The Ambitious Belt and Road Initiative in Nepal

The Belt and Road Initiative is an ambitious plan devised by the Chinese government under Xi Jinping in 2013. It is also referred to as the New Silk Route, and it aims to connect China's coastal region with South Asia, Southeast Asia, the Middle East, and Africa[1]. Initially, it wanted to link East Asia with Europe, but later in 2017, it advanced to the Latin Americas and African countries. The Project is widely seen as a rising influence of China in the region[2]. The Project had two routes connecting the world with China through Physical infrastructure. Nepal and China joined hands in 2017 under the Belt and Road Initiative to facilitate trade connectivity, policy exchange, infrastructure connectivity, and financial integration[3]. Although it has been six years since the Project was signed, any significant actions or provisions have yet to be under the agreements and MoUs. There have been many problems and issues with the agreements between both nations. This paper examines the background of the Belt and Road Initiative between China and Nepal, its current status, and the problems and challenges with the prospects in line.

China’s BRI and South Asia

China's Belt and Road Initiative (BRI) had been a plan for the global expansion of the Chinese economy. It aimed to put the Chinese at the top to counter the United States' encirclement and prevent India's further growth. China has invested in South Asia for decades[4], and BRI is not the first massive investment in the South Asian region. What makes BRI different is that it has brought all the Chinese bilateral and multilateral engagements under a single umbrella. Most of these investments are made into energy pipelines, electrical power projects, mineral mining projects, and networks of roads, railways, etc. And a scale-up in the economic investments in the different sectors. Looking closely into South Asian investments meant that BRI would make enormous investments.

The South Asian countries in the region had various responses to the BRI, and one of their essential concerns was the power dynamics and relationship between India and China. All the South Asian countries had to weigh out and make careful decisions to please both the powers in the region. Bangladesh had been most successful in reaping the benefits of the situation while balancing its interests with India and China. In contrast, Maldives is not particularly interested in taking any initiatives because of issues with domestic groups. Nepal and Sri Lanka fell on the line where they welcomed the projects with open hands, but no outcome was detected. On the other hand, India has steered away from the BRI and has not taken up any projects relating to this, while Pakistan readily accepted the proposal to counter India[5].

BRI in Nepal

It has been six years since Nepal agreed to the BRI projects by the Chinese government into Nepal. Nepal was one of the first countries to join the BRI after it was announced in 2013. Negotiations were underway till 2017, and then Nepal and China signed a Memorandum of Understanding on BRI in May 2017; by then-prime Minister Pushpa Kamal Dahal. The Nepali people saw this project as the hallmark of development as they believed it would bring in a reasonable amount of Chinese investment in the region.

There are reasons for Nepal joining BRI, but mostly all of these reasons circle its relationship with India. The first reason is that Nepal depends on India for its trade as it is landlocked; being part of the BRI meant access to more roads and railways to reduce its dependency on India. India and Nepal’s relationship went downhill after India placed a trade embargo on Nepal just six months after its earthquake because India was not in support of Nepal’s new constitution in 2015. This stopped many supplies into Nepal and put the country through a massive crisis, leading the country to seek other potential players in the global arena. The second reason is that China offered to help Nepal during its disastrous earthquakes in 2015.

The BRI project aimed to ensure connectivity between Nepal and China through the Trans Himalayan Multidimensional Connectivity Network project; it aims to link Kathmandu and Beijing through roads and railways. There are many projects under the THMCN umbrella, and just the Kerung-Kathmandu railroad is worth Rs. 2.15 billion. This was the inception of a vast amount of investment China was ready to put into Nepal. Through this project, China would be connected to South Asia at large with the connectivity projects, but these projects are wider than connectivity; they were also investments proposed for hydropower, electricity, border facilities, and oil storage[6].

Nepal and BRI: Current Scenario

The latest reports on the meetings between Pushpa Kamal Dahal, Prime Minister of Nepal, and Chinese President Xi Jinping in 2023, say there is no mention of BRI projects or their status. After returning from the two-week visit to China, Prime Minister Pushpa Kamal Dahal talked to the Press about the deals signed and agreements taken but did not say anything about BRI. A 40-point press note was issued in Kathmandu, and even after a question-answer session with the Press, the Prime Minister of Nepal did not cover anything related to BRI[7].

