In July, Nepal’s fractious politics witnessed yet another churning. The 72-year-old veteran politician Khadga Prasad Sharma Oli of the Communist Party of Nepal-Unified Marxist Leninist (CPN-UML) – labeled “pro-China” by the Chinese media itself during his first term – won a vote of confidence in the Parliament soon after being sworn in as prime minister for the fourth time.
Days later, Foreign Secretary Sewa Lamsal left for Kunming, China, to deliver the keynote address and hold bilateral meetings with high-level officials at the fifth China-South Asia Cooperation Forum. The forum is China’s attempt to coalesce South Asian states, notably excluding India, to create a “regional Himalayan bloc” as part of its bid to create a Sino-centric global order.
Do such events imply that China is gaining an irreversible edge over India in the neighborhood? The answer is more complicated than the headlines suggest.
Nepal’s new government is yet another coalition following a series of short-lived political arrangements. Oli’s ascension to power is based on a recent deal forged between the two largest parties, the Nepali Congress (NC) and the CPN-UML, which among other factors also includes the sharing of the prime ministerial position between Oli and NC President Sher Bahadur Deuba. The previous Pushpa Kamal Dahal-led “left-unity” coalition broke down only months after being formed, without any major apparent disagreements.
The fact that Nepal has had 13 separate governments since becoming a federal democratic republic in May 2008 has prompted deeper questions about the country’s domestic politics and its repercussions for not only Nepal’s economy and good governance but also its foreign policy. This sounds promising for India, which has been looking to curb China’s growing role in Nepal’s domestic economic and political affairs.
What will the ensuing domestic and regional politicking mean for Nepal’s engagements with China and India, notwithstanding the need to avoid simplistic characterizations of the Nepali Congress as “pro-India” and the CPN-UML as “pro-China”?
At first glance, the return of Oli does not bode well for India. This is primarily because the CPN-UML leader is often seen as a China backer due to his tough stance on India during his previous tenures, including the adoption of a new federal constitution that resulted in a crippling “undeclared blockade” by India. In addition, Oli’s concerted outreach to China, which saw multiple bilateral agreements including a transit trade treaty aimed at reducing dependence on India and other infrastructure and connectivity deals via the Belt and Road Initiative (BRI), highlighted the concerns for India under his leadership.
Amid multiple initiatives, from the advancement of hydropower projects funded or operated by Chinese companies, like the Upper Marsyandi, to the operationalization of the Nepal-China cross-border optical fiber link, China is undoubtedly making inroads into Nepal’s economy, resources, technology, and politics.
In exchange for Chinese largess and under pressure from Beijing, Nepal also has shown complete support for the “One China” policy, and tightened its grip on Tibetans in the name of not allowing the use of Nepali territory for “any anti-China or separatist activities.” The Nepali government’s restriction of Tibetan rights under Chinese pressure was acknowledged by Human Rights Watch in 2022.
As per Nepali political observers, the Chinese ruling regime has been known to favor communist parties, especially the now-split Nepal Communist Party, and has even in recent times made attempts to unite the left parties. According to the Chinese state media, Deuba is a U.S. and Indian ally. But as the constant change of regimes suggests, domestic politics is not immune from shifting alliances, the stress on non-alignment in official Nepali diplomatic rhetoric notwithstanding.
More to the point, despite both Oli’s and Dahal’s recent headline-making visits to China, the BRI project implementation plan is yet to see the light of the day. Until now, no single project has been greenlit due to a lack of consensus over a funding model, despite reports that Chinese investments into BRI countries in 2023 accelerated overall.
In fact, Nepal took umbrage at China’s controversial “lumping” of projects like the China-funded Pokhara International Airport under the BRI framework. Now Nepal’s anti-corruption agency is reportedly investigating the Pokhara project, further tarnishing the image of one of China’s landmarks projects in Nepal.
Nepal signed the BRI framework agreement way back in 2017, broadly aiming to connect trade, facilities, and people, as well as foster financial integration under a “new economic order.” The tall claims have faded amid Nepal’s fragile political climate and growing concerns about the BRI as an unsustainable and often debt-inducing project with expansionist ulterior motives. Reportedly, Nepal prefers grants and not loans, presumably to avoid getting caught in “debt-traps,” and China is not inclined to accede to this demand.
Notably, Nepal has disappointed China in its response to the three projects that aim to promote China’s vision of the multipolar world: the Global Development Initiative (GDI), the Global Security Initiative (GSI) and the Global Civilization Initiative. While agreeing to be part of two small projects under the GDI that align with the United Nations Sustainable Development Goals, Nepal – then under “pro-China” Dahal – opted out of the GSI, highlighting its policy of non-alignment. Nepal made a similar decision to stay away from the U.S.-led Indo-Pacific construct.
In addition, recent reports of Chinese “interference” in Nepali territory – despite denial from the Chinese side about any encroachments – would have put additional pressure on the Nepali government not to grow too complacent about Chinese financial overtures.
