Navigating between China and Japan: Indonesia and economic hedging

Abstract

The rise of China and the introduction of the Belt and Road Initiative have intensified regional great power competition. Seemingly, China and Japan have been competing over the export of infrastructure projects and access to the Southeast Asian market. Against this backdrop, this paper sheds light on recipient states’ agency. Specifically, this paper explores how Indonesia has responded to Sino-Japanese competition through the perspective of economic hedging. In the realm of domestic railway development and the need to establish connectivity on Java, why did the Indonesian government decide to work with China to develop the Jakarta-Bandung High-speed Rail project and Japan on the North Java Upgrading Line, as the two lines are not interoperable? Railway policy in Indonesia is strategic and pragmatic. On the one hand, Sino-Japanese competition diversifies Indonesia’s options as it continues striving to strengthen infrastructure development. On the other hand, the need continually to strike a balance between the two great powers requires skill and flexibility. Therefore, maintaining policy autonomy and accepting economic costs make-up secondary states’ responses to great power competition in turbulent times.

Keywords:

• Economic hedging
• the Belt and Road Initiative
• Sino-Japanese competition
• infrastructure financing
• high-speed railway

Acknowledgements

An earlier draft of the paper was presented at the 33rd Annual Meeting of the Association of Chinese Political Studies. Many thanks to Fuyun Wei for her assistance with literature research. Special thanks to Shaun Breslin, Gregory Chin, Louis Pauly, Yao Wen, Min Ye and the two anonymous reviewers for their helpful and generous comments and suggestions.

Notes

1 This paper adopts Wilkins (2021, p. 3) definition of secondary states, which refer to medium and smaller states that are not greater powers or superpowers.

2 Kuik categorises hedging into risk contingency (consisting of indirect balancing and dominance denial) and return maximizing (consisting of economic pragmatism, binding engagement and limited bandwagoning).

3 Thurbon and Weiss (2021) moves away from the traditional understanding of statecraft and argue that states pursue techno-economic upgrades in light of external pressures coming from geo-economic competition. The traditional definition focuses on the use of economic means to achieve (geo)political ends, captured by Baldwin (1985) and Hirschman (2018).

4 The negotiation and implementation of the Jakarta-Bandung High-speed Rail Corridor have been extensively discussed elsewhere, for example Camba (2020), Pavlićević and Kratz (2017) and Yan (2021).

5 Other sources of funding could also be obtained by the joint venture of a consortium of state-owned enterprises as long as those funding complied with the spirit of the Presidential Decree—no state asset or government guarantee.

6 Jonan was appointed as the Minister of Energy and Mineral Resources in October 2016.