Indonesia Investment

TOKYO—Japan said Indonesia has chosen China’s bid over its own to build a $5 billion high-speed rail project on the island of Java, ending a drawn-out process that included two unexpected reversals by Jakarta in the past month.

The decision would mark a victory for Beijing as it challenges Japan’s influence in Southeast Asia, where Tokyo has long had closer ties, partly by ramping up investment in infrastructure projects across the region.

Chinese Foreign Ministry spokesman Hong Lei told reporters Tuesday that Beijing supports cooperation between Chinese state rail companies and Indonesia, but he didn’t confirm that China had won the bid.

Sofyan Djalil, Indonesia’s national planning minister, delivered Jakarta’s decision toYoshihide Suga, Japan’s top government spokesman and a close aide to Prime MinisterShinzo Abe, during a visit to Tokyo on Tuesday, the Japanese government said. Mr. Djalil was sent as an envoy of Indonesian President Joko Widodo. Attempts to reach Mr. Djalil for comment weren’t successful.

Rini Soemarno, Indonesia’s minister for state-owned enterprises, declined to confirm Tuesday that China had been awarded the project. But she said Japan had asked for a loan guarantee from the Indonesian government, which disqualified its bid.

The long-discussed, multibillion-dollar project has faced delays and seen proposal changes. According to a news release posted Tuesday on an Indonesian government website, Cabinet Secretary Pramono Anung said the government had decided to reduce the speed of the train from the initial project, and that it would soon decide on whether to continue with the project. He said a final decision would come from the office of Indonesia’s coordinating minister for the economy, Darmin Nasution.

Mr. Nasution couldn’t be reached for comment Tuesday.

Japan’s Mr. Suga expressed frustration with Indonesia’s handling of the project, saying large infrastructure projects should be implemented fairly and transparently, taking feasibility into account.

The apparent choice of Beijing marked the second surprise from Jakarta this month. On Sept. 4, Indonesia said it had canceled plans for its first high-speed train, a 150-kilometer (93-mile) line between Jakarta and Bandung, discarding competing proposals from China and Japan.

At the time, Mr. Djalil cited the two proposals’ need for Indonesian government financing as the reason for the decision and said the government would seek bids for a slower train that would cost about 40% less.

China has since offered to build the high-speed link without requiring any taxpayer money or loan guarantees from Indonesia, Mr. Djalil told Mr. Suga, the Japanese government said in a statement.

Mr. Suga said Japan is confident it presented the best possible proposal that could be implemented.

The high-speed rail project had been viewed by both Japan and China as a step toward securing more projects both in Indonesia, which has a population of more than 250 million people, and across the rest of fast-growing Southeast Asia, which currently lacks high-speed trains.

China has ramped up investment in Southeast Asia in recent years. Its creation of the new Asian Infrastructure Investment Bank has posed a further challenge to Japan, which controls the Manila-based Asian Development Bank. In an apparent response, Mr. Abe announced in May a plan to expand Japan’s financing for infrastructure projects in Asia by 30% over the next five years.

Indonesia’s decision marks a setback for Mr. Abe, who has also sought to deepen ties in Southeast Asia to generate business for Japanese multinationals.

Tokyo has historically enjoyed stronger ties with Jakarta, which is one of the largest natural gas suppliers to energy-import dependent Japan. Messrs. Abe and Widodo agreed in March that the two countries will cooperate in maritime security in response to growing concerns over China’s stance in the South China Sea.

Kenichi Ohno, development economics professor at the National Graduate Institute for Policy Studies in Tokyo, said it was unsurprising that Japan apparently has lost to China. “It can’t compete against China in terms of price,” Mr. Ohno said. “Japan should shift away from building plants and railways, and toward building human capital such as through education.”


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