Pakistan, Sri Lanka and now Indonesia: The extending arm of China’s debt diplomacy

The Indonesian government has entered crucial debt negotiations with Beijing over the struggling $7.3 billion “Whoosh” high-speed railway connecting Jakarta and Bandung. Just two years into commercial operations, the Beijing-backed project—a flagship development under China’s Belt and Road Initiative—is racking up significant losses, raising fears of an unmanageable debt burden for Indonesia.

The 145km rail link, which reduces the travel time between the capital and the country’s third-most populous city to just 45 minutes, was jointly developed by Indonesian and Chinese state-owned companies.

Three-quarters of the project’s financing came from Chinese loans, and critically, the debt is supported by state guarantees from Jakarta.

Restructuring talks underway

Investment Minister Rosan Roeslani has confirmed that Jakarta is seeking a “comprehensive” debt restructuring to prevent “things like the possibility of default” in the future.

While Finance Minister Purbaya Yudhi Sadewa has ruled out a direct state rescue, Indonesia’s newly formed sovereign wealth fund, Danantara, is leading the negotiations. Danantara’s Chief Operating Officer Dony Oskaria stated that talks with China are focused on the loan period, interest rates, and currencies, with a deal expected to be finalised this year.

The financial crunch tracks back to the railway’s poor performance.

The project has not proven popular, largely because stations are located far from city centres and the cheapest one-way fare of Rp250,000 ($15) is more than five times that of the slower conventional train. Passenger traffic has hovered at about one-third of initial forecasts, according to a lawmaker.

The Indonesian consortium, which holds a 60% stake in the railway, reported a staggering loss of nearly Rp4.2 trillion ($253 million) last year, with an additional Rp1.6 trillion loss in the first half of 2025.

Bobby Rasyidin, the CEO of the largest Indonesian shareholder, called the situation a “ticking time bomb."

China stands by project

Despite the financial troubles, a spokesperson for the Chinese Foreign Ministry, Guo Jiakun, maintained that Beijing remains committed to the “Whoosh” railway.

He stressed that beyond financial metrics, the project’s “public benefit and comprehensive returns” must be taken into consideration.

Analysts suggest the most likely outcome is that China will agree to suspend payments for a period. In the worst-case scenario, if Indonesia is unable to meet payments, China could technically take ownership of the project, though experts caution this would be difficult given China’s own economic challenges.

The project’s viability has been questioned since its inception, with many critics questioning the need for a high-speed link between two relatively close cities. The decision to select China’s 2% interest offer over Japan’s offer of 0.1% also drew scrutiny, particularly after ballooning costs forced Indonesia to ultimately issue the state guarantees it had initially sought to avoid.

Another Pakistan or Sri Lanka in the making?

Pakistan and Sri Lanka stand as stark examples of nations caught in China’s expanding debt trap.

Both countries eagerly embraced Chinese loans under the Belt and Road Initiative to fund large-scale infrastructure projects—from highways and power plants in Pakistan to ports and airports in Sri Lanka.

However, the promised economic windfalls never fully materialised, while mounting repayment obligations strained their already fragile economies.

Sri Lanka’s inability to service its debts led to the controversial handover of the Hambantota Port to China on a 99-year lease, symbolising Beijing’s growing leverage.

Similarly, Pakistan’s dependence on Chinese credit for projects like the China-Pakistan Economic Corridor has pushed it into a cycle of debt dependency, giving China considerable influence over its fiscal and strategic decisions.