for the right to provide their technology and expertise. However, these plans are now dead in the water, as Indonesia President Joko Widodo has decided that the project is not necessary and now favours a medium-speed alternative.

The proposed 150km line was to be the first element of a 763km-link connecting Jakarta and East Java’s capital Surabaya, however concerns were raised that HSR trains would never reach their top speeds of between 300kph and 350kph.

"Although the speed could be 300kph, the train would not be able to reach the maximum speed, because before it reaches the speed, the brake has to be put on," said Indonesia’s Coordinating Minister for the Economy Darmin Nasution to the Japan Times.

China’s ambitious rail strategy

What does the failure of the project tell us about China and Japan’s rail building ambitions?

Chinese expertise in HSR is unquestionable. Since its entry into the market in 2003, it has embarked on a huge expansion programme to become the world’s high-speed Mecca in terms of sheer numbers and track length.

One of the main draws of the country’s technology is its relatively low cost, which is partly due to centralised ownership. Figures from the World Bank suggest that, for domestic projects, it cost $17m to $21m per kilometre, compared to $25m to $39m in Europe.



The California high-speed rail project aims to cut travel time from San Francisco to the Los Angeles basin to under three hours.


UK Prime Minister David Cameron, speaking at Beijing Jiaotong University in 2013, referenced China’s ascent to the top of the market, saying the UK had "a lot to learn from China" because of its success in HSR.

Its exportation of HSR tech to other countries has seen the development of a high-speed rail line in Turkey, from Istanbul to Ankara, as well as other contracts or negotiations in Saudi Arabia, Hungary and Serbia, not to mention Indonesia.

China’s plans don’t stop there, however. A consortium of Chinese rail firms has signed a deal with private US company XpressWest to build a high-speed line between Las Vegas and Los Angeles, which could help to open up the US market.

In June, the state-owned China Railway Group came to an agreement with Russia’s JSC Russian Railways to design plans for a 770km high-speed rail project between Moscow and Kazan.

Chinese plans challenged

Nonetheless, the country’s ambitious strategy has hit the buffers, and not just in Indonesia. Earlier this year, Mexico agreed to compensate the China Railway Group £835,953 for the cancellation of a $3.75bn project, which went south after concerns over the bidding process.

The proposed high-speed project in Thailand has also been shelved for a medium-speed alternative, which is to connect north-east Thailand’s Nong Khai province, capital Bangkok and eastern Rayong province.

Not to mention, of course, China’s plans to revive the Silk Road route via a state-of-the-art high-speed rail network.

The contender: Japan

But what of Japan? Despite demonstrating a speed of approximately 375mph on an experimental train in April using maglev, or magnetic levitation, the country seems to have had a harder time trying to export its technology.

"What the countries [looking for high-speed rail] need most is someone to help them make sure the project is profitable."

According to Alexious Lee, head of China industrial research at brokerage CLSA, this is because China can provide a "total solution package", from construction and supply of trains to operating and finance.

"What the countries [looking for high-speed rail] need most is someone to help them make sure the project is profitable," he told the South China Morning Post.

The onus is now on Japan to increase its success in exporting its technology. One Japanese consortium lost out to China regarding the rail link in Thailand, and Prime Minister Shinzo Abe visited the US earlier this year to drum up support. One success is Taiwan’s HSR, which is based on Japan’s Shinkansen technology.

"Only China can bundle all the resources together while Japan probably needs to look for different companies to join at different stages of a project," Lee added.

What they offered Indonesia

China’s offer to Indonesia is reported to have been £4bn, with an interest rate of 2% a year. Xie Feng, China’s ambassador to Indonesia, said at a China High Speed Railway on Fast Track exhibition in Jakarta in August that his country’s proposal would "require no government budget or sovereign guarantee".

According to reports, China also suggested it would hire Indonesian workers and equipment.

One area of concern with China’s bid that was regularly referenced by commentators was its safety record. A bullet train crash Wenzhou in 2011 killed 40 and injured 200

Japan, on the other hand, offered a lower price of £3.3bn, with an interest rate of 0.1%. Indonesia would have had 40 years to pay this off, with instalments starting eleven years after the start of operations.



A new era of transnational connectivity is within reach as leading Asian and European countries lay out their plans.


Nikkei’s Asian Review also says that Japan aimed to have the HSR in operation by 2021, with construction starting in 2016.

Japan sent an envoy to Indonesia in August. Yoshiko Kijima, attaché for economic affairs at the Japanese embassy in Jakarta, was quoted by E&T as saying: "The high-speed rail is a symbol of national pride and development in Japan and it will come as a shock to Japan and its people if the project goes to China."

In addition, Japan, with its Shinkansen technology, is viewed as having the stronger argument when it comes to safety.

A medium-speed alternative: China and Japan react

For the meantime, however, these proposals can be put to one side. When explaining the decision for the HSR reversal, Nasution claimed that a medium-speed rail was an option that would be explored, and insisted it would cost 30-40% less and only ten minutes slower.

"We only need a train with the speed between 200 kph and 250 kph… A medium-speed railway is enough," Nasution told the Japan Times.

The minister has outlined that a new team will be established to finalise the terms of any potential medium-speed contract.

"It will be designed as a business-to-business cooperation," he told the South China Morning Post.

He added that, as Indonesia searches for interest, China and Japan are welcome to submit plans, but it remains to be seen if this will materialise.

Japan’s Chief Cabinet Secretary Yoshihide Suga has simply said that his country will "consider measures carefully", once the news has had time to sink in.

But perhaps it would be unwise not to bid, considering China’s relative success exporting its HSR and Abe’s desire to see more Japanese technology used around Asia?

Tom Rafferty, a Beijing-based analyst at the Economist Intelligence Unit, told CNBC that Indonesia’s decision to drop the high-speed rail project could weaken China’s confidence in the Indonesia market.

"The project was a priority for China because it would have been one of the first and most visible manifestations of President Xi Jinping’s ‘One Belt, One Road’ overseas investment drive," he added.

The stakes are high

Indonesia State Enterprises Minister Rini Soemarno has laid down a rather ambitious plan to start construction on the potential Jakarta-Bandung medium-speed line by the end of the year.

"There are other countries that would be interested in similar projects so the stakes are high."

This puts a certain degree of pressure on China and Japan to quickly resolve any reservations they may have about a medium-speed line, or risk losing out altogether.

Indonesia Coordinating Minister for Maritime Affairs Rizal Ramli told Reuters that such a scenario was possible, saying: "Indonesia is just the first battlefield between China and Japan.

"There are other countries that would be interested in similar projects so the stakes are high."

However, it has been reported that a Japanese embassy official in Jakarta ruled out Japan’s Government bidding.

Further doubt has been cast on the likelihood of Japan winning the contract by Soemarno, who added that if they wanted to remain in the race, Japan would need to remove a requirement for government guarantees and loans for state-owned companies.

Much of what happens in the next few months could determine Indonesia’s HSR future, or, indeed, lack of it. For the moment, though, it is back to the drawing board for China and Japan.