Nepal Inching Toward China

In what appears to be a delicate balance between major powers, the Nepal Communist Party (NCP)-led government of K.P. Sharma Oli is slowly but gradually taking steps to benefit economically from China.

Two significant developments in recent weeks clearly show that Nepal wants to join China’s Belt and Road Initiative (BRI) and use Chinese routes and ports in order to lessen its heavy dependence on India. Though there has been some delay in the selection of specific projects under BRI, with the exception of the cross-border Kerung-Kathmandu railway, Nepal has shown unwavering attraction to the BRI.

Nepal’s President Bidya Devi Bhandari participated in Second Belt and Road Forum (BRF) for International Cooperation held in Beijing in late April. A joint communique issued after the leaders’ roundtable mentions the Nepal-China Trans-Himalayan Multi-dimensional Connectivity Network, including the Nepal-China cross-border railway, an ambitious connectivity project which is drawing international attention. China wants to develop this railway line as a gateway to South Asia. This is the first time that Nepal’s specific project has been mentioned in official BRI documents, but it is still not listed among the deliverables.

Another significant development during Bhandari’s China visit was the signing of a protocol related to the Transit and Transport Treaty signed back in 2016 in the previous tenure of the Oli government. The signing of the protocol allows Nepal to use China’s sea and road infrastructure for third country trade. However, Nepal needs to build some relevant infrastructure to actually make use of Chinese ports.

Both countries have already concluded a pre-feasibility study of the proposed Keyung-Kathmandu railway and are all set to begin the task of preparing a Detailed Project Report (DPR); it is estimated that it will take around two years and 35 billion Nepalese rupees (about $312 million) to complete the DPR. Cost-sharing plans for the DPR have not yet been finalized. Talks on the railway project are scheduled to take place next month.  

Earlier, addressing the BRF, President Bhandari praised China’s BRI project. Her words were a bid to assure the Chinese side that Nepal stands firmly in favor of the BRI despite pressure it faces from other countries. Addressing the forum, Bhandari said, “The far-sighted vision of President Xi to build a community of shared future for mankind through [the] Belt and Road Initiative carries a huge potential. It is an important framework for collaboration, for cooperation and for connectivity.”

Bhandari added that the “BRI is the engine for prosperous future where not a single country is excluded from the fruit of development.”

Nepal’s determination to benefit from the BRI comes at a time when there are growing concerns among a number of countries, particularly India and some Western states, about Chinese investment in Nepal. An analysis of a series of statements made by those countries clearly shows that Nepal is under pressure with regard to taking Chinese loans for infrastructure projects under the BRI.

During his visit to United States in December last year, American officials advised Nepal’s Foreign Minister Pradeep Gyawali to think about its ability to pay back any Chinese loans. In February, U.S. Deputy Assistant Secretary of Defense for South and Southeast Asia Joe Felter publicly said that Chinese investment in Nepal should serve the interests of Nepal, not just of China. The next day, the Chinese ambassador to Kathmandu, Hou Yanqi, objected to the American statements, saying they were ridiculous.

“If a country cannot provide help for developing countries, [it] should at least refrain from obstructing others from assisting these developing countries, even less hurting the benefits of these people to serve its own political needs and sowing discords,” Hou said at a public event. Apparently hinting at the U.S. officials’ remarks, she called them “attempts to interfere [with] the friendly cooperation between China and Nepal, which is very ridiculous.”

It’s not only American officials dropping cautionary comments. In January, when Japanese Foreign Minister Taro Kono was visiting Nepal, Japanese Foreign Ministry spokesperson Natsuko Sakata said that financial support for infrastructure projects should be concessional, raising eyebrows among Chinese officials who interpreted the comments as directed at Chinese projects.

Many countries, directly and indirectly, have been warning the Nepali government about falling into a so-called debt trap, pointing to examples elsewhere in South Asia like Pakistan and Sri Lanka. Experts and observers are also divided. Some say that the issue of “debt traps” in Sri Lanka and Pakistan is simply propaganda, while others say Nepal should seriously think about the risks associated with Chinese loans. India, Nepal’s other neighbor, boycotted both BRFs, in 2017 and last month, and has reportedly conveyed similar warnings to Nepal. However, unlike in the past, India has not been so vocal of late about Nepal’s participation in the BRI.

Government officials and leaders of the ruling Nepal Communist Party (NCP) saw such earlier efforts and comments as a ploy to prevent Chinese investment in Nepal. In general, there is a consensus among Nepal’s political parties that the country should seek to benefit from the BRI. The government is of the view that Nepal needs massive investment to fulfill the people’s desires for development and prosperity, but grants alone provided by other countries are insufficient to accomplish the tasks. Loans for infrastructure development are thus viewed as necessary.

Foreign Minister Gyawali has countered the argument about a “debt trap” by saying that such warnings about the BRI are motived by bias. Speaking at a public form just before Bhandari’s visit to China, Gyawali said, “It would be better on the part of friends wary of Nepal’s future to give us information about charitable organizations that extend loans at zero interest.” He was hinting at the fact that there are no countries that can or will extend such loan support without interest and it is Nepal’s obligation to take loans for its infrastructure development. Gyawali also said that Nepal is capable of making its own decisions.

China is also strongly countering the debt trap discussions that take place in Kathmandu among the media and academic circles. Chinese efforts portray those talking about a possible debt trap as merely spreading Western propaganda. 

Nepal signed a Memorandum of Understanding (MoU) in May 2017 just before the first BRI forum. Then-Foreign Minister Krishna Bahadur Mahara participated in the first forum.  But there was not remarkable progress in the selection of BRI projects and investment modality thereafter. Nevertheless, Nepal has positioned itself as joining the BRI broadly in two areas: connectivity and energy.

The government led by Nepal Communist Party Chairman K.P. Sharma Oli is making efforts to take other countries into confidence about its participation in the BRI. The Nepal government is trying to convince its other partners that it wishes to enhance bilateral and multilateral collaboration with neighbors, friendly countries, and development partners to overcome the development challenges it is facing, especially a lack of sufficient internal resources. Domestically, Oli stands in a very comfortable situation in dealing with China, because all parties, including the opposition Nepali Congress, support dealing with China on the BRI.