UPDATE 2-Indonesia rewards China's "courage" with high-profile rail contract

(Adds Chinese Foreign Ministry comment)

JAKARTA, Sept 30 (Reuters) - Indonesia picked China over Japan to build the country’s first fast-train rail link because Beijing had the courage to provide $5 billion in loans without asking for guarantees, an Indonesian official said on Wednesday.

The two Asian giants had been battling for months over the high-profile contract to build a railway linking the Indonesian capital, Jakarta, with the textile hub of Bandung.

Indonesia initially envisaged a high-speed service for the 150-km (100 mile) journey but this month changed its mind, opting instead for a medium-speed train.

Analysts have said whoever won the bid could be a front runner for future rail projects in the region, including one linking Kuala Lumpur and Singapore.

President Joko Widodo’s administration preferred China’s proposal because it was less burdensome and promised a larger share of technology transfer than Japan.

“The government of China has courage not to ask for guarantees from Indonesia,” Gatot Trihargo, deputy assistant for the state-owned enterprises ministry, told Reuters on Wednesday.

“While other countries like Japan and Germany request government guarantees, we cannot afford this because our budget is limited.”

The high-profile contract is a victory for Chinese President Xi Jinping’s “One Belt One Road” initiative to build a network of ports, trains and expressways to help expand trade, investment and influence in the region.

China’s Foreign Ministry said China had the advantage of experience in developing high-speed rail projects.

“We’re eager to work with the Indonesian side to develop cooperation in the spheres of infrastructure development and production capacity,” ministry spokesman Hong Lei told a regular briefing.

For Japan, the rail project was a difficult loss, particularly after last-minute efforts by Japanese Prime Minister Shinzo Abe to provide a better offer than China.

“The Japanese government still believes our proposal was the better and most feasible one,” Japanese embassy official Kijima said. “We were expecting transparency and fairness from the Indonesian government. We hope that in the future they will be more transparent and fair.”

Indonesia’s national planning minister, Sofyan Djalil, travelled to Japan this week to break the bad news to Tokyo, but also lobby officials on other investment opportunities.

“There are many infrastructure projects, not just trains, and many opportunities for the Japanese government to build infrastructure in Indonesia,” said Indonesia’s presidential chief of staff, Teten Masduki. ($1 = 14,660 rupiah) (Additional reporting by the Jakarta bureau, and Megha Rajagopalan in Beijing; Writing by Randy Fabi; Editing by Nick Macfie)