Nepal’s Approach to China’s BRI

Nepal is strategically located in the middle of two giants, India and China. Being Nepal’s northern neighbour, China has been keen on increasing its investments in Nepal. The interests are not just economic, but rather strategic. China seeks to increase its presence in Nepal and in this background, China pushed for implementing BRI projects in Nepal. Though BRI was proposed in 2013, Nepal signed the Memorandum of Understanding (MoU) in 2017, just before the first BRI Forum meeting. And since then Nepal has participated in the BRI forums though in different capacities.

In the first BRI Forum, Nepal was represented by then Finance Minister Krishna Bahadur Mahara. The second BRI Forum was more significant as Nepal’s President Bidya Devi Bhandari participated in the event. Additionally, the outcome document of the 2nd BRI Forum added the Nepal-China Trans-Himalayan Multi-dimensional Connectivity Network, which includes Nepal-China cross-border railway. Later during Chinese President Xi Jinping’s visit to Nepal in 2019, he pledged to transform Nepal ‘land-linked’ from ‘land-locked’.

Talking about the third BRI Forum in October 2023, the Deputy Prime Minister and Minister for Home Affairs Narayan Kaji Shrestha participated in the forum. He had made a visit earlier in July 2023. It is interesting to note that Prime Minister Pushpa Kamal Dahal visited China [4] in September for the Asian Games and preferred to skip the BRI Forum. Following his eight day visit to China, Nepali officials released a 40-point press document which did not mention the BRI projects. Furthermore, out of the 12 MoUs signed, none were under the framework of the BRI. However, the joint statement issued by the Nepali Ministry of Foreign Affairs just once mentioned about the BRI Implementation Plan and expressed the commitment of both sides. ^[1]

The outcome document of the third BRI Forum mentioned two mini projects; the Panda Pack project and Amity Living Water Project. However, it must be kept in mind that both these projects are already in operation. The Panda Pack project was launched in February 2019 which aimed to improve the basic learning conditions of primary school students and help in the development of quality education. China Foundation for Poverty Alleviation and Alibaba Philanthropy jointly launched the project. The Amity Living Water Project is run by a Chinese NGO in the water and sanitation sector.^[2]

While the outcome document did not have anything substantial for Nepal, the White paper released on October 10 indicated that Nepal was in favour of BRI projects as well as the Air Silk Road. China has pushed for bilateral air transport agreements and opened direct flights with many partner countries. Chinese enterprises are active participants in civil aviation infrastructure cooperation with Nepal, helping them develop the local civil aviation industry. In this backdrop, Pokhara International Airport was built on a Chinese loan. This year the Pokhara International Airport has been under a lot of controversy. China wanted this project to be kept under the BRI framework, but Nepal rejected it. A day before the inauguration of Pokhara Airport, China unilaterally and falsely claimed Pokhara International Airport as the BRI’s flagship project in Nepal. Later, Nepali Foreign Minister N.P. Saud clarified that not a single project in Nepal under the BRI has been executed. Furthermore, the New York Times investigative report raised multiple malpractices by a Chinese firm during the construction of the airport. In addition, it revealed a disregard for construction quality.

It has been six years since Nepal signed the MoU in 2017. However, Nepal is not being included in the BRI project and neither side has signed the implementation plan. One of the major criticisms that BRI projects face across the region is regarding the underlying debt trap. In Nepal as well these concerns have been raised. Even the 2017 MoU does not provide for funding modalities. Nepal has repeatedly requested for grants from China instead of soft loans. Nepal already has a huge trade deficit with China, which legitimately raises concerns over further loans under the BRI projects. China is also pushing for the China-Nepal free trade agreement (FTA) under the framework of BRI. While the Chinese economic analysis concluded that Nepal would benefit from an FTA, Nepal’s Ministry of Industry, Commerce and Supplies recommended that Nepal should not move forward with the deal, as it would further increase the trade deficit.

Here it must also be noted that China has also raised its reservations with Nepal, especially after Nepal signed and ratified the US-funded Millennium Challenge Corporation project in 2022. Subsequently many issues were raised bilaterally. Most shocking was the publication of China’s new “standard map” which effectively dismissed Nepal’s new political map released in 2020. The relations between China and Nepal further dipped when two out of the nine projects proposed under the BRI framework were awarded to Indian companies – the Tamor Hydroelectricity Project and the Phukot Karnali Hydroelectric Project – during PM Dahal’s visit to India in June 2023. Most importantly, in the past year, Nepal also managed to keep out of China’s Global Civilization Initiative (GSI), and Global Security Initiative (GSI); though it did become part of the Global Development Initiative (GDI).

China and Nepal share a 1,414 km land border, which China wants to control. China looks at Nepal as a strategic chess piece to increase its presence in South Asia and come closer to the Indian border. This imposes a huge challenge for India as it has a shared history and close relations with Nepal. In the past years, China’s economic and political interventions in Nepal have created challenges for India. As far as BRI projects are concerned they are far from becoming a reality in Nepal, but despite lagging behind on these projects, China has made huge inroads in Nepal. India needs to be cautious of these developments and keep a close watch on developments in its neighbourhood.

References

^[1] https://thediplomat.com/2023/10/the-bri-has-failed-in-nepal-prime-minister-dahals-visit-confirms-it/ [4]
^[2] https://kathmandupost.com/national/2023/10/29/two-projects-of-nepal-listed-as-belt-and-road-outcome [5]

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