The Jakarta-Bandung High-Speed Railway and the Future of the Belt and Road Initiative

Introduction

On the sidelines of the G20 Summit in Bali, Indonesia, Chinese President Xi Jinping and Indonesian President Joko “Jokowi” Widodo watched over a video livestream as the Jakarta-Bandung high-speed railway (HSR) sped through its first trial run between Tegalluar Station and Casting Yard No. 4 (Antara, November 21). Yet the smiles plastered across the faces of the two world leaders belied the fraught, winding journey of the railway until this point, as well as the uncertainties surrounding its future.

Upon completion, the 142-kilometer (88 mile) railway will connect Indonesia’s current capital city, Jakarta, with its fourth largest city, Bandung. Chinese state media has called it one of the “flagship” projects of China’s ambitious Belt and Road Initiative, a global infrastructure development strategy widely viewed as the signature foreign policy project of Xi Jinping’s administration (Xinhua, November 16). After all, it was in a speech in Jakarta in 2013 that Xi first unveiled one of the BRI’s cornerstone development programs to bolster infrastructure connectivity—the 21st Century Maritime Silk Road (ASEAN-China Centre, October 2, 2013).

The Jakarta-Bandung line will be the first high-speed railway in Southeast Asia with a designated speed of 350 kilometers (217 miles) per hour, reducing the average commute time between both cities from 3 hours to 40 minutes (Global Times, November 16). However, the railway has experienced recurrent delays and cost overruns due to permit issues, environmental concerns, labor shortages, and funding disputes. In order to understand the future of the HSR, it is instructive to understand the history of the railway project. In addition, the fate of the HSR will likely affect the future of Beijing’s Belt and Road Initiative (BRI).

The History of the Jakarta-Bandung High-Speed Railway

In September 2015, the Indonesian government awarded the contract for a $6 billion Jakarta-Bandung high-speed rail to a group of Chinese and domestic state-owned enterprises (In the Dragon’s Shadow, September 22, 2020). This collective entity, known as PT Kereta Cepta Indonesia-China (PT KCIC), is 60 percent owned by a group of Indonesian state enterprises and 40 percent owned by China Railway International Group, which is a subsidiary of the state-owned conglomerate, China Railway Group Limited (Xinhua, November 16). A $4.5 billion loan from Beijing’s state-owned China Development Bank (CDB) funded the project, which Jokowi has pledged to pay back over a 40-year period at an annual interest rate of 2 percent to the CDB by 2067 (Global Perspectives on China’s Belt and Road Initiative, December 18, 2020).

However, China’s state-owned enterprise did not win the contract without a contest. Initially, a consortium of Japanese firms seemed destined to secure the project, particularly since Japan had already conducted a three-year feasibility study of the Jakarta-Bandung line between 2011 and 2014 (Developmental Railpolitics, December 2018). However, the Japanese offer demanded a guarantee from the Indonesian government for 50 percent of the loan to be repaid in 40 years, while the Chinese bid required no guarantee at all. While the Japanese loan was cheaper at an annual interest rate of 0.1 percent, it also carried significantly higher risk, so the Indonesian government selected the more attractive Chinese bid (Global Perspectives on China’s Belt and Road Initiative, December 18, 2020). In January 2016, Jokowi himself led the groundbreaking ceremony to announce the start of construction on the railway, which was set to open in 2019 (South China Morning Post, February 19, 2016). The ceremony took place even before governmental permits had been issued, signaling the Indonesian president’s eagerness to complete the project.

In spite of the early optimism surrounding the project, the HSR’s timeline was rapidly derailed by issues related to land acquisition, environmental impacts and labor shortages due to the COVID-19 pandemic. From the start, some of the land acquired for the project was not located on the route for the railway tracks but within industrial and residential areas, so Indonesia’s National Land Agency could not issue the permits (Tribunnews, March 16, 2018). As a result, actual construction did not start until May 2018, over two years after Jokowi’s much-vaunted opening ceremony (The Jakarta Post, April 5, 2018). Environmental concerns later arose: activists from the Indonesian Forum for Living Environment protested against the railway, arguing that its construction had been greenlit without a proper sustainability assessment and would require evicting over 2,300 households (The Jakarta Post, January 25, 2016). Erecting tunnels for the line has also damaged rice fields and irrigation canals in towns like West Java’s Purwakarta, endangering the food security of its residents (Liputan 6, October 15, 2021). The onslaught of COVID-19 further disrupted progress, as the government was forced to suspend construction on the railway during the pandemic’s early months (The Jakarta Post, April 15, 2020).

Despite the initial delays, progress on building the railway now seems to be on the right track. In October, Jokowi announced that “88.8 percent” of the construction has been completed (KONTAN, October 13). In a government readout, Jokowi expressed “hope” that the Jakarta-Bandung HSR would complete its testing by the end of this year and commence full operations in June 2023 (Xinhua, November 17; Cabinet Secretariat of the Republic of Indonesia, January 17).

