20 February 2023, NIICE Commentary 8554
Saroj Deo
The US and China are the world’s two biggest economies, positioned first and second respectively, where China is striving to overpower the US and become the world’s superpower, whereas the US is struggling to maintain its hegemony, sustain the global order, and deter China. Evidently, both countries are engaged in this cutthroat rivalry with each other. In few countries that are strategically more significant in this rivalry, Nepal holds its own importance where both these super-powers have consistently stressed much to fulfil their interest directly and indirectly. As such, consecutive high-level visits to Nepal have been observed before and after the election from both China and the US.
The US and China Engagement in Nepal
The US is the second country to establish diplomatic relations with Nepal after the United Kingdom. Since then, the US has been supporting Nepal through diverse projects. The US provides assistance to Nepal through the US Agency for International Development (USAID), and China provides assistance through China Aid, which was established in 2002. The United States provides aid to Nepal in areas such as social welfare, the economy, good governance, and reconstruction (following the earthquake). Its assistance focuses on a) inclusive governance, b) sustainable economic growth, c) human capital, and d) post-earthquake recovery. Nepal rebuilt to be disaster-resilient and well positioned for sustainable development, with special emphasis on gender and marginalized and vulnerable communities. China provides aid in construction and infrastructure development sectors that are easily visible to the people such as the International Convention Center, also known as the Birendra International Convention Center, the B.P. Koirala Memorial Cancer Hospital, the Civil Hospital, Durbar High School, the Pokhara International Airport (with a 22 million USD soft loan from China), the Ring Road, and so forth. The US aid is more focused on social and structural changes, development, empowerment, and so forth. Recently, the US has also entered into big infrastructure projects through MCC.
Currently, these countries are trying to enhance their influence in Nepal through engagement in various projects. The US’s Millennium Challenge Corporation (MCC) and the State Partnership Program (SPP) can be perceived as such attempts. The political parties, activists, political analysts, experts, and the public were divided on whether the MCC would be endorsed by the parliament. However, at the eleventh hour the Maoist agreed to endorse the MCC. Nepal, on the other hand, rejected the SPP.
Likewise, China came up with the Belt and Road Initiative (BRI), which is a strategy initiated by the People’s Republic of China that seeks to connect Asia with Africa and Europe via land and maritime networks to improve regional integration, increase trade, and stimulate economic growth. Recently, they have also introduced Global Security Initiative (GSI) and Global Development Initiative (GDI). In 2017, Nepal joined the Chinese proposed BRI in a bid to reduce its dependence on India and improve regional connectivity. The main concern about this Chinese-led project was its financial modalities and issues of transparency. Instead of commercial loans, Nepal preferred grants and soft loans from China. Moreover, Nepal’s USD 500 MCC compact would force Nepal to request for grants rather than loans from China.
Struggle to Influence Nepal
Recently, the US and China have been very active in Nepal. There have been frequent high-level visits from both sides since the election. Both countries want immediate progress on the projects that Nepal has ratified. However, the government of Nepal didn’t implement the process further despite having constant consultation with both the US and China. The high-level visit from the US is mainly focused on the implementation of MCC and further enhancing bilateral engagements between Nepal and the US. US Under Secretary of State for Political Affairs Victoria Nuland, became the highest-ranking foreign dignitary to visit Nepal following the establishment of the new government.
During her visit, both the countries agreed that for the next five years, the United States will invest more than USD 1 billion in clean energy, electrification, and small businesses. Following Nuland, USAID Administrator Samantha Power arrived in Kathmandu on a two-day visit to Nepal. The major focus of her visit was Nepal’s economy, the expansion of relations between Nepal and the US, and the implementation of the MCC project. Power announced an assistance of USD 58.5 million to support Nepal’s democratic progress. A section of people, including politicians, has been suggesting that these US investments in Nepal are guided by geopolitical considerations. Following her, US Deputy Assistant Secretary Afreen Akhter visited Nepal where she discussed the issues of climate change, clean energy, humanitarian assistance, and disaster response, as well as progress in democracy, human rights, and economic prosperity. However, many believe that the US has doubts about Prachanda pushing for MCC even though he supported at the last hour.
Likewise, China also wants quick progress on the BRI projects. However, there hasn’t been the expected progress on the BRI projects due to a lack of clarity regarding the benefits and challenges associated with the funding. During Chinese Foreign Minister Wang Yi’s visit to Nepal last year, none of the nine agreements signed by both countries were related to the BRI. Moreover, China is also working on the possibility of Kathmandu-Kerung railway mega projects, which will further enhance the connectivity between the two countries.
Challenges for Nepal
Political instability and the lack of a concrete foreign policy are major challenges for Nepal. In the last two elections, none of the parties were able to receive a majority to form their own majority government, leading to instability. Similarly, foreign policy also varies according to the government led by the political parties. In this situation, major powers pressurize Nepal for speedy implementation of their projects and expand their influence.
Recently, Nepal completed the construction of two international airports in Pokhara (under soft loans from China) and Bhairahawa (under Chinese Construction Company). Yet, none of the airports has started operating international flights in full swing. Though the government is blamed for lack of proper planning and homework, experts also see the geopolitical aspects to it, because of the Chinese factor. We are all aware that the Nepalese government signed the BRI in 2017. However, not a single BRI project has been implemented in Nepal so far as Nepal is concerned about the terms and conditions, duration, investment, instalments of receipt and payment, the feasibility of an outcome from the BRI, soft and commercial grants, and so forth.
Opportunity for Nepal
Many small states in the world have benefited and progressed through cooperation and engagement. Nepal also has an opportunity to benefit from the two giant neighbouring countries and the US, which have a great interest in Nepal, with the new geopolitical positioning of South Asia. The establishment and development of new factories and industries and the renovation of old ones would be a significant step to boost the economy of the country as the biggest market in the world. China and India are connected with Nepal. Nepal has high potential in the tourism sector. Nepal can attract a huge number of Buddhist tourists from China and South East Asia, Hindu pilgrimages from India, and tourists from all over the world. Moreover, Nepal can also import advanced technologies and equipment from these technologically superior countries. For this, a stable government, reformation in the political parties, educated and young leaders with high willpower, and a stable foreign policy are crucial for the holistic development of the country.
Conclusion
So far, Nepal has been able to maintain a balanced relationship with all the major powers. However, if Nepal fails to reap the benefits from these superpowers with prudent strategies, small countries like Nepal have the risk of being the subjects of experiments caught between their rivalries. As a result, Nepal can only achieve its developmental goals by establishing concrete national interests, a stable government, committed political parties, and strong leadership with strong willpower. Nepal should focus on these areas from here onward before it is too late to start. Similarly, these partner countries should also support Nepal’s for the development work without exerting too much pressure for the sake of perpetual mutual benefit.
Saroj Deo is a Research Associate at NIICE.
