A Brief on China’s BRI in Nepal: By Suprithi Sudharshana

Article 33/2023

It will do well for India to realize that Nepal is not in favor of showing a predilection for India merely on the basis of historical and cultural ties. In fact, Nepal looks to establish ties with other countries in the South Asian region and on the global stage to reduce economic and moral dependence on India. Additionally, ideological affinity between the prominent leaders of Nepal and China have encouraged strong ties with Beijing. Journalist Amish Raj Mulmi, in his book series, All Roads Lead North: China, Nepal and the Contest for the Himalayas (2021) gives us an insight into the general perception of India and China in Nepal. He argues that in some ways, China has been a good neighbor to the small landlocked Himalayan nation. Beijing has allowed trade over the two nations' Himalayan border, provided no caveats on financing for projects that reduced Nepal's dependence on India. Beijing is developing a road between Lhasa and Kathmandu to strengthen bilateral relations (Nathan, 2021). In All Roads Lead North: Nepal’s Turn to China (2021), he articulates the personal relationships Nepali people at the border have built with Tibetans over the years. As a case in point, Nepali people along the border are now crossing it to get a flat-screen TV for one-third the price of what they would pay in Kathmandu. Traders sit in cafes next to newly constructed highways, doing business over smartphones, drinking Chinese beer, and trading electronics, household goods, and even fruit; unimaginable just a few decades ago given the arduous and time-consuming travel that the Himalayas demand. While the commodities traded are now Chinese and do not originate in Tibet, the Himalayas (after a brief interregnum in the late twentieth century) have reclaimed their position as the world's highest trading area (Morch, 2021). Because of the economic leverage Beijing offers-coupled with a non-interference in domestic affairs and policymaking- Nepalis consider China to be a superior economic model and a wealthier source of finances than India. Mulmi cautions that "India's fears of losing its influence and primacy in Nepal and South Asia to China are well founded." The author expects that China’s policy of noninterference in the domestic affairs of its ally countries makes it all the more attractive to maintain relations with. He expects a decline in New Delhi’s economic, ideological and cultural influence in India’s long-standing spheres of influence in South Asia due to BRI. It is in this less than encouraging backdrop for the Indians as of 2021, that the article will review the nature and progress of BRI in Nepal.

Background

In May 2017, under the leadership of then-Prime Minister Pushpa Kamal Dahal, Nepal and China signed a Memorandum of Understanding (MoU) on the BRI. He was largely regarded as a "pro-Chinese" Maoist leader who had entered mainstream politics following a decade-long armed insurrection. There was widespread hope in Kathmandu that it would attract Chinese investment, reduce its dependence on India and improve regional connectivity infrastructure. In early 2019, Nepal proposed nine projects that could be carried out under the framework of the BRI. They were mainly centered around building or upgrading of highways and airports in the country. The original proposal brought out by Kathmandu spoke about “a feasibility study of the trans-Himalayan railway connecting from the Chinese port of entry of Jilong/Keyrung to Kathmandu, an extension of a 400 KV electricity transmission line, setting up a technical university in Nepal, and the construction of new roads, tunnels and hydroelectricity dams'' (Pandey, 2022). The Nepal-China trans-Himalayan multidimensional connection system is the most significant of these initiatives. As of March 2022, the projects have lagged for various reasons. The Trans-Himalayan Multi-Dimensional Connectivity Network is a BRI endeavor that is the umbrella for infrastructure projects which include the Trans-Himalayan Railway project and the Damak Clean Industrial Park, a joint venture undertaken in Jhapa, eastern Nepal (Cyrill, 2022). The table below reviews the reasons for delay in some of the proposed projects.

Source: Compilation of data from India Briefing & The Kathmandu Post

The Status of the BRI in Nepal

According to The Kathmandu Post, Nepal has identified 35 projects that come under the framework of the BRI. Some of them are the Kathmandu Outer Ring Road, Handicraft village in Humla, Simikot, Exhibition centers in all seven provinces, etc. Moreover, a Memorandum of Understanding was also signed between the two countries for the development of the Eastern Tarai Irrigation System, which will circle the Biring, Kamala, and Kankai rivers. A $46 million highland food component is also planned to offer fruits and vegetables. According to estimates, the projects under the BRI would cost Nepal $10 billion (Jha, 2019). This is an updated list of the projects in Nepal and their status.

