APPEASING THE DRAGON
Appeasing the dragon
With pressure rising to mollify Beijing, Nepal must not lose sight of its own interests, nor those of regional stakeholders such as India, warns Yvonne Gill
Nepal’s Prime Minister K.P. Sharma Oli’s statement that no anti-China activities will be allowed in the country should be seen in the context of the aggressive diplomatic offensive that Beijing has been involved in over a period of more than a year. Beijing not only intends to subdue anti-China voices in the Himalayan nation, but also to counter Indian influence, which is not so much due to New Delhi’s diplomatic efforts but the cultural and social affinity that historically binds the two neighbours.
Oli made the rather unusual remarks at a meeting with a high-level Chinese delegation led by Chen Jining, a member of the Communist Party of China’s Central Committee, at his official residence in Baluwatar in Kathmandu. Known for his pro-China sympathies, Oli has, of late, been pursuing a policy of maintaining an equidistance between New Delhi and Beijing. That he was compelled to make such a statement before a Chinese delegation speaks volumes about the pressure that is building up from the Chinese side.
China’s increasingly assertive diplomatic strategy is also visible in the CPC’s increased engagement with Nepalese political parties. This growing influence, marked by the unprecedented party-to-party interactions and strategic diplomatic manoeuvres, signals a significant shift in China’s Nepal policy.
This transformation became particularly evident when the CPC took the extraordinary step of inviting 15 leaders from each of Nepal’s parliamentary parties for a briefing on the Third Plenary Session of the 20th CPC Central Committee on October 20th, at the Hotel Yak and Yeti in Kathmandu, Nepal.
Such an unprecedented move is a departure from conventional diplomatic protocols, raising questions about the boundaries between party engagement and state affairs. The briefing, themed ‘Sharing the Opportunities Brought by Chinese Modernisation and Deepening the Trans-Himalaya Cooperation’, points to China’s blatant use of party mechanisms to advance its regional interests.
‘We are hearing of such practice for the first time in Nepal,’ a CPN-UML leader said. Arjun Thapa, head of the international department of Janata Samajbadi Party-Nepal, was more forthright: ‘It’s a kind of propaganda meeting.’
The CPC invited 15 leaders from each of Nepal’s parliamentary parties for a briefing on the Third Plenary Session of the 20th CPC Central Committee on Oct. 20th
At the end of January this year, Sun Haiyan, the vice-minister of the International Liaison Department of the CPC, had held another briefing for second rank leaders of the major Nepali political parties. It was described as a ‘consultative conference’ between Nepal’s political leaders and the CPC.
Reproaching‘certain countries’for trying to destabilise ‘the good relations between Nepal and China’, Sun used the meeting to accuse ‘some elements of defaming’ the Belt and Road Initiative (BRI) by calling it a ‘debt trap’.
On many other occasions, the Chinese envoy to Nepal, Chen Song, has often openly come out to take on Nepalese voices which have been critical of Chinese BRI projects like the financiallyunviable Pokhara International Airport project and the failed Trans-Himalayan Railways.
Nepal’s heavy reliance on Chinese infrastructure financing raises concerns about debt sustainability
In May 2024, he slammed a local journalist, Gajendra Budhathoki, over his report that the Chinese loan for Pokhara Airport had a higher interest rate. Chen angrily retorted in his social media post: ‘The worst lie I have ever seen. This is public information, but you dare to lie about it.’
Again on July 29, Chentook to the social media platform X to mock efforts being made, with Indian help, to locate two missing buses and their passengers,in the aftermath of a massive landslide at Simaltal on the Narayanghat-Mugling road, bordering India. In September last year, speaking at a public event attended by Speaker Devraj Ghimire and CPN-UML leader Aanandaraj Pokharel, he had caustically remarked: ‘In the last fiscal year, Nepal exported electricity worth Rs 10 bn to India, while simultaneously importing electricity worth Rs 19 bn from India. How can Nepal achieve self-sufficiency in the sector it takes pride in under such circumstances?’
It is worth looking at some of the troubled BRI projects. The Pokhara Airport has proved to be a debacle and its viability is being questioned. It puts a financial burden of $216 million on Nepal. As much as 75 per cent of the loan given by Chinese EXIM Bank is at a commercial rate, with a 15-year repayment period and four years of grace period. Inaugurated in January 2023 amid great fanfare, it is a severely underutilised airport with minimal international flights and revenue generation far below projections needed for loan repayment. As the project costs are significantly higher than other comparable airports, it has been become a debt servicing burden on Nepal’s economy. Nepal has been seeking conversion of the loan into grants, but the Chinese are reluctant.
The proposed Trans-Himalayan Railway project is another example of the gap between BRI’s grand visions and practical challenges. The mountainous terrain necessitates extensive tunnelling and complex engineering solutions, while geological instability and high altitude pose additional challenges. The project’s estimated cost exceeds $8 billion, raising concerns about economic viability and financing mechanisms. Nepal’s limited capacity to absorb debt further complicates the issue. Despite multiple feasibility studies, the project remains largely stalled, with no concrete progress on construction. Growing scepticism about its viability and concerns about potential debt trap risks have further hindered its advancement.
Nepal’s heavy reliance on Chinese infrastructure financing raises concerns about debt sustainability, as the country may struggle to absorb large-scale debt and service it effectively. Chinese-funded projects have a history of cost overruns and questions about feasibility assessments, potentially leading to challenges in matching infrastructure scale with actual demand. Additionally, environmental and social impact concerns are often overlooked. The rising debt service obligations to China could strain Nepal’s fiscal health, limiting options for project restructuring or refinancing. In the worst-case scenario, there is a risk of asset seizure in case of default, further exacerbating Nepal’s economic vulnerabilities.
For Nepal, the challenge lies not just in leveraging Chinese investment and political support, but in ensuring that future projects are financially viable and aligned with the country’s actual developmental needs. As this dynamic continues to evolve, Nepal must carefully balance its infrastructure development ambitions with fiscal responsibility and economic sovereignty. The international community, particularly regional stakeholders like India, must remain engaged to help ensure that Nepal’s development partnerships serve its long-term interests while maintaining regional stability and economic sustainability.
Yvonne Gill is a freelance journalist based in London