That said, the unexpectedly exorbitant costs of the project present another issue altogether. While the initial price tag of the railway was estimated at $6.07 billion, that number has now reached nearly $8 billion (Bisnis Indonesia, October 15, 2021). Construction delays increased operating costs, and the difficult land acquisition process required relocating several industrial and commercial areas, which was expensive (Tempo, September 1, 2021). The consortium PT KCIC estimates the railway’s cost overrun to be nearly $1.5 billion, but China disputes this figure and believes it to be $982 million (Voice of Indonesia, November 10; The Jakarta Post, October 19). The subject is a matter of ongoing negotiation between the Chinese and Indonesian governments.

The forthcoming relocation of Indonesia’s capital city from Jakarta to Nusantara, a planned region in the province of East Kalimantan, poses additional challenges to the Indonesian government’s ability to repay its loans to Beijing by diminishing its estimated revenue streams from the project. A 2017 feasibility study review estimated the break-even point at 26 years, assuming a daily passenger volume of 61,000 (Nikkei Asia, February 20). PT KCIC now projects that 31,000 passengers per day will use the line, accounting for the likely relocation of 1.5 million civil servants and their families to Nusantara, which means the government will require 40 years to break even on its railway investment (Kompas, March 2).

What the Jakarta-Bandung HSR Means for the Future of BRI

The extent to which obstacles in completing “flagship” BRI projects like the Jakarta-Bandung high-speed railway will affect the future of Xi’s signature foreign policy initiative remains an open question. Last year, Xi acknowledged that the international environment for BRI was becoming “increasingly complex” and stressed the importance of strengthening “risk prevention” (China Daily, November 20, 2021). In his recent address to the Asia-Pacific Economic Cooperation forum in Bangkok, Thailand, Xi said that Beijing would “consider” holding a third Belt and Road Forum in 2023, after its previous iterations in 2017 and 2019 (Xinhua, November 18). It is notable that Xi did not directly announce the hosting of another forum. Xi’s remarks in Bangkok may have been a trial balloon to evaluate the potential interest of other countries in attending, particularly as opposition in BRI host member states mounts over concerns about inflated costs, corruption and rising debts (AidData, September 2021). As another potential sign of Xi’s decreased confidence in the project, the BRI did not appear in the foreign policy section of the 20th Party Congress work report as it had previously (Xinhua, October 25). Instead, the report transferred its treatment of the BRI to the section on China’s economic development and achievements over the past five years.

Of late, Beijing has certainly scaled back the amount and pace of its billion-dollar loans to support Belt and Road projects across the developing world. Chinese loans to Africa plunged by 77 percent from $8.2 billion to $1.9 billion from 2019 to 2020 (BU Global Development Policy Center, accessed November 24). Overall, Beijing’s loans to lower-middle-income nations decreased by 58 percent to just $13.9 billion in 2020, down from its record high rates of overseas lending in 2018 (Nikkei Asia, September 20). China’s slowing economy provides one rationale for this shift.

Still, a broader question—highlighted by the Jakarta-Bandung HSR—that will determine the future trajectory of the BRI is whether such projects can truly serve as a “win-win” for both Beijing and the host country. If Chinese-financed infrastructure in developing countries cannot generate sufficient revenues to secure returns on their sizable investments and pay back the hefty loans, this might decrease the overall interest of BRI host countries in its projects. A flagship project like the HSR is no exception.

Conclusion

“China’s march outward, like its domestic development, is probing and experimental, a learning process marked by frequent adjustment,” academics Deborah Brautigam and Meg Rithmire previously wrote (The Atlantic, February 6, 2021). In many respects, the experience of the Jakarta-Bandung high-speed railway exemplifies this reality. While construction on the line might soon be completed, other challenges will remain: ticket prices that strike a balance between affordability for Indonesian citizens and engendering sufficient government profits, particularly with the looming relocation of the capital city to Nusantara; continued government investments to ensure proper maintenance and upkeep; negotiations between Beijing and Jakarta on an agreed-upon amount and mechanism to pay for the billions of dollars in overrun costs.

Resolving the issues related to the HSR will not be an insurmountable task. Jokowi and Xi share a close personal relationship, and both governments are committed to ensuring the railway’s success (China Brief, November 3; Antara, July 25). In fact, it speaks volumes that both leaders set aside time to specifically spotlight the project during the G20 summit in Bali, which focused on an array of global challenges such as the war in Ukraine, volatility in currency exchange rates, soaring inflation, food security and climate change.

Nevertheless, for Beijing, ensuring the continued viability and attractiveness of the Belt and Road Initiative will require demonstrating more than that the Jakarta-Bandung railway did not fail. As one of the BRI’s flagship projects in Southeast Asia’s largest economy and the de facto leader of the Association of Southeast Asian Nations, the railway must showcase to other countries worldwide that it truly can be a “win-win” for both sides.

William Yuen Yee is a research assistant with the Columbia-Harvard China and the World Program. He is the 2022 Michel David-Weill Scholar at Sciences Po in Paris, where he is pursuing a master’s degree in International Governance and Diplomacy. You can follow him on Twitter at @williamyuenyee.