As of February 2023, an online magazine in Nepal - epardafas.com - reported that Chinese investments sought to further increase the Himalayan nation’s imports and lower exports (For comparative purposes,drawing data from IJ-Reportika, Nepal’s marginal increase in exports to China from 2017 to 2018 YoY was 32 million USD and marginal increase in imports was 230 million USD . In 2022-when the world was combating the aftereffects of COVID 19- a marginal increment was observed (from 2021 to 2022 YoY) -again only an increase of 34 million as against increment in imports which was 239 million USD). Based on custom data, it observed that previous agreements and trade patterns have helped China assert its influence in Nepal. In 2021, China's foreign trade imports and exports to Nepal were only 12.770 billion yuan, approximately 1% of China's overall foreign trade with South Asia. In 2020-21, Nepal imported Rs233.92 billion in commodities from its northern neighbor. According to the Department of Customs, imports from China increased around 28.58% year-on-year in 2020-21 FY. This shows that its exports were valued at a meager Rs 1 billion. Moreover, the Chinese influx has made it hard on the already worsening unemployment situation, as locals must compete with the relatively well educated and wealthier outsiders. A number of them have migrated to the less populous areas of north and northeast India. They are forced into odd jobs including being rickshaw drivers and waiters. Many of the major businesses, hotels and restaurants in Nepal are now owned by the Chinese (ANI, 2023). Slowly but surely, China is taking over Nepal economically.

For the last three years the local populace is increasingly opposed to the BRI projects due to a lack of progress in the projects coupled with rising debt of the country that has increased inflation levels - a direct cause in increasing living costs of the Nepalis - as well as the displacement of a huge number of people (unclear numbers). In August 2022, Nepal witnessed a protest rally against the BRI, organised by the Youth Department of Nepal’s Rashtriya Ekta Abhiyan which demanded a revocation of the agreement. Hundreds of people took part in the rally from Maitighar Mandal in Kathmandu to Naya Baneshwar (Pradhan, 2022). In July 2023, China and Nepal sought to accelerate the completion of pending projects and “stressed the need for expeditious completion of preparatory work on both sides to accelerate major connectivity projects in line with the previously agreed-upon commitments.” (PTI, 2023)

Notwithstanding the fact that Nepal owes significantly less to China than other countries in the region (its outstanding external debt to China was $259 million as of April 2023), the economic troubles in other South Asian countries have not gone unnoticed (Mulmi, 2023).Despite domestic opposition, Nepal PM Pushpa Kamal Dahal Prachanda who attended the inaugural session of the Asian games said that the country was ready to take the BRI further whilst remaining cautious about debt traps (Ghimire, 2023). Amish Raj Mulmi’s latest article (in ORF, Aug. 2023) starts off as a question. What does the BRI mean to Nepal? it is very different from what it means to China. Beijing has claimed infrastructure projects not explicitly included in the agreement as its own-the Pokhara airport-much to Kathmandu’s annoyance. China asserted its claim that the airport was a flagship project of the BRI by stating that it was based on a cooperative model that included grants and commercial cooperation. Nepal has rejected the Chinese definition and scope of the BRI framework- defined it as being project led- and that as of August 2023, no BRI project has taken off in the country. Nepali officials also requested new borrowing arrangements, such as interest rates not exceeding 2% and a repayment period comparable to that of international institutions (Mulmi, 2023). 'The Nepali side has also insisted that projects under the BRI should follow an open and transparent bidding process... implying that the right to compete cannot be reserved solely for Chinese enterprises,’. Discussions over two new BRI projects are also underway (Mulmi, 2023). Clearly, Nepal has realized the importance of clear-cut negotiations with China.

India: A Cost-Effective Alternative?

Even during the Covid-19 outbreak, India-backed programs had achieved great progress. India has provided approximately $63 billion in grant assistance to Nepal (In contrast, China’s investments are largely debt based). These projects include border checkpoints, healthcare facilities, road-rail connectivity, and electricity projects. As of 2023, among the completed India-funded projects in Nepal are the Motihari-Amlekhgunj petroleum product pipeline and the Jayanagar-Kurtha-Bijalpura-Bardibas train link, with work on the third phase currently underway (Subhashini, 2023). While Kathmandu is busy securing its position within the BRI agreement, it is yet to realize the benefits of New Delhi’s terms and conditions. China keeps urging Nepal to join Xi Jinping's recent initiatives-which are thought to be a different approach to further BRI's progress after running into initial controversies - the GCI and the Global Security Initiative, the latter of which encapsulates Nepal's concerns about the major powers' security-oriented diplomacy (Mulmi, 2023).The position that China is the superior economic model compared to India cannot be cited as a major reason to partner with Beijing in implementing BRI given the previous observations made .Amish Raj Mulmi's poetic observation captures the not so eloquent position of Nepal - “blurred definitions and unilateral declarations on Beijing’s part have left Nepal struggling to define the BRI and Xi Jinping’s other initiatives."