Nepal, China and ‘Belt and Road Initiative’: Prospects and Challenges

 From: India Quarterly: A Journal of International Affairs

The Asian Development Bank (ADB) notes an infrastructure funding gap of about $26 trillion in Asia (ADB, 2017). Within this, the ‘state of disconnect’ among the countries is stark where notions of ‘geostrategic divergence, political nationalism and economic protectionism’ have hindered regional integration (Xavier, 2020). To address these, various trans-/sub-regional projects have been initiated on the connectivity front, of which the focus of this article is on the Belt and Road Initiative (BRI) in Nepal. The BRI itself exhibits a paradoxical attribute. On the one hand, the project is unified by its philosophical-ideological underpinnings, whereby China takes its rightful place among the globally significant pantheon of nations—possibly even usurping a few. On the other hand, the implementation of the project in terms of its global reach is ambiguous and differentiated.

The BRI is crucial because it is seen as the ‘most significant contribution’ to the needs of Asia’s infrastructure financing (Organisation for Economic Co-operation and Development [OECD], 2018, p. 7). Framed as an ‘economic pie’ by the Chinese, for Nepal, BRI is an attempt to ‘have the pie and eat it too’. On the face of it, Nepal’s expectation to address the tensions in Sino-India relations seems to develop a polyamorous one involving a trilateral solution whereby both China and India ideally would consent to Nepal’s agency in its bi/multilateral relations.

While it is too early to have a conclusive view of the actual effects of BRI in Nepal, it is also important to note that the consequences of BRI are not uniform. There are some projects in Nepal (post-reconstruction) that have performed better than others (connectivity), which is why it is necessary to understand the impact of the individual projects while not losing sight of the broad objectives of BRI. In the short term, however, BRI projects in Nepal have failed to make much headway. Nepali officials have insisted more on ‘grant assistance’ rather than ‘loans’ and even if loans are offered by the Chinese, these, argue the Nepali officials, must be in the form of a ‘soft loan’ or ‘concessional loan’ with an interest rate of less than 2% along with repayment options in line with the norms of the World Bank or the ADB. Perhaps, this is the reason why Nepal finally ratified the US-backed Millennium Challenge Corporation Nepal Compact (originally signed in September 2017) with an ‘interpretative declaration’ in February 2022, with China declaring the Compact as ‘coercive diplomacy’ and ‘Pandora’s Box’. The Compact, which is pegged at $500 million, ‘aims to maintain road quality, increase the availability and reliability of electricity, and facilitate cross-border electricity trade between Nepal and India—helping to spur investments, accelerate economic growth, and reduce poverty’.15 Due to the constraints in the implementation of the BRI in Nepal, China is now observed to attempt to place the BRI framework in the backburner and to focus more on agreements on other areas of cooperation. This was precisely what occurred against the backdrop of the visit of the Chinese foreign minister in February 2022 to Nepal when nine ‘documents’ were signed. This means that Nepal is invariably pulled into the larger geostrategic and geopolitical ‘game’ in the subcontinent, despite its attempts to break free from the same.

While this point of view is necessary to analyse the recent developments, it is not sufficient to gauge the larger implications of BRI. Apart from ‘hard’ infrastructure and connectivity, ‘soft’ interventions of BRI have not received the same attention that relate mostly to cultural and educational spheres. With the problems in delineating BRI membership, it is important to note that even in cases where formal/official participation is declined (such as India), there are projects that are being carried out which are partly funded by institutions under the aegis of BRI such as the Asian Infrastructure Investment Bank (AIIB).¹⁶ This feature needs to be recognised by further studies. Similarly, the trilateral intersections among Nepal–China–India cannot be seen as solely bounded by the circumstances and conditions of the bilateral Sino-India, Nepal–China, or India–Nepal relations.

This article explores contemporary issues of (under)development in Nepal, which forms the backdrop for a larger discussion on Nepal–China relations. The second section briefly understands BRI through its historical significance and contemporary manifestations, and the third section discusses prominent aspects of contemporary Nepal–China relations, examining certain BRI projects in Nepal. The final section concludes by noting that apart from its core philosophical-ideological premises, BRI projects cannot be examined as a monolith and that there is a great degree of differentiation and diversification in the projects. Therefore, while the evaluation of BRI projects certainly needs a nuanced understanding, taking into account the bilateral relations, any meaningful examination must also attempt to move beyond it.