How China seems to be ensnaring Nepal in its debt-trap designs
With China unilaterally including several projects in Nepal, agreed upon by the two countries much before Kathmandu’s formal participation in the BRI, within the initiative’s framework, the Himalayan nation appears to be at its wits end as Beijing is in no mood to address its concerns emanating from unsustainable loans
Upon receiving an invitation from Premier Li Qiang of the State Council of the People's Republic of China, the Prime Minister of Nepal, Pushpa Kamal Dahal, who is also known as Prachanda, embarked on an official visit to China from September 23 to 30, 2023. This was the longest ever visit by a Nepalese Prime Minister to China.
But it remained in larger context a damp squib as China did not commit itself to addressing issues such as the contentious standard map released by China at the end of August, converting commercial loans provided for Pokhara International Airport into grants, funding of Belt and Road Initiative (BRI) projects under grants, ballooning trade deficit and resolution of border disputes.
This begs a question: Is China ensnaring Nepal in its debt-trap designs?
During his eight-day visit, Nepal Prime Minister Prachanda met Chinese President Xi Jinping on the sidelines of the 19th Asian Games in Hangzhou where he was invited to participate in the opening ceremony of the Asian Games in the capital city of China’s Zhejiang province.
In Hangzhou, Nepal Prime Minister Prachanda and Chinese President Xi held one-on-one talks, followed by a delegation-level meeting for almost an hour.
In that meeting, China’s Ministry of Foreign Affairs quoted Prime Minister Prachanda as telling the Chinese President that “Nepal supports a series of important concepts and initiatives put forward by President Xi Jinping, and is willing to work with China to promote the development of the international order in a more just and reasonable direction, safeguard the common interests of developing countries, and promote the building of a community with a shared future for mankind.”
The Chinese Foreign Ministry statement did not clarify what important concepts and initiatives the Nepal Prime Minister pledged to support. The Himalayan country has not witnessed a single BRI project being implemented even as seven years have passed since Kathmandu signed an MoU with Beijing for the China-led initiative.
Nepal officially became a part of the BRI in May 2017. In 2019, Nepal identified as many as nine projects under BRI for development and they included setting up a technical university, an extension of a 400 KV electricity transmission line, constructing new roads, tunnels, and hydroelectricity dams.
However, despite considerable discussions regarding the BRI's implementation in Nepal, there has been no tangible progress on any of the associated projects. Instead, China has unilaterally included several Chinese-funded projects within the BRI framework, such as the Pokhara International Airport, Damak SEZ, and a few highways. These projects were initially agreed upon mutually, even before Nepal's formal participation in the BRI.
Nepal is worried about the sustainability of these projects, including the Pokhara International Airport. Inaugurated on January 1, 2023, the Pokhara International Airport has not received a single international flight from any country other than China. In the third week of June this year, A319 aircraft of China’s Sichuan Airlines with 70 passengers and cargo landed at the airport.
The Pokhara International Airport has a built-up problem due to its location around rugged mountains of Nepal. It can facilitate landing of only narrow-body jets with low payload capacity.
On January 15, 2023, a Yeti Airlines twin-engine ATR 72 plane with 72 people onboard it crashed while attempting to land at the airport. It is said that the Pokhara International Airport has become Nepal’s Hambantota Port; it is barely sustaining itself. As a result, questions are being asked whether the airport would turn into a debt trap for Nepal.
In fact, Nepal is closely watching the deteriorating economic situation of Zambia, Angola, Ghana, and several other African countries which received huge amounts of loans from China under BRI and then fell victim to huge debt. Within the South Asian region, Sri Lanka and Pakistan have either indefinitely stalled or handed over on lease for a long-term to the Chinese companies, projects built under BRI after they failed to repay the loans.
Given this, Nepal has turned very cautious in receiving loans from China to build infra projects under BRI. Because, BRI has a loan component, and projects are carried out with loans received from China’s commercial banks.
As per AidData, a research lab at the College of William &Mary, a public research university in Williamsburg, Virginia, China’s loans for BRI projects have an interest rate of 4.2% with a grace period of fewer than two years and a maturity of fewer than 10 years.
Significantly, during Prachanda’s visit, Nepal and China signed 13 agreements, but Beijing did not provide any clear commitment to resolve matters related to territorial dispute, reopening and smooth operation of border trading points, unilaterally designating of Pokhara airport and other pre-BRI projects as those belonging to BRI programme and development of special economic zones.
Nor did China give any assurance on addressing controversy surrounding the map. On August 28, China released its standard map, showing that Lipulekh, Kalapani and Limpiyadhura are not part of the Himalayan nation’s territory. Upset with this, Nepal issued a statement, maintaining that neighbours must respect the Himalayan nation’s latest map that was unanimously approved by the country’s federal parliament in 2020.
Kathmandu’s concern over China’s interference in Nepal’s external relations was also not addressed. On September 6, participating in a discussion titled ‘China in global economy and its impact in Nepal,’ organised by the Foundation for Trans Himalayan Research and Studies and Friends of Silk Road Club Nepal in Kathmandu, Chinese Ambassador to Nepal Chen Song pilloried the Himalayan nation for its relations with India.
Critics say the eight-day trip was more like a cultural pilgrimage for Nepal Prime Minister Prachanda as he devoted a significant portion of time towards visiting historical and cultural sites in China rather than working out things favourable to the Himalayan nation.
**The writer is a Research Fellow at the MP-IDSA, New Delhi; views expressed are his personal