China and Japan are engaged in an increasingly heated contest to build Indonesia’s first high-speed railway. The Asian giants are doing their best to sweeten deals and turn up the charm as time runs out to woo Jakarta.

The 50-km Indonesia high speed rail line should cut the journey between Jakarta and Bandung to 35 minutes from about three hours. Trains will reach a speed of more than 300 km/h. Indonesia hopes to extend the line later to connect Jakarta with the city of Surabaya.

The two countries sent envoys to lobby Indonesian officials over the past two weeks. Each of them sweetened the terms of their bid for the contract worth about US$5 billion.

Analysts believe that whichever party wins this will likely become the front runner for other high-speed rail projects in Asia over the coming years. This including one which will link Kuala Lumpur and Singapore.

 

China vs. Japan: Dominance of High Speed Rail in Asia

Government sources involved in the decision said China is gaining over Japan in this aggressive bidding battle.

A main reason is because the Chinese proposal is less financially burdensome on the Indonesian government. Furthermore, the issue of safety was adequately addressed.

Yet another source said that Indonesia wants a balance between the two powerhouses in handing out high-profile infrastructure projects. Japan is already the current holder of two contracts to build Jakarta’s mass rapid transit system. They also constructing the biggest coal-fired power plant in the region.

When comparing the relative presence the two countries have in Indonesia, we can see that Japan is Indonesia’s second-largest investor, while China is its top trading partner.

China is challenging Japan’s long-standing dominance as a key source of infrastructure funding. This race over Indonesia’s economic future is just the latest to flare up.

 

Who Will Win? Japan or China?

Japan has history on its side. The country is famous for its legendary shinkansen, an impressive high-speed network that for decades has whizzed commuters between cities at great speed without a single fatal accident on the rails.

A top investor in Indonesia with huge stakes in the automotive and mining sectors, Japan was always considered the country to build the high-speed railway. This was until China muscled in with a counter offer earlier this year.

However, China also builds capable trains. They recently showcased their high-speed rail prowess at an exhibition in a plush Jakarta mall. Beijing even had its ambassador to Indonesia associate the project to a child reared by Jakarta and Beijing.

“Our number one priority is to ensure the baby’s health and growth, rather than to rush him to make money to support the family,” Xie Fend said, fending off suggestions that China’s main motive in this project was profit.

Both China and Japan submitted proposals which contain similar offers. The two countries also offered loans payable in 40 years with a 10-year grace period. The interest rate Japan offered, however, will be 0.1%, while the Chinese offered 2%.

According to its feasibility study, Japan is ready to begin construction in 2016. They’ll take five years to build the system, including a one-year trial operation period.

Meanwhile, China promised to start construction within a month. The construction could finish within three years.

EDITOR’S UPDATE: It turns out that China beat Japan in the bid to build Indonesia high speed rail. You can learn more here.

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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