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.