Tuesday, Dec 06, 2022

Explained: Nepal’s grant from the US, and what it means for its equations with China

China is investing in the future leadership of Nepal. So its interest is long-term, and it seems determined to confront competitors, primarily the US and India.

Chinese Foreign Minister Wang Yi with his Nepal counterpart Narayan Khadka in Kathmandu Saturday . (AP)

Chinese Foreign Minister Wang Yi was in Nepal on a three-day visit last week, seen as a response to a series of developments that China sees as being against its interests.

Nepal’s Parliament on February 27 ratified a $500 million grant from the United States as part of the aid agency Millennium Challenge Corporation’s Nepal compact. The funds are for road and power projects. While China had asked Nepal not to ratify it calling it a ‘Pandora’s box’, the US had warned that failure to do so may lead to a review of their 75-year-old bilateral relationship.

Nepal ratified the deal a day before the February 28 deadline set by the US, a sign that China’s influence on Nepal could be on the wane. And, in a sign of a growing bond with the US, Nepal at the United Nations General Assembly condemned Russia for its invasion on Ukraine — while India and China abstained. In 2014, Nepal had abstained from voting on Russia’s annexation of Crimea.

Changing equations

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While Deuba is considered close to the US, what would rankle with China is that none of the major communist parties — Maoist Centre led by Pushpa Kamal Dahal Prachanda, Unified Socialists led by Madhav Nepal, or Communist Party of Nepal-Unified Marxist Leninist led by former PM K P Oli — opposed the ratification. The first two voted with the government; the UML remained neutral.

Until last June, the three parties were in the Communist Party of Nepal, and China had acted openly to bring them together and consolidate the friendship between Chinese and Nepali communist parties. All that crumbled when the Communist Party split into three, resulting in Nepali Congress leader Deuba replacing Oli as Prime Minister in July.

During his first tenure as PM in 2015-16, Oli had signed a series of framework agreements with China on trade and transit with access to the sea route, ending a monopoly arrangement with India.

The warmth appeared to be missing when Wang visited. Nepal proposed revival of “joint committees” to take up border disputes. Four years after Nepal had signed up to be part of China’s Belt and Road Initiative (BRI), it showed less enthusiasm about it, demanding more grants in Chinese projects than loans that could lead to a debt trap.


But Nepal’s politics is complex. The UML still favours the implementation of BRI projects, with Oli telling Wang these should be carried forward without delay. Oli, whose party is the biggest in Parliament, is seen as having strong prospects of returning to power when Nepal goes to polls by the year-end.

“Wang Yi’s visit reflects China’s sense of insecurity, but at the same time China chose to appear caring, concerned and condescending instead of demonstrating its disapproval,” a senior executive of a think-tank said.

China’s stakes


Among the offers Wang made to Nepal were a push for BRI projects including a railway line between Kerung and Kathmandu and transmission line (despite a lack of enthusiasm from Nepal), fulfilment of promises made by President Xi Jiping during his October 2019 visit, and support to development projects based on “Nepali people’s aspirations”. At the same time, he sent out a message that China would get actively involved if there were any internally or externally inspired activities directed against China from Nepal’s territory, but that China would stand by Nepal in defence of its sovereignty and right to self-determination on internal issues against any outside moves. Wang also promised Covid-19 vaccines and other help, while Nepal agreed to allow Chinese health workers to run health facilities and set up another large hospital in Kathmandu.

China has often presented itself as a pragmatic friend of Nepal. “In times of crisis, like the blockade from India in the late 1980s, China had told Nepal to mend fences with India as China was not yet ready to replace India,” recalled a former commerce secretary.

China’s presence in Nepal grew as the circumstances evolved after 2006 — enhanced presence of the US and European countries, changing equations with India, and exit of the monarchy. When Xi visited in October 2019, it was over two decades since the last visit by his predecessor. He promised investment in energy, trade and investment, post-earthquake reconstruction, and tourism and hospitality, as China competed with India in investment. China also took an interest in Nepal’s politics, encouraging rival communists to come together in the parliamentary elections of 2018. It enhanced cooperation with government agencies including the Nepal Army, as well as with Left parties and influential leaders. And it has opened the door for thousands of Nepali students in its educational institutions, and opened Confucius centres in Nepal to teach Mandarin.

In a way, China is investing in the future leadership of Nepal. So its interest is long-term, and it seems determined to confront competitors, primarily the US and India.

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First published on: 30-03-2022 at 04:00:39 am
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