Why Signing Of Nepal-China BRI Implementation Deal Isn't Working Out?

Despite high expectations of Nepal signing a Belt and Road Initiative implementation deal with China during Chinese Vice Foreign Minister Sun Weidong's visit to Kathmandu this week, this could not pass muster. Nepal is still wary of falling into a debt trap with China, a fate faced by other South Asian nations like Sri Lanka and Pakistan. It will also be a matter of relief for India.

New Delhi: Though there were high expectations of Nepal signing an initial Belt and Road Initiative (BRI) implementation deal during Chinese Vice Foreign Minister Sun Weidong's visit to Kathmandu this week, eventually it did not come through. This is because Nepal is yet to agree to China's terms and conditions for China's funding of BRI projects in the Himalayan nation. Kathmandu prefers grants from Beijing rather than repaying loans with high interest rates.

Chinese Vice Foreign Minister Sun led his country's delegation during the 16th meeting of the Nepal-China Diplomatic Consultation Mechanism in Kathmandu on Tuesday. The Nepali side was led by Foreign Secretary Sewa Lamsal.

According to a report in the Kathmandu Post, Lamsal had written to Prime Minister Pushpa Kamal Dahal's Office where she stated that a decision had already been taken at the ministerial level to sign the implementation plan of the BRI, urging the ministry to sign the agreement during Sun's visit. However, a statement issued by the Nepal Foreign Ministry following the talks on Tuesday had no mention of the BRI at all.

It is worth mentioning here that Nepal and China had agreed to sign the BRI implementation plan at the earliest when Nepali Deputy Prime Minister and Foreign Minister Narayan Kaji Shrestha visited Beijing in March this year. The decision was taken during delegation-level talks between Shrestha and his Chinese counterpart Wang Yi. Though no specific date was mentioned, reports suggested that it could happen during any high-level visit between Nepal and China.

Though Nepal and China had signed the BRI framework agreement on May 12, 2017, and China had forwarded the text of a plan in 2019, no further progress has been made mainly due to Kathmandu's concerns over debt liabilities. Nepal has made it clear to China that it is not interested in taking commercial loans for implementing BRI projects.

The BRI is a global infrastructure development strategy adopted by the Chinese government in 2013 to invest in over 150 countries and international organisations. It is considered a centrepiece of President Xi’s Jinping foreign policy. It forms a central component of Xi's "Major Country Diplomacy", which calls for China to assume a greater leadership role in global affairs in accordance with its rising power and status.

Observers and sceptics, mainly from non-participant countries, including the US, interpret it as a plan for a Sino-centric international trade network. Critics also blame China for putting countries participating in the BRI under debt traps. In fact, last year, Italy became the first G7 country to pull out of the BRI. Sri Lanka, which participated in the BRI, eventually had to lease out the Hambantota port to China due to debt repayment issues.

India has opposed the BRI right from the beginning, mainly because its flagship project, the China-Pakistan Economic Corridor (CPEC), passes through Pakistan-occupied Kashmir.

In view of all these, Nepal is wary of getting trapped in unsustainable debt owed to China through BRI loans for expensive infrastructure projects. Nepal’s annual debt payments to China have already been rising rapidly over the last decade. Highly concessional terms offered by other lenders make taking on costlier Chinese commercial loans for BRI projects unappealing.

Nepal also understands India's concerns over BRI projects in the immediate neighbourhood. India views some planned BRI infrastructure corridors through Nepal as impinging on disputed territory it claims. Nepal wants to avoid straining ties with its powerful neighbour India by appearing to take sides in India's rivalry with China. New Delhi has historically exercised considerable influence over Nepali politics and policies.

Frequent changes in government and coalition politics in Nepal have made it difficult to remain consistent on BRI policies. There are domestic political divisions in Nepal over the costs/benefits and potential loss of sovereignty from deeper BRI engagement with China. Implementation has been slowed by bureaucratic inefficiencies and difficulties meeting China's approval conditions.

In fact, it is worth noting that though the BRI framework agreement was signed on May 12, 2017, it has not yet been tabled in Nepal's parliament. The main opposition Nepali Congress and other parties have asked the government to table the agreement in Parliament and make public the terms and conditions of the BRI implementation plan before signing it. The renewed pledge to sign the BRI execution plan was taken after a new Left government came to power in Nepal earlier this year. However, at the same time, Dahal had to take the same line as former Prime Minister Sher Bahadur Deuba of the Nepali Congress to not take loans for implementing BRI projects.

According to the Post report, Dahal could not take ruling parties into confidence regarding the signing of the BRI implementation plan.

"Our first priority is grants, not loans," the report quoted Dahal as saying in parliament on Tuesday. "If we do need to take loans, we will not pay an interest rate higher than what we are paying to the World Bank and Asian Development Bank." He said that Nepal cannot afford beyond 1.5 per cent annual interest rate for proposed BRI projects.

According to Nihar R Nayak, a Research Fellow at the Manohar Parrikar Institute of Defence Studies and Analyses and an expert on issues about Nepal, the fact that the implementation plan could not be signed indicates two things.

"One is that the Nepali side had not done its homework properly ahead of Sun's visit to Kathmandu," Nayak told ETV Bharat. "Maybe there was a communication gap between the Nepal Prime Minister's Office and other authorities including the Nepal embassy in China."

The second factor, according to Nayak, Nepal is wary about getting into a debt trap with China like in the case of Pakistan and Sri Lanka.

"Nepal being a smaller country expected some generosity to be shown by China," he said. "But Beijing has showed no such signs." According to Nayak, Beijing is not very happy with current Prime Minister Dahal and is waiting for a change in the leadership of the Left unity government in Nepal.

For India, the fact that BRI implementation plan between Nepal and China has not gone through will be a matter of relief. "New Delhi will be happy that an immediate neighbour like Nepal has realised the dangers of falling into debt traps through BRI projects like in the case of Sri Lanka and Pakistan," Nayak said.