Nepal is one country that has made the best of China’s Belt and Road Initiative (BRI).
While having signed onto the BRI, Nepal took the stance that it did not have the funds to execute projects but was unwilling to borrow money from China.
The negotiating stance that Kathmandu took time and, after six years of dismal progress on projects under the BRI in Nepal, the Chinese seem to have taken a regional approach towards Nepal to extend Xi Jinping’s flagship connectivity arm.
This becomes apparent in the manner in which the Tibet Regional Secretary of the Communist Party of China (CPC) recently held meetings in Kathmandu and Pokhara.
Essentially, Nepal has chosen to accept projects like Pokhara and Lumbini as it suited them, while discarding the rest.
Wang Junzheng, CPC Secretary for the Tibetan Autonomous Region of China, visited the province and met with Chief Minister Surendra Pandey.
The visit by Wang has drawn significant attention in Kathmandu, given China’s direct engagement with a provincial government.
As Tibet is adjacent to Nepal, Beijing naturally wants the Tibetan provincial government to take the lead for the BRI’s execution in the country,” claimed Gautam.
It is a strategy that China has followed in Sri Lanka. Wang said that his visit was focused on implementing the agreements and understandings signed between Nepal and China during the recent visit of Prime Minister Pushpa Kamal Dahal to China and the visit by Chinese President Xi Jinping to Nepal in 2019.
Having watched closely the experience of other South Asian countries (such as Sri Lanka) with BRI, Nepal has treaded slowly on finalizing projects, seeking more information about funding modalities and its exposure to risk before coming on board.
Signed between Nepal and China in 2017, the multi-billion-dollar BRI has made little progress in Nepal despite tall promises from both sides.
The two sides still await the finalization of the draft BRI implementation plan. Before Nepal signed the BRI, an action plan released by the Chinese central government stated that Tibet would work with Nepal in implementing the BRI and would work closely with the government of Nepal in areas like cultural promotion, development, and trade and commercial cooperation. Funding modality has emerged as one of the major challenges between the two countries.
Nepal prefers aid or grants, but China favors loans. In fact, one of the most anticipated projects under BRI, the Keyrung – Kathmandu rail, seems to be held up due to a lack of agreement over funding.
Nepal has requested that China build this railway line on a grant basis; however, the matter is yet to be resolved.
The other project of note is the Pokhara International Airport. The Chinese side claimed the new airport was built with a loan from Beijing under the north’s global connectivity project, despite Nepal’s official rebuttal.
The $76 million Gautam Buddha International Airport at Bhairahawa was funded by the Asian Development Bank and the OPEC Fund for International Development but was constructed by the Northwest Civil Aviation Airport Construction Group of China and inaugurated in May 2022.
China’s EXI Bank provided a soft loan of $215 million to build the international airport at Pokhara. One of the reasons for the reluctance of the carriers to operate international flights from the two airports is the lack of cross-border air routes between Nepal and India.
Nepal is pressing India to rework the 2009 bilateral air services agreement to provide for more cross-border entry and exit routes between Nepal and India.
Nepal has now sought China’s help in making the international project operational, especially given India’s reluctance to conduct flights from cities across Nepal’s southern border on account of security concerns.
Gandaki province Chief Minister Surendra Pandey had requested Wang to help Nepal commercially operate the Pokhara International Airport.
He said, “Basically, we asked them to begin regular and direct flights from Lhasa, Chengdu, and Guangzhou to Pokhara.”
In Pokhara, according to Chief Minister Pandey, the Chinese said they would open the Korala border pass and assist the Gandaki Province in its development endeavors.
The border point was shut by the Chinese for four years. The decision to open it was communicated to the Nepali side during a recent meeting. The Chinese leaders also invited Chief Minister Pandey to visit Tibet.
The Tibetan delegation has pledged to send a team to Pokhara to study the possibility of operating regular flights from three Chinese cities, according to the chief minister.
“If Chinese planes get passengers regularly, there will be no difficulty conducting regular flights from Chinese cities. They told us that they will help us build health-related and infrastructure projects at our request,” Pandey said.
“As Gandaki Province adjoins Tibet, they said it falls within their priority [area]. They assured assistance to Gandaki Province, primarily in infrastructure and health sectors. They have also asked us to officially express our needs so that they can extend possible cooperation.”
From a larger South Asian perspective, China’s ultimate goal would be to use Nepal as a transit point to enter the Indian market, and this will be determined by the state of India-China bilateral ties.
Upendra Gautam, Secretary-General of the China Study Center, told the Kathmandu Post that China has a policy of mobilizing the provinces to execute BRI, and this visit is related to the implementation of the BRI.
“In line with the Chinese way of doing things, the BRI has several components and intricacies. They are mobilizing several provinces to implement the BRI in regions bordering China.
As Tibet is adjacent to Nepal, Beijing naturally wants the Tibetan provincial government to take the lead for the BRI’s execution in the country,” claimed Gautam.
Analysis of Chinese investments in Nepal shows two factors at work. The first is Nepal’s own limited capacity to negotiate and execute large BRI deals, which are often beset by political delays and dilemmas.
Further, Nepal’s economic planners have not been very open to foreign investment. The minimum threshold for foreign investment in all sectors is NRs. 50 million. The second issue relates to what China wants from Nepal by investment in the BRI.
Experience thus far shows that a few G2G deals have worked, like the Pokhara International Airport. The Chinese private sector has been keen to invest in sectors where returns are possible.
One example is the Hongshi-Shivam Cement joint venture between a Chinese and a Nepali company, which is predicated on a construction boom within Nepal; other cement companies have similarly upped production to meet rising demand. This has led to a drastic decline in Nepal’s cement imports.
From a larger South Asian perspective, China’s ultimate goal would be to use Nepal as a transit point to enter the Indian market, and this will be determined by the state of India-China bilateral ties.
However, for the time being, it can be safely stated that Nepal is reluctant to get sucked into the Chinese BRI quagmire, and that is why China has adopted a regional approach to Nepal.
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