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Photographer: Romeo Gacad/AFP/Getty Images Photographer: Romeo Gacad/AFP/Getty Images

China won the rights to build a $5.5 billion railway line in Indonesia as the Southeast Asian nation tries to upgrade its infrastructure to drive economic growth.

China Railway International Co. Ltd and a consortium of Indonesian state companies will build the rail line from Jakarta to Bandung, and plan to compete for other projects in the region, Sahala Lumban Gaol, chairman of the joint venture, said Friday in Jakarta. Three quarters of the funding will come from China Development Bank, and the project won’t carry an Indonesian state guarantee, he said.

Indonesia’s first high-speed train project comes after the government last month rejected bids from China and Japan and decided to scrap plans for a state-funded bullet train, leaving only China interested in a business-to-business deal. President Joko Widodo is planning to revive flagging growth in Southeast Asia’s largest economy by building infrastructure, though budget revenues are falling short of targets this year.

China to Build High-Speed Rail in Indonesia

“This is a new episode that means in the future Indonesia’s infrastructure development won’t burden the government and state budget,” Gaol said. “We hope this new company will compete outside Indonesia for high-speed railway projects.”

The Indonesian companies forming the joint venture, PT Pilar Sinergi BUMN Indonesia, include state construction company PT Wijaya Karya, railway operator PT Kereta Api and toll-road builder PT Jasa Marga. Jasa Marga shares closed 4.3 percent higher on Friday, while Wijaya Karya fell 1.7 percent in a steady Jakarta market. China Railway International Co. Ltd is a subsidiary of China Railway Group Ltd, whose shares rose 3 percent in Shanghai.

Three Years

Construction can begin early next year and end in 2018, with the line to start operating in the first half of 2019, Bintang Perbowo, chief executive of Wijaya Karya, told reporters. Wijaya Karya is considering a global bond issue as the Indonesian companies need to fund the remaining 25 percent of the project, he said. The line’s $5.5 billion value could ultimately be lower depending on the speed of the trains used, he added.

Trains are expected to run at 250 kilometers an hour, with eight stops and a fare of around $16. An existing train run by Kereta Api costs about $8 and takes more than three hours, winding its way through rice paddies and mountains to a city popular with local tourists for shopping and cooler air.

Indonesia decided not to pursue an even faster train, disappointing Japan, because it wanted extra stops so it could develop more places along the route, Rizal Ramli, the minister coordinating transport policy, told Bloomberg News last month.

Local Workers

Widodo, known as Jokowi, has been more open to Chinese investment than his predecessor to build railways, power stations and dams. The project’s use of Indonesian state companies means it can buy land for the route using a law that sets timeframes for land acquisition, which until now has been the major obstacle for most infrastructure projects in the country and has scuppered previous plans to build railways on Sumatra and Borneo islands. The project can use land from an existing toll road to Bandung, Perbowo said.

China will hold 40 percent of the venture, which will use as much Indonesian material, machinery and workers as possible, said Xie Feng, China’s ambassador to Indonesia.

The project may face resistance over the use of Chinese workers, however. Local media have expressed concerns about an “invasion” of foreign labor as the country’s unemployment rises during an economic slowdown.

“There is a push against the Chinese workers that is led mainly by the trade union movement,” said Christopher Manning, an adjunct fellow at the Australian National University, who has researched labor issues in Indonesia. “Many of the Chinese are working on construction projects, and a large number hold jobs that could be done by Indonesians. They come as part of the package. That’s the issue.”

— With assistance by Chris Brummitt

(Updates with closing share prices in fifth paragraph.)