by Dr. Sebastien Goulard
Nepali-Chinese relations have grown stronger since the beginning of the Belt and Road Initiative. In late March 2021, the China Coal Mine Construction Group Corporation (CCMC) won a bid for the Mugling-Pokhara Highway improvement project in Nepal.
The Mugling-Pokhara Highway improvement Project
Interregional transportation has always been an obstacle to Nepali development due to its geography, with inhabited valleys separated by steep mountains, and with difficult and time-consuming transportation between villages. To address this issue, and improve connectivity, Nepal has implemented new infrastructure programs such as the renovation of the Mugling-Pokhara highway. This road was first completed in 1974 with the help of China, but it now needs to be modernized to face the significant surge in road traffic.
This 39-km-road renovation cannot be classified as a BRI project as it is financed through the Asia Development Bank. However, it shows the growing vibrancy of Chinese companies in operating abroad. It is the first time that CCMC has won a bid for a highway construction project abroad. The 450-million-RMB-contract demonstrates that Chinese companies are more and more active in Nepal.
More attention given to Nepal
In the past, Chinese interests in Nepal were limited as the Himalayan country enjoyed special relations with its southern neighbour India. However, since the 2015 blockade crisis, Nepal has chosen to reduce its over-reliance on India, and has tried to develop better relations with China.
One major project, conducted withing the framework of the BRI, was the construction of a high- speed internet network between Nepal and Tibet in 2018 intended to reduce internet costs.
As demonstrated by Natasha Fernando and Vijay Prasad Jayshwal Nepal has implemented some new rules to regulate Chinese projects and to boost foreign investment. Thanks to the BRI China has increased its investment in Nepal a country craving for infrastructure development. Since 2015, China has overtaken India as the top investor in Nepal. With $132 million US dollars of pledged Foreign Direct Investment (FDI), Chinese investment represented up to 81% of total pledged FDI for the first quarter of 2020-2021 fiscal year. In contrast the decline of India’s FDI in Nepal has been accelerating since the pandemic with an 80% decline for the first 9 months of 2020-2021 fiscal year.
Chinese investment in Nepal is not limited to large infrastructure projects with more Chinese entrepreneurs and small companies also investing in the local hospitality sector.
For China investment in Nepal may also create development opportunities in Chinese Tibet. New roads and the possible construction of a railway between Nepal and China may make Tibet the next door to South Asia.
The BRI in post-Covid Nepal
With the pandemic, China has increased its assistance to Katmandu. Nepal has received vaccine donations from both India and China but as the pandemic continues to surge in India China will have more vaccines to offer to Nepal.
China is also cooperating with Nepal and other South Asian nations (Pakistan, Bangladesh, Sri Lanka and Afghanistan) to create a mechanism to ease the supply of medical products in those countries.
But China’s assistance is not restricted to vaccines. Nepal’s economy has been seriously hit by the pandemic as the country depends heavily upon tourism, a sector that has suffered from the Covid-19 crisis. On April 27th China’s Foreign Affairs Minister and State Councilor Wang Yi proposed to his counterparts from South Asian nations that a China-South Asia poverty reduction and development cooperation center be created, to address poverty issues in this region.
Nepal will need to recover quickly from the crisis as low economic growth may also threaten social and political stability in the country. China with the BRI can help Nepal in these challenging times. Given a stronger China and the corresponding weakened Indian influence Nepal will also need to diversify its partnerships and there will be opportunities for companies from other parts of the world, including Europe, to develop stronger ties with the Himalayan republic.