China looks at Nepal as potential gateway to South Asia, expands footprints in market

Hindustan Times, Kathmandu | ByAnil Giri
Oct 19, 2017 02:52 PM IST

Beijing’s investments in the Himalayan Kingdom surged significantly since the country switched from monarchy to a republic in 2008 and has topped in commitments for the past five years.

With an investment of $ 8.3 billion this year alone in Nepal, the Chinese are coming in a big way to the Himalayan country which they see as a potential gateway to South Asia because of its open border with India.

Restoration work supported by China Aid goes on at a nine-storeyed heritage site at Basantapur Durbar Square in Kathmandu, Nepal. China’s private sector is eyeing a share of Nepal’s tourism pie. (NurPhoto via Getty Images)
Restoration work supported by China Aid goes on at a nine-storeyed heritage site at Basantapur Durbar Square in Kathmandu, Nepal. China’s private sector is eyeing a share of Nepal’s tourism pie. (NurPhoto via Getty Images)

Chinese aid, according to Nepalese officials, comprises grants, interest-free loans and concessional loans. There is also direct assistance from Beijing to Kathmandu to execute security and military projects, while the government of the Tibet Autonomous Region provides project-based support to districts along Nepal’s northern border.

Chinese investments in Nepal have surged significantly since the country switched from a monarchy to a republic in 2008. According to official statistics, China has topped in investment commitments for the past five years.

During the investment summit in March, 16 Chinese firms signed letters of intent and the China Machinery Engineering Corporation pledged $3 billion for hydropower projects, a hospital and the Kathmandu Metro – the largest amount pledged from a single company.

And with the signing of a memorandum of understanding (MoU) on cooperation for the Belt and Road Initiative (BRI) in May, China is pressuring Nepal to select projects under the ambitious One Belt, One Road connectivity project. The MoU’s major thrust is promoting trade connectivity and financial integration, and Nepal expects to upgrade its vital infrastructure and enhance cross-border connectivity under the initiative.

A Nepalese team set up to select projects under the BRI, has so far identified two large hydropower projects, two cross-border grids, a cross-border rail project and two road projects worth more than $10 billion.

China’s private sector is also keen on a share of Nepal’s tourism pie. The heart of Kathmandu, Thamel, which is first the destination for tourists, already has a China Town as a testimony to Chinese engagement at the ground level in Nepal.

There are some in Kathmandu who believe the Chinese moves are intended to have a two-fold impact: reduce Nepal’s economic dependence on India and also gain further access to the huge Indian market through the open border in the long-term.

China overtook India as Nepal’s biggest foreign investor three years ago and Kathmandu’s trade with Beijing has grown 17 times faster than the trade with New Delhi since 2006.

Political observers say that reports of China playing a key role in bringing together Nepal’s Communist parties led by KP Sharma Oli and Pushpa Kamal Dahal “Prachanda” reflects Beijing’s continued interest in propping up politicians who were more amenable to its interests.

“Chinese firms are known for quick implementation of projects and in a society like ours, where people are fed up with the slow work done by the government, there is naturally public support for Chinese companies and investment,” says Nishchal Nath Pandey, director of the Centre for South Asian Studies (CSAS).

But there are others who think Nepal needs to take a very critical look at Chinese investments and learn from examples in Africa and Sri Lanka. They fear that a small country like Nepal should not fall into a debt trap while actively seeking Chinese aid.

“China’s increasing investment in infrastructure such as hydropower and connectivity and Nepal’s participation in BRI can be considered good developments in the realm of economic diplomacy,” said Sunil KC, CEO of the Asian Institute of Diplomacy and International Affairs.

“But at the same time, Nepal needs to thoroughly examine the fallout of Chinese investments in other countries. Strong and rational negotiation in areas such as the terms and conditions of Chinese loans and the repayment mechanism is essential to minimise the risk,” he added.

India has raised its concerns about the Chinese investments, and Nepalese officials told Hindustan Times that New Delhi had informed the Nepalese government and business community that it would not buy power from any hydro-electric project that received investments from China or some other country.

Some, however, take comfort from the robust levels of trade between India and Nepal, which was worth $6.35 billion in 2016-17, including Indian exports of $5.96 billion.

“India should not worry about growing Chinese investment in Nepal,” said Lok Raj Baral, a former envoy to New Delhi who closely tracks developments in Nepal.

Baral pointed out that the Chinese were also investing in India while several Indian firms had invested in China. “So this should not be a concern for India because Nepal welcomes investment from east, west, south and north for the prosperity of the country,” he said.

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