On Monday, Prime Minister KP Sharma Oli flew to Beijing on an official visit at the invitation of Chinese Premier Li Qiang, leading an 87-member delegation.
During the visit that will conclude on December 5, PM Oli is scheduled to hold bilateral talks with Premier Li on issues of mutual interest, and also pay a courtesy visit to President Xi Jinping.
Back in Nepal, one of the most hotly debated topics among diplomatic circles and media is the nation’s participation in the Belt and Road Initiative (BRI).
Announced as an ambitious program of the incumbent Chinese President in 2013, BRI has garnered significant attention globally, and in Nepal for its potential to reshape the nation’s infrastructure and economy. Although Nepal signed a framework agreement in 2017, progress has since stalled.
What is BRI?
China introduced the BRI with the goal of enhancing connectivity and fostering cooperation on a transcontinental level.
It seeks to enhance global trade and stimulate economic growth across Asia, Africa, and Europe by improving infrastructure, connectivity and economic cooperation through investment in large-scale projects such as highways, railways, ports, and energy plants.
The initiative consists of two main components: (i) ‘Belt’ — the Silk Road Economic Belt — refers to the overland routes that connect China to Europe via Central Asia, as well as to South Asia and Southeast Asia and (ii) ‘Road’ represents the 21st Century Maritime Silk Road that links China to key ports across Asia, Africa, and Europe.
The total investment for developing transport, energy, and communication infrastructure is estimated at $1 trillion.
As of now, about 150 countries, including Nepal, have agreed to participate in the BRI. In December 2023, Italy however pulled out from the program.
Some see it as a promising opportunity for developing countries — especially when advanced economies from the West struggle to provide better infrastructure options. Others fear BRI could lead to “debt trap” as project costs continue to soar, raising concerns about growing indebtedness.
These contrasting perspectives are widely reflected across Nepali media, think tanks, and political parties as well.
BRI and Nepal’s engagement
Nepal signed the BRI framework agreement in 2017, initially proposing 35 projects under the program. In his official visit to China in June 2019, PM Oli had handed over the proposal.
Reportedly, upon consultations with Chinese side and their recommendations, the number of proposed projects was cut down to nine, majorly focusing on connectivity and energy, as follows:
This followed the agreements signed between Nepal and China, in March 2016, which covered several key areas, including free trade and transit transport (notably the trade and transit with China), connectivity, and financial cooperation.
The Trade and Transit treaty with China was anticipated to provide Nepal with greater economic autonomy, reducing its dependence on India for third-country trade following the latter’s unofficial blockade in 2015.
A protocol was signed in 2019 which allowed Nepal access to four Chinese seaports in Tianjin, Shenzhen, Lianyungang, and Zhanjiang, as well as three land ports in Shigatse, Lanzhou, and Lhasa for importing goods and paved way for Nepal’s exports through six designated transit points between the two countries. However, tangible economic gains are yet to be realised.
And yet with Nepal’s geographical location as a landlocked country, the BRI’s promise of improved connectivity with China and other international markets holds significant potential for Nepal in terms of boosting trade, attracting foreign investment and enhancing growth.
Despite the anticipated benefits, Nepal’s engagement with the BRI has not been without challenges.
First, Nepal’s own political turmoil has significantly slowed the nation’s progress, affecting nearly all aspects of development.
Second, concerns on financial implications, particularly the risk of increasing national debt. Nepal’s current public debt stands around 44% of its GDP, which has reached Rs 2,523.04 billion (as per latest quarter end data) while the ratio of domestic to foreign debt is 49:51.
Additionally, questions have been raised about the transparency and environmental impact of some proposed infrastructure projects within BRI. For instance, about its larger trans-Himalayan railway network.
Third, the BRI remains a contested subject in Nepal’s political domains. Different political parties view the program in varying ways, with some fearing it could lead to an over-reliance on China resulting from indebtedness, potentially straining diplomatic and strategic relations with India.
Fourth, lack of clarity in financing modality of the projects — whether projects will be funded through grants, concessional loans or commercial loans.
As a result, Nepal has struggled to make tangible progress on the proposed BRI projects, hindered by delays in negotiations. Moreover, a broad public opinion is missing stemming from the Nepali state’s failure in effectively communicating its understanding and stance on the program.
Timeline of Nepal’s engagement on BRI
Negotiation Phase (2016–2017)
The Pushpa Kamal Dahal administration initiates the framework agreement process with China. Dr Prakash Sharan Mahat, hailing from the Nepali Congress, was Foreign Minister through the signing of the framework.
Signing Phase (2017)
May 12, 2017: Nepal signs a Memorandum of Understanding (MoU) on the framework agreement on BRI in Kathmandu. The agreement was signed under Dahal’s leadership.
May 14 and 15, 2017: Deputy Prime Minister and Minister for Finance Krishna Bahadur Mahara attends the first BRI Forum for International Cooperation held in Beijing.
2018–2023:
June 2018: PM Oli visits China. The two sides agree to intensify implementation of the MoU under the BRI to enhance connectivity, encompassing vital components such as ports, roads, railways, aviation and communications within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network.
