The Pulse | Diplomacy | South Asia

Did Wang Yi’s Visit Stem the Slide in China-Nepal Relations?

The Chinese foreign minister’s visit came less than a month after Kathmandu ratified the U.S. Millennium Challenge Corporation Compact, despite Beijing’s reservations.

Did Wang Yi’s Visit Stem the Slide in China-Nepal Relations?

Chinese Foreign Minister Wang Yi (left) with Nepali Prime Minister Sher Bahadur Deuba in Kathmandu, Nepal, March 26, 2022

Credit: Twitter/ Ministry of Foreign Affairs, Nepal

Chinese State Councilor and Foreign Minister Wang Yi’s visit to Nepal on March 25-27 was not only the first high-level visit from China to Nepal since Sher Bahadur Deuba took over the reins as Nepal’s prime minister but also the first by a Chinese leader since Nepal ratified the Millennium Challenge Corporation (MCC) Compact with the United States in February.

Wang’s visit to Nepal was the last leg of his four-country South Asian tour. It came at a time of some instability in South Asia, when China is uncertain of its ties with some of its neighbors. The government in Pakistan is in trouble, with Prime Minister Imran Khan facing a no-confidence motion. After Wang met his Indian counterpart S. Jaishankar, the latter stressed that Sino-Indian relations are “abnormal” or “not normal,” repeating these words around 10 times in his interaction with the media. Worryingly for China, Nepal went ahead with ratifying the MCC, a $500 million grant from the United States, despite Beijing’s reservations.

Wang’s visit has implications for Chinese politics, South Asian regional politics, and China-Nepal relations.

First, China is looking to stabilize its external environment, especially in its neighborhood, ahead of the 20th Congress of the Chinese Communist Party (CCP) slated for later this year. A stable neighborhood would enhance President Xi Jinping’s influence and standing in the party as he pursues a precedent-breaking third term.

In this context, Chinese concerns in Nepal have heightened due to increasing U.S. influence in Nepal. The MCC debate in Nepal reflected Chinese insecurity about a potential increase in American presence.

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The United States pressured Nepal to ratify the Compact, warning that it would review its relations with Nepal if Kathmandu failed to do so. Meanwhile, China called the grant a “Pandora’s box” and expressed displeasure at the ratification, saying that “[n]o country should interfere in other country’s internal affairs, attach political strings, or engage in coercive diplomacy.”

During his recent visit to Kathmandu, Wang offered Nepal support in finding a “development path suited to its national conditions, pursuing independent domestic and foreign policies” and engaging in deeper cooperation over Belt and Road Initiative projects. Its offer of support for Nepal’s pursuit of independent policies indicates China’s rising concerns over external influence in Nepal’s policymaking.

Wang also raised internal political concerns for Nepal. He urged all parties in Nepal to engage in “inclusive consultation” and cooperation toward “promoting political stability, economic growth and people’s livelihood.”

Wang was careful not to raise the issue of the MCC himself. However, Nepal’s Foreign Minister Narayan Khadka took it upon himself to clarify that Nepal would neither accept any projects or aid with strings attached nor would it allow any activities that undermine Chinese interests in Nepali territory. This is additionally important now since Sino-Indian relations are at a low ebb and the United States has sought to contain China.

Leveraging U.S. support to Nepal via the MCC in the form of a grant, Deuba requested China to provide Nepal with more funds in the form of grants for BRI projects. It remains to be seen if China was convinced with Deuba’s request and Khadka’s naivety.

Meanwhile, China’s own initiatives in Nepal continue to struggle. In May 2017, Nepal and China signed an agreement to cooperate on the BRI, an initiative on which Xi has staked his personal legacy. Although there was much enthusiasm over BRI projects in Nepal, progress has been disappointing. Nepali experts listed the lack of progress in BRI projects at the top of the agenda of Wang’s visit to Nepal.

The initiative figured prominently during Wang’s meeting with Communist Party of Nepal-Maoist Center chief Pushpa Kamal Dahal and Communist Party of Nepal-United Marxist Leninist (CPN-UML) leader Khadga Prasad Oli. Both leaders asked China to expedite BRI-related projects.

However, statements from the foreign ministries of Nepal and China differed in how the BRI was discussed. While Beijing expressed support for Nepal’s deeper participation in the BRI, Nepal’s Ministry of Foreign Affairs made no mention of the initiative.

Deuba’s lukewarm response to funding BRI projects via short-term, high-interest loans indicates that China and Nepal need further consultations in this regard. None of the nine agreements signed during the visit relates to BRI projects. Wang left Nepal without any tangible progress in this regard.

Third, Wang’s visit also came at a time when Nepal’s political scene is fluid. Local elections are slated for May and parties are in the midst of discussing electoral alliances. Constituents of the ruling coalition are exploring if they can go to the polls together. Meanwhile, the main opposition party, CPN-UML, is also looking to form alliances, though it argues to the contrary in public. China would like to get a sense of where Nepali politics is headed going forward. It was stung by its failure to understand Nepali politics in 2020; its officials kept attempting to keep the united Nepal Communist Party (NCP) together when the intra-party divisions were beyond repairable.

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Wang might have hedged his bet now when he stated that China would engage with all political parties in Nepal even if there is a change in the international scene or domestic situation.

The visit also saw the two sides make some progress on other bilateral issues. Wang pledged that China would provide the development assistance that Xi pledged to Nepal during his state visit in 2019. The two countries underscored the need to operationalize two trading points fully. Additionally, they agreed to carry out a joint inspection of the China-Nepal boundary for alleged border encroachment, which is an irritant in bilateral relations.

China has had a rude awakening in Nepal over the last couple of years. First, it failed in its attempt to keep the communist parties together in 2020. Second, Nepal ratified the MCC despite Chinese qualms. Finally, the flagship BRI project has not moved forward.

Wang’s visit was an opportunity for China to understand why its increased engagement in Nepal has failed to deliver results. Wang was not in Nepal to announce new big projects. For Nepal, it was an opportunity to assuage China that Kathmandu, and its political parties, would address legitimate Chinese interests in Nepal’s conduct of its foreign policy.

If such an understanding was reached, Wang’s visit would have achieved its purpose.