Nepal-China: Reality Sets In

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Nepal-China: Reality Sets In

As relations with India turn cordial, Nepal slows down the implementation of past agreements with China.

Nepal-China: Reality Sets In

Nepal’s Prime Minister K.P. Sharma Oli, back left, and Chinese Premier Li Keqiang, back right, look on during a signing ceremony at the Great Hall of the People in Beijing (June 21, 2018).

Credit: Greg Baker/Pool Photo via AP

As the bilateral relationship with India warms up, Nepal’s Prime Minister K.P. Sharma Oli has slowed down the implementation of some key agreements reached with China during his previous visit as a prime minister in 2016.

These agreements, which were termed as “historic” and” game-changing” two years ago, failed to make any headway during Oli’s second visit to China as prime minister this week. Some new agreements have been signed, with a particular focus on boosting Chinese investment in Nepal, but very little progress has been made to implement past deals.

Soon after the 2015 border blockade by India, Oli, then Nepal’s head of government, signed a Transit and Transport Agreement with China, which in principle ended India’s monopoly over the Nepali supply system. The border blockade, which the Indian government denied responsibility for, created a huge shortage of daily essentials, affecting the daily lives of Nepalis.

In response, the public rallied around Oli’s 2016 outreach to China, under the rationale that Nepal must diversify its trade and supply systems. Oli got support from all walks of life for his attempts to do just that, and after political machinations forced him from office, he continuously criticized the two succeeding prime ministers — Pushpa Kamal Dahal and Sher Bahadur Deuba — for failing to implement the agreement signed during his tenure. But now Oli himself has not been able to make substantial progress, either.

For example, back in 2016 Nepali officials held several rounds of talks on importing petroleum products from China. The two countries also agreed to direct their respective officials to finalize details regarding the supply of petroleum products. But while the deal to import oil from China has stalled, Nepal and India have already begun construction on a cross-border petroleum pipeline.

In another example, Nepal and China agreed in principle to develop a railway network across the Himalayas in 2016. A Memorandum of Understanding (MoU) has been signed but it lacks details and clarity. Last month, a Chinese team arrived to conduct a pre-feasibility study of railway link between two countries, but it has yet to submit its report. During Oli’s visit, the two countries agreed to expand Chinese railway to Kathmandu, dropping an earlier plan to extend the same railway line to Lumbini, near the Nepal-India border. India had criticized the plan to extend the Chinese railway to Lumbini.

There are also disputes between Nepal and China concerning the project’s funding. China has offered a loan for the construction of the Nepali side of the railway, but Nepal is requesting that the funding be a grant – to which China is unlikely to agree. Nepal fears being caught in a “debt trap” if the railway is funded through a loan from China. Oli’s visit was expected to finalize the funding question for the railway, but there was no progress.

Still, Nepali officials told local media that Chinese President Xi Jinping assured Oli and his team that he is keen to see Nepal-China cross-border connectivity come to fruition. “The train from Shigatse will arrive in Kathmandu,” Nepali officials quoted Xi as saying to Oli.

During Oli’s previous visit, the two countries agreed to open new border points, but here again there has been no progress on implementation. The oldest border crossing, Tatopani, has been closed since the earthquake in 2015. China closed the border point, citing “security concerns.” Instead of Tatopani, the Chinese side has requested using the Rasuwagadi-Kerung border crossing, but there is as yet not proper road infrastructure at this point. China is planning develop this spot as an international access point to South Asia.

Finally, there has not been substantial progress when it comes to the Belt and Road Initiative (BRI) in Nepal. After Nepal signed onto to a BRI framework agreement with China in May 2017, Beijing has asked Kathmandu to select projects for completion under the BRI. India, meanwhile, is pressing Nepali leaders not to implement BRI projects. Notably, there was no agreement on BRI projects during Oli’s visit to China.

Oli, however, has been successful in bringing in more Chinese investment. Oli tried his best to appease Chinese leaders and businessmen during his stay in Beijing. In his speeches, the Nepali prime minsiter expressed great admiration for China, saying that “the success story of the 21st century will be written as the success story of China.”

“Our great friend, China, has astonished the world by attaining unprecedented progress in many spheres,” Oli continued, speaking at the Nepal-China Business Forum.

Addressing a separate reception in Beijing hosted by the Nepali ambassador to China, Oli said: “I have come again to China with the treasure of deep trust and understanding between our two countries and with a new vision for Nepal-China relations in the new era.”

Xi, meanwhile, said China stands ready to strengthen cooperation with Nepal in infrastructure connectivity, post-disaster reconstruction, trade, and investment under the framework of the Belt and Road Initiative, according to China’s Xinhua news agency.

Oli’s visit has yielded some positive results in energy cooperation between two countries. Nepal’s government and private firms signed four separate MoUs regarding the construction of hydropower projects, which aim to produce a combined total of 900 megawatts of electricity. With these agreements, India’s monopoly over Nepal’s hydropower projects has come to an end. Several hydropower projects signed with Indian firms have failed to complete their projects in the stipulated time.

Similarly, a project investment agreement was signed between the Investment Board of Government of Nepal and Huaxin Cement Narayani Private Ltd. The Chinese firm has pledged $130 million in investment to generate 3,000 metric tonnes of cement per day, according to the agreement.

According to Xinhua, China has “contributed to around 87 percent of foreign direct investment (FDI) commitments received by Nepal during the first 10 months of the current fiscal year that began in mid-July 2017.” Citing official government figures, Xinhua reports that by mid-May Nepal had received FDI pledges of 43.22 billion Nepali rupees ($396 million) from China, out of total FDI commitments of 49.87 billion Nepali rupees received by the Himalayan country since July 2017.

India, the second-largest source of FDI in Nepal during the same period, pledged 4.04 billion Nepali rupees, less than one-tenth of Chinese FDI commitments. The United States was third, followed by Japan and South Korea.

Oli is trying to strike a balance between Nepal’s two neighbors, India and China. After the promulgation of Nepal’s new constitution in 2015, followed closely by the border blockade, relations between the Oli government and India soured. However, since Oli’s party came out on top in the national elections held last year, both sides have been working to improve the relationship. Now, it seems there is a good rapport between Oli and Indian Prime Minister Narendra Modi.

That may explain why Oli is delaying some key agreements with China, despite expressing a wish to bring in more and more investment from China. India has expressed that some of these Chinese mega projects could affect New Delhi’s security concerns. In April, Chinese Foreign Minister Wang Yi tried to assuage these concerns by proposing a trilateral corridor between Nepal, India, and China that would cover ports, railways and other connectivity projects. However, India has not been keen to take China up on the offer.

Kamal Dev Bhattarai is a Kathmandu-based writer and journalist.