Yet Nepal’s strategic importance to China – whether as a vital resource for water and hydropower generation, a gateway into South Asia, India’s traditional backyard, or as a means of controlling the sizable Tibetan refugee population and their activities in Nepal – means that the landlocked Himalayan state will see China dangling more financial and political incentives both to gain greater access to the Asian subregion and to create more viable conditions for a Sino-centric world order.
Regardless of China’s greater clout, resources, and even capabilities, India’s decades-old influence in Nepal cannot simply be mitigated, let alone erased. Nepal’s diplomacy, too, recognizes the imperative to continue persisting with political hedging in the garb of non-alignment, rather than taking sides.
So if Nepal is a willing participant in China’s BRI and accepts funding for hydropower and infrastructure projects, the former has also signed a long-term power trade agreement with India to export 10,000 megawatts of electricity, among several other productive deals including on renewable energy and community development projects. In the digital sphere, too, via India’s widely successful United Payments Interface, the India-Nepal connectivity will facilitate cross-border transactions and “create new avenues for trade” as well as enhance financial robustness for Nepal.
Importantly, Nepal not only has open borders and deep cultural linkages with India but its primary economic relationship is also with India. India is Nepal’s largest trading partner, provides transit for almost all of Nepal’s third-country trade, and accounts for a large chunk of “inward remittances.” Also, despite Nepal escalating the border dispute with India by “unilaterally” updating maps, particularly after 2020 – the year of the India-China Galwan conflict – Oli has pointed to India-Nepal diplomatic mechanisms as the way ahead, signaling a non-confrontational start to the new coalition.
Moreover, one of the major reasons for Nepal’s deep reluctance to accept China’s claims that projects like the Pokhara airport are part of the BRI is India’s objection to the initiative. India has thus far refused to allow direct flights between Pokhara and Indian cities, adding to the airport’s financial feasibility woes.
India’s Neighborhood First policy has received a major fillip in the Indian government’s new term, with Nepal as a special beneficiary. Modi’s swearing-in ceremony in June was attended by several leaders of the neighboring states, including Dahal, then Nepal’s prime minister. A month later, India in its budget for the Ministry of External Affairs in the new fiscal year increased allocations to Nepal, Sri Lanka, and Seychelles. Both factors highlight India’s intent to address the China factor and the Nepali leadership’s will to pursue national interests despite political or ideological differences with the Indian side.
Keeping in view both South Asia’s lack of regional integration and China’s military and ecological threat in the Himalayan region, be it via incursions along the Line of Actual Control, territorial adventurism in Nepal or Bhutan, or eco-dominance of the Tibetan Plateau resources and repression of the Tibetans, the only way out is through international cooperation with “like-minded” partners, particularly the European Union, Japan, and the United States.
For example, when China was looking to further restrict Tibetan rights in Nepal via the signing of a treaty on extradition with Nepal, the pressure from the international community, including the U.S. and the European states, was reportedly responsible for curtailing this reach.
In this context, Washington has been well aware of China’s Himalayan agenda, as is evidenced through growing U.S. engagement with Nepal. At the same time, Nepal has been careful in rejecting the U.S. Indo-Pacific strategy and State Partnership Program, due to fact that their “security” angle contradicts Nepal’s non-aligned policy. However, despite similar sovereignty concerns, Nepal signed the Millennium Challenge Corporation’s Compact, highlighting the U.S. investment of about $500 million in Nepal’s power and transport infrastructure. The United States now needs to have a South Asian policy that echoes or correlates with India’s regional vision centered on “Vashudhyeya Kutumbakam” while taking into account the China threat.
Moreover, a Japan-U.S. partnership in the Himalayan region, including in Nepal, can be influential given that Japan already has a strong investment outreach in Northeast India. Similarly, the EU via its Global Gateway connectivity strategy is already helping improve infrastructure development in Nepal; better coordination with India could enhance the strategic aspects.
It is imperative that India utilizes its growing economic, technological, and security ties with the West to highlight its Himalayan concerns. Particularly the threat from China in expanding its hydro-hegemony and the overall threat to the fragile Himalayan environment due to excessive Chinese actions, from mining to dam-building, on the Tibetan Plateau, should be enough to formulate a collaborative action plan. Nepal’s strategic location and enhanced ties with China make it a vital cog in such a cooperative plan especially given the right incentive.
As such, an optimistic perspective would serve Nepal well in a divisive regional landscape, where Nepal’s two nuclear neighbors are looking to establish Himalayan dominance amid the broader regional strategic competition between India’s Indo-Pacific partner the United States and rival China. So will an autonomous thinking among Nepal’s foreign policymakers. A new stable domestic politics and wooing by both India and China amid a fractured regional political climate may just provide some momentum for Nepal’s flagging economy.
This piece is the outcome of the Stockholm Center for South Asian and Indo-Pacific Affairs’ (SCSA-IPA) research project titled “China’s Himalayan Hustle.”
Source : The Diplomat
