After several weeks of uncertainty, and even the temporary cancellation of construction, China was chosen over Japan to build high speed Indonesia rail. The 150-km line will connect Jakarta and Bandung, West Java’s business hub.

Both Asian powerhouses have been vying for this US$5 to US$6 billion contract ever since China joined the bidding game.

There were a few dramatic developments before this contract was awarded. The Indonesian government was presented with many different views from its ministers.

Something frequently mentioned was the suitability of having a high-speed train in a corridor already served by medium-speed trains and road transport.

The climax of this argument took place when the Indonesian government abandoned the idea in early September. Minister Rizal Ramli held a press conference providing clarification that a high speed train was unnecessary and that a “medium-speed” train would do.

And now that the winner of this race has been decided, an analysis of how and why China won is in order. To start off, the terms proposed by both countries are further examined.

 

China to Build Indonesia Rail Faster and Cheaper

Looking at the time needed to finish construction, China is the more attractive option. It promises to complete this project in just three years as opposed to Japan’s five. Bonus points were awarded for China saying construction can begin just a month after the signing date.

In terms of contract value, China proposed a much lower price of $5.5 billion when compared to $6.2 billion from Japan.

The timeframe wasn’t a make-or-break factor. But financing terms were.

Analysts agree the Chinese financial package far exceeded the Japanese one. China didn’t need a funding guarantee from the Indonesian government. But Japan’s bid was built around Indonesian government financing combined with a low-interest loan from Japan.

Consequently, it was financing which became the deciding factor between the two countries. In fact, Indonesia’s National Development Planning Minister explained that he wanted to bring this project to life without any guarantee of funding from the state. This means the project will need to be completed under a B2B model – something Japanese companies were unwilling to compromise on.

With the contractor finally selected after an intense bidding war and dramatic developments from the Indonesian government, the beginning of construction is here.

A project team from China has already been sighted in Jakarta. It will break ground before the end of this year. With their expertise in the construction of high-speed railways, Chinese contractors are looking to deepen their relationship with Indonesia through more practical cooperation.

The Indonesia railway is scheduled to begin operation by 2019.

 

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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