This article is co-authored by Muhammad Zulfikar Rakhmat, Director of the China-Indonesia Desk at the Center of Economic and Law Studies (CELIOS), and Yeta Purnama, researcher at CELIOS.
In recent years, Indonesia has become more interested in deepening transportation ties with China in an effort to boost connectivity and modernize infrastructure. We interviewed several experts to get their take on this strategy, the drivers behind it, the positives, and the downsides.
The shift was prominently displayed in early 2024 when Indonesian Minister of Transportation Budi Karya Sumadi met Chinese Minister of Transportation Li Xiaopeng. They discussed the possibility of constructing an Autonomous Rail Transit (ART) in the new capital city, East Kalimantan and of working with China Railway Rolling Stock Corporation (CRRC), a Chinese state-owned company. Sumadi also discussed expanding partnerships into aircraft manufacturing, shipping, and electric vehicles.
In February, local media reported that Indonesia agreed to buy three electric trains from China’s CRRC. These trains would serve commuters in the neighboring cities of Jakarta, Bogor, Depok, Tangerang, and Bekasi – areas crucial for the capital’s metropolitan transportation needs. To finance this initiative, Indonesian operator Kereta Commuter Indonesia (KCI) will secure a loan from China.
Then, during Chinese Foreign Minister Wang Yi’s visit to Indonesia in April, President Joko Widodo asked for enhanced cooperation to build transportation infrastructure in the new capital city. Discussions included plans for extending the Jakarta-Bandung high-speed train to Surabaya via Yogyakarta.
China’s involvement in Indonesia’s infrastructure extends beyond railways. It is now a major lender in the Medan-Kualanamu toll road project, and has established itself as a prominent player in the country’s burgeoning electric vehicle (EV) industry.
China and Indonesia’s wider exploration in transportation tie-ups began with the Jakarta-Bandung high-speed train, part of China’s ambitious Belt and Road Initiative (BRI) in Indonesia. Inaugurated in October 2023, the project paved the way for more partnerships between the two countries in the sector.
Despite the high-speed train’s reported challenges, such as cost overruns, land acquisition issues, work accidents, and environmental concerns like flooding near construction zones, Indonesia remains steadfast in its pursuit to deepen transportation ties with China.
This prompts a compelling question: What motivates Indonesia to forge ahead with these collaborations, despite the complexities and setbacks encountered along the way?
According to experts we interviewed, Chinese-led infrastructure projects in Indonesia have significantly impacted the country’s biodiversity and ecosystems. Issues such as deforestation, habitat fragmentation, and disruptions to water resources vital for local communities and wildlife have been exacerbated.
Additionally, large-scale infrastructure ventures often entail the involuntary resettlement of communities. Indigenous groups are among the most vulnerable, often experiencing disruptions in their livelihoods and cultural heritage. Grievances over compensation and integration persist, underscoring the need for inclusive approaches that prioritize community consultation and equitable benefits distribution.
But, for Indonesia, China’s formidable technical capabilities offer an opportunity too compelling to miss. They greatly support President Jokowi’s pragmatic approach to achieving transformative development goals during his administration, notwithstanding ecological and societal implications.
Economic considerations also play a role.
China often offers competitive financing packages as part of its infrastructure projects in partner countries. These packages are advantageous for Indonesia, as they provide access to much-needed funding and technological advancements that might not be readily available through other channels.
In fact, Indonesia ultimately prefers China’s proposal over Japan’s. According to Suryadi Jaya Purnama, a member of Commission V of the House of Representatives from the PKS faction, one reason for choosing China was that the loan interest provided by China was less than Japan’s.
Bhima Yudhistira Adhinegara, our executive director at CELIOS, affirmed this view. China consistently offers the lowest price packages in its proposals compared to similar packages offered by other countries, although there are often cost overruns in the end. The current procurement regime prioritizes finding the lowest prices; thus, China wins the competition.
The business concession also often includes the influx of Chinese investments into the downstream industries – sectors that benefit indirectly from the development of transportation infrastructure: manufacturing, logistics, tourism, and consumer goods, among others. This is a key government agenda.
It is akin to a political exchange, where China assists in transportation, and Indonesia gains new investments in various other sectors. From the funding perspective, there is also the assurance that Indonesian state-owned firms and the Chinese government will consistently provide assistance until a project is completed.
China’s Financial Strength
According to Guanie Lim, an Assistant Professor at the National Graduate Institute for Policy Studies (GRIPS), China can arrange long-term financing packages that benefit countries facing tight cash flow situations. Few economies can match China’s engineering capabilities and financial strength, which are supported by its state-owned enterprises.
“Perhaps only Japan can offer something similar within East Asia. [The catch is that] Japan’s economy has not performed well over the past two decades, which limits the risk appetite of its companies and public financial agencies like JICA and JBIC,” Guanie said.
“The significant devaluation of the Yen is also expected to weaken the bargaining power of these Japanese stakeholders,” he added.
Guanie acknowledged that China has greatly expanded its transport infrastructure, including expressways and high-speed rails, over the last few decades. China has also delivered on the Jakarta-Bandung fast train despite some cost overruns and delays.
Another reason that influences Indonesia’s decision to deepen collaboration with China is geopolitical considerations.
Indonesia believes that fostering strong bilateral relations through substantial infrastructure projects will not only enhance diplomatic ties but also serve as a gateway to broader economic cooperation beyond the transportation sector. These projects are viewed as opportunities to strengthen Indonesia’s geopolitical standing, fostering closer ties with China while simultaneously diversifying its economic partnerships.
China’s expertise in high-speed rail technology and its adaptability to Indonesia’s geographical and climatic conditions. This technical synergy positions China as a pivotal partner in Indonesia’s efforts to modernize its transportation infrastructure and enhance regional connectivity.
The discussions with our peers suggested that Indonesia’s pursuit of closer transportation cooperation with China reflects a multifaceted strategy driven by economic imperatives, technological capabilities, geopolitical considerations, and developmental aspirations. This collaboration underscores Indonesia’s proactive stance in leveraging international partnerships to address infrastructure deficits and foster sustainable economic growth.
However, we must remember: that ensuring equitable and sustainable outcomes amidst environmental and social challenges remains a critical priority. It must be the guiding light for future collaborations between Indonesia and China in the realm of transportation infrastructure.
