The historic Durbar Square in Kathmandu under construction after the 2015 earthquake damage. Picture taken in January 2020. Credit: Kalinga Seneviratne. - Photo: 2024

Two Words Stick as Nepal PM Goes to China for Connectivity Assistance

By Kalinga Seneviratne

Bangkok | 7 December 2024 (IDN) — Breaking with tradition, Nepal’s recently re-elected Prime Minister Sharma Oli, a Communist politician, visited China from 2 to 5 December in a bid to add new momentum to growing trends in the landlocked Himalayan nation to diversify its connectivity to the outside world via railways and ports build by China.

Oli was elected as the PM for the fourth time in July 2024. His relationship with New Delhi was frosty during his previous terms. It is customary for a new Nepali leader to visit New Delhi as the first port of call. Still, Prime Minister Narendra Modi’s government snubbed a request from Kathmandu for a visit to the Indian capital to discuss aid and trade issues. Oli’s office was quickly able to arrange an official visit to Beijing, where he was greeted warmly by the Chinese leadership.

However, in finalizing the wording of agreements signed during Oli’s Beijing visit, the word “grant” and “aid” became a sticky point with the Nepali delegation communicating between Kathmandu and Beijing when the Chinese side objected to using the word “grant” in the bilateral agreements, according to reports in the Nepali media.

Kathmandu signed up for China’s Belt and Road infrastructure initiative in 2017 and says no project has yet been implemented since a framework pact was inked. A major reason for Oli’s visit to Beijing was to get these projects off the ground with new framework agreements the Nepalis were keen to sign. However, there is reluctance among Nepali politicians and policy planners to sign up for Chinese loans, perhaps because of their massive exposure to the Indian media, which has carried out a vicious propaganda campaign for many years dubbing the BRI as a Chinese “debt trap”.

Nepal is sandwiched between the two Asian giants India and China, sharing a 1,389 km border with China and a 1,751 km border with India, mainly across the Himalayan Mountain range.

During their meeting on 3 December, Chinese President Xi Jinping told Nepalese PM Oli that both countries would aim to strengthen their bilateral relationship through infrastructure projects aided by Chinese money. According to China’s Xinhua news agency, Beijing will deepen its support for infrastructure construction under China’s Belt Road Initiative (BRI).

Ahead of the meeting with Xi, Oli met Premier Li Qiang and signed nine deals, according to Nepal’s foreign ministry. They cover Beijing’s support for constructing a tunnel to quicken the journey between Kathmandu and the Chinese border and the reconstruction of an ancient palace in the historic Durbar Square in the Nepali capital. The nine-story palace was damaged in a 2015 earthquake.

There was no announcement on the much-anticipated waiver of a $216 million credit extended by Beijing for the construction of Pokhara Airport in Nepal, which has not attracted enough air traffic of international tourists mainly because India has refused to grant permission to use Indian airspace for international flights to Pokhara.

China and Nepal signed several BRI-related deals in 2017 and 2019; during the visit Xi to Kathmandu, the relationship was upgraded to a ‘Strategic Partnership of Cooperation’, and China pledged $740 million as development grants, which, according to Kathmandu Post, has not yet materialized.

Nepal’s chaotic democracy has resulted in constant changes in government in recent years, which may have contributed to it because of ideological differences between competing political parties and broader geopolitical and debt-liability concerns. According to World Bank sources, the debt liability is 44% of Nepal’s GDP. Only about 4% of it is owed to China. Yet, the Nepali government’s stance of accepting only grants and not loans under the BRI has added to these challenges.

According to Kathmandu Post, in the negotiations on a MoU for building the Trans-Himalayan Multi-Dimensional Connectivity Network under the framework for BRI cooperation between the two governments, there has been some debate on its wording. The Chinese side had removed the word “grant” proposed by the Nepali side and suggested replacing it with “investment” for projects under the BRI. After reviewing the new terms and conditions, officials found a compromise and decided to include the phrasing “aid and technical assistance” about project execution in Nepal.

After disagreeing with the promulgation of a new constitution in Nepal, in September 2015, India imposed a four-and-a-half month blockade of Nepal, stopping all trucks carrying essential goods to Nepal, creating a major humanitarian crisis. Without liquefied petroleum gas (LPG), people could not cook food and warm their houses the entire winter. Without diesel and petrol, all means of transportation were at a standstill. The estimated financial loss to Nepal was $5 billion.

Nepal realized that it still needed a plan B for connectivity, and ever since then, Kathmandu has been reaching out to Beijing to build road and railway connections to its ports, possibly as BRI projects.

On 21 March 2016, Prime Minister Oli went to China and signed the Transit and Transportation Agreement, paving the way for a new beginning of an alternative to trade and transit treaty with India. According to the agreement, China will give access to the sea via the Chinese port of Tianjin, which is 3,000 km away from Nepal. “The Transportation agreement finally broke the Indian monopoly over Nepal’s ability to trade with other countries; this ended total dependency on Indian seaport for third-country trade”, noted Dr Tej Karki[1] who wrote a research paper on the issue.

China’s Global Times, referring to official statistics, said that China is Nepal’s second-biggest trade partner. The bilateral trade volume between China and Nepal in 2023 was $1.8 billion, an increase of 9.1 per cent year-on-year. From January to August 2024, trade volume between China and Nepal was $1.28 billion, surging 18 per cent year-on-year.

Indian media has been closely monitoring Oli’s Beijing visit, with the Hindustan Times calling him a “pro-China leader” and the Business Times describing him as a “veteran community politician” and raising debt concerns about the Pokhara airport project.

According to India’s Business Standard, a revived BRI framework agreement was signed between the two countries during Oli’s visit. In a joint statement, both sides have expressed their commitment to strengthening connectivity between the two countries in ports, roads, railways, aviation, power grids and telecommunication to help Nepal transform from a land-locked country to a land-linked one. Speaking at a program held at Peking University, Oli later said that Nepal would reap benefits from the BRI.

“New Delhi should not overly interpret the China-Nepal cooperation, which does not target any third party… Instead, the cooperation is conducive to promoting regional common development and safeguarding regional stability,” Hu Zhiyong, a research fellow with the Institute of International Relations at the Shanghai Academy of Social Sciences, told Global Times, adding, “The BRI is a big cake for cooperation. Nepal wants to share the cake as well”. [IDN-InDepthNews]

Photo: The historic Durbar Square in Kathmandu under construction after the 2015 earthquake damage. Picture taken in January 2020. Credit: Kalinga Seneviratne.

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4197326

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