April 2019: President Bidya Devi Bhandari participates in the Second BRI Forum.
October 2019: Chinese President Xi Jinping visits Nepal. It was the highest level delegation visit from China in 23 years, which shows Nepal’s significance as a BRI partner.
Between 2018 and 2021, PM Oli led Nepal during key discussions on the implementation of BRI projects, particularly the Kerung-Kathmandu Railway. Throughout his administration, Pradeep Kumar Gyawali as Foreign Affairs Minister advanced bilateral discussions on BRI projects and emphasised grants or concessional loans rather than commercial financing.
Recent Engagements (2022–2023)
Sher Bahadur Deuba headed the government until the general elections in 2022. Narayan Khadka, who served as the Foreign Minister in Deuba administration, engaged with China on recalibrating BRI projects to align with Nepal’s financial priorities.
Deuba and Khadka, both representing the Nepali Congress, took a cautious approach to BRI, focusing on debt sustainability, reiterating their preference for softer loans, if not grants.
Pushpa Kamal Dahal returned to power after the general elections. He renewed commitments to BRI. Deputy Prime Minister and Minister for Home Affairs Narayan Kaji Shrestha attends the Third BRI Forum in Beijing.
However, in June 2023 Dahal signed an MoU with India on the development of 480 MW Phukot Karnali hydropower project, which was initially planned under BRI. The development occurred after India refused to buy electricity from projects where they don’t have controlling stakes, a move primarily intended at discouraging Chinese investments in Nepal’s energy sector.
September 2023: Dahal visits China for a week. He signs multiple agreements and MoUs, but none under the BRI projects.
Controversies
A key controversy and confusion surrounding the BRI projects is the lack of transparency and clarity regarding their funding structure.
While different ruling parties in governments have often reiterated for either grants or concessional loans with longer repayment schedules, the Chinese side has yet to finalise their position.
While it is justifiable not to take loans in view of increasing public debt, it is equally important to balance this caution with the necessity of financing key developmental projects, which are often large and capital-intensive and beyond country's present means, but can remain financially and economically viable and ensure debt manageability even if they require commercial loans.
On the other hand, Nepal on its part, has failed to make detailed public discussion on projects including on their socio-economic viability.
A major controversy arose a day before the inauguration of Pokhara Regional International Airport (PRIA) in January 2023 when China falsely referred to it as a flagship project under the BRI.
Nepal borrowed nearly 26 billion rupees (approx $216 million) under soft loan arrangements [25% of the loan interest-free; 2% interest rate on the remaning loan; payback period 25 years] from the Export-Import (EXIM) Bank of China for the airport in 2016, and has recently requested China to waive the loan, as the airport faced financial difficulties due to the lack of international flights.
Yet again, in June 2023, following the launch of WeChat Pay's cross-border payment service in Nepal, Chinese Ambassador to Nepal, Chen Song, tweeted about the development, suggesting it as a component of BRI.
Nepal’s then foreign minister NP Saud subsequently clarified at the house that no projects were implemented under the BRI so far.
A source of geopolitical tension and political conflict
The BRI has been a source of geopolitical tension since its formative years.
India views Nepal’s participation in the BRI, which will involve large-scale infrastructure projects, with suspicion, as it could limit its traditional influence in Nepal and a strategic challenge to its security and regional dominance.
This has translated into political conflict between two leading parties of Nepal CPN (UML) and Nepali Congress (NC) reflected in their opposing stances on the BRI, which stems based on the extent of their proximity to Nepal’s only two neighboring countries.
The NC has had stronger ties with India historically and takes a cautious approach on BRI.
The UML, particularly its Chief Oli, who appears to offend the Indian establishment time and again, shares ideological vicinity with the Chinese ruling party. The left party is more inclined towards the Northern neighbor and has strongly expressed commitment to diversify its economic partnerships, which so far has been India-dominant.
The latest progress
Following Oli’s appointment as PM this year, his fourth time overall, there were widespread speculation about his eagerness to visit India hoping to use the visit to ease the strained relationship between him and the Indian establishment. But the latter snubbed him — discarding a long held tradition where Nepal’s new sworn-in prime minister usually make their first state visit to India.
Since the state visit could not take place, and despite PM Oli and Indian PM Narendra Modi holding a bilateral meeting on the sidelines of the 79th United Nations General Assembly in New York this September, Oli recalibrated focusing on diplomatic efforts to arrange a state visit to China.
Following the announcement of his official visit to Beijing a few weeks ago, discussions on the implementation of the BRI resurfaced, with a particular focus on its financing structure.
However, the Nepali Congress, the strongest coalition partner of the current government, strongly opposed loans for BRI projects. This raised the threat of a political crisis for Oli. Following pressure from the Congress, Oli has reiterated that Nepal will not take loans to finance BRI projects.
The two parties then formed a four-member task force comprising leaders from both sides to develop a new framework. This led to an extended version of the cooperation document (see the list of final projects included below), aimed at securing grants, finalised just two days before Oli’s departure for China. In Beijing, Nepal will attempt at convincing the Chinese leadership to sign this revised framework, if not in entirety.
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