Kathmandu's 40-point press note issues mention various railways, roads, air services, and transmission lines connecting Nepal and Tibet under another project titled 'Trans-Himalayan Multidimensional Connectivity Network.' However, in a joint report by both countries, they later spoke about finalizing the BRI projects and other relevant details as soon as possible[8].

Before Prime Minister Dahal left for Tibet in September, a 13-point joint statement was also released, which spoke in length about the country's desire to strengthen the BRI and Trans-Himalayan Multidimensional Connectivity Network projects. It has also focussed on building better relationships with each other in the energy sector, hydropower, etc.

Nevertheless, the people of Nepalis are not happy with the situation and the meetings that have occurred over time, as they hardly see any development in the nation; the issue of China's debt trap is also causing panic among people as China has not yet converted the loans given to Nepal for building Pokharal International Airport into a grant.

During the third Belt and Road Forum for International Cooperation (BRF) conference in Beijing on 18^th October 2023, two mini projects for Nepal were listed under BRI: the Panda Pack project and the Amity Living Water Project. However, what is ironic is that these were already functioning projects in Nepal. The Panda Pack project was launched in 2019 in Nepal by the China Foundation for Poverty Alleviation jointly with Alibaba Philanthropy.

What are the Issues and Challenges

There are many reasons for the delay in the working of BRI projects in Nepal, and most of the issues circle loans and grants; the pandemic also, to an extent, affected the progress. Pradip Gyawali, who served as a foreign minister in the Oli cabinet, says that as they made the framework for the BRI, the pandemic took effect and slowed down the process[9].

The Nepalis have been cautious in negotiating with China and have explained that they do not want commercial loans and only want grants. Various newspapers report that the number of projects was cut down to 9 because of the issues of commercial loans. Mrigendra Bahadur Karki, an associate professor at Tribhuvan University, explains how Nepal has experience in taking loans from the World Bank and Asian Development Bank, where interest rates are low such as 1.3 and the payback period is also longer. Commercial loans offered by China come at a higher rate such as 4.2[10]and cannot be accepted by Nepal. Nepal had asked China for a long time to convert the Commercial loan to grants to continue with the BRI projects, but China has not done anything in this regard. Many officials claim this to be the reason for the slow progress in the BRI project implementation. Nepal does not want to take out Commercial loans from China because of various rumors surrounding its debt trap policy, although there is no concrete proof that China has such a policy.

During this time came the issues of Pokharal International Airport, where Chinese officials claimed the project came under BRI and congratulated the Nepali government, but later, the Nepali government clarified that the project did not come under BRI. This project was undertaken before the BRI was signed between both nations, although Nepal took funds from China. Nepal wants to change commercial loans into grants. Although built, the airport rarely gets any regular international flights and has been incurring a loss for the Nepali economy that they cannot repay the loan to China[11].

The destiny of BRI projects in Nepal is uncertain due to the growing concerns over commercial loans and Nepal's sovereignty among Nepali people. The relationship between Beijing and Kathmandu is suffering due to this lack of rapport between both parties, and it is difficult to predict the future of this development. Nepal's worry over China's debt trap policy has stayed in the background of all the decisions. Nevertheless, the decision of Nepal's agreement to the Trans-Himalayan Tibet-Nepal Railway, which cost almost one-tenth of Nepal's annual GDP, led to another political controversy in Kathmandu due to the incomparable strategic need for this project. Although China has strategic benefits due to this project's location, the same cannot be said about Nepal. The loan repayment ability of Nepal is also a point of worry, since Kathmandu is already experiencing loss in the construction of Pokhara Airport.[12].

Way Forward

Finding a balance between the development of the Nepali economy and maintaining its sovereignty is difficult. It is not easy to be diplomatic with China, one of the most significant nations in the world in terms of people, economy, and development. China has significant Influence in the South Asian region and as the world is moving towards a multiplex order, China’s influence in the South Asian Nations is only going to expand. Nepal must be very careful in the decisions it makes, as its options as a landlocked country are minimal. It must ensure to maintain balance between all its neighbours to maintain its sovereignty and other benefits. While BRI might be significant to Nepal’s growth, it should not come at the cost of Nepal’s freedom and sovereignty.