Nepal-China Diplomatic Ties

Dr. Upendra Gautam

Right from the beginning, Nepal and China had to face challenges that basically pertained to conducting of international affairs independently and in a sovereign manner. In mid 1950s when the bilateral diplomatic relations were being established, the traditional Cold War element sought to expand aggressive design and sphere of influence into Nepal in the name of transferring democracy and expanding security bloc. But Nepal and China were able to have their relations based on the principle of peaceful co-existence. Reflecting over those times, Chinese Premier Zhou En-lai in his 30 September, 1950 report said: “China shall never tolerate any foreign invasion nor shall watch it taking place in any neighbouring country with folded arms.”   Nepal and the People’s Republic of China are marking the 62nd year of establishment of diplomatic relations between them on 1st of August 2017. This day coincides with the 90th anniversary of the establishment of the People’s Liberation Army (PLA) in China. The occasion is being marked when both the countries are facing a situation of new Cold War having Nepal’s high officials getting continuously involved with the factor of instability and interference in the region.  In and around the marking of the 60th year of diplomatic relations, Nepalis people were agog with the expected state visit of President Xi Jinping to Nepal, which would have gone a long way in institutionalising Nepal-China cooperation in his Belt and Road Initiative (BRI)-a pioneering initiative that targets international connectivity.  

In the post-traditional Cold War period, both the countries had been effortful to give more economic contents to their bilateral ties. Like for several other countries, China’s BRI or One Belt One Road (OBOR) has offered a great window of opportunities for Nepal interconnecting itself with global development.

But the long-nurtured factor of instability and interference in Nepal successfully has used Nepal’s domestic politics against this grand Chinese initiative. Now despite signing of the long-awaited framework MOU with China on the BRI, the risk Nepal faces is losing the steam on BRI/OBOR.

BRI/OBOR does not constitute an ad hoc opportunity for international development. Nepal should expeditiously regularise and operate the coordination and implementation mechanism for the BRI/OBOR into policy, planning and implementing institutions and demonstrate to the overwhelming BRI/OBOR enthusiast Nepali people that these, for example,  specific transport and energy infrastructure projects under the BRI/OBOR framework are planned for construction to serve the people in next these many years.  

Certainly, those Nepali leaders who are patriotic and clearly uphold the national interest of our landlocked country can decisively take the described course of actions. 

There are some issues raised against OBOR. Mentioning the case of Pakistan it is said that the debt BRI/OBOR will provide for project financing is unsustainable. Debt recipient country will get into a debt trap rendering the whole debt recipient economy unviable. Another raised “issue” is BRI/OBOR asks for institutional reforms in seeking and accessing China’s assistance in economic development project. These reforms are portrayed to be beyond Nepal’s institutional capability. Another “issue” given prominence is: Five pillars of BRI/OBOR (policy and planning coordination, infrastructural connectivity, unhindered trade, financial integration and people-to-people contact) demand multi-level and multi-channel cooperation and implementation capability. Nepal is not able enough to mobilise and manage required human resources capabilities.

So far these issues to a great extent are hypothetical in Nepal’s context in the sense that these are generated more by foreign sources than Nepal’s own experience and knowledge-ability. But they merit attention not because a foreign source has engineered these issues. They merit attention for Nepal’s own clarity in effectively approaching and accessing BRI/OBOR mechanism. The reported issues are non-issues if we approach them right, innovatively and in a determined way. 

Nepal can confidently tackle the unsustainable debt issue if it first fixes Nepal’s critical priorities out of the BRI/OBOR framework. If these critical priorities, for example, are trans-Himalayan railway and cross border electricity lines, then Nepal can take a long-term integrated perspective on sustainability factor. As these critical priorities, besides economic, have profound historical, social, psychological and geographic senses, Nepal will have to go for a sustainability perspective that is economic plus.

If we look at the debt sustainability issue from a particular project’s tunnel perspective, a debt may not be as productive as it should have been meant for. Therefore, for example, creation and operation of cross-border economic and industrial zones bears significance in terms of important transport infrastructure and hydro projects through remote terrains.  We need to be creative and comprehensive. For a significant transport infrastructure project, mobility and travel of the people will be beneficial right away to initially support to an extent the economic sustainability of the project. In such projects, adopting a cluster development approach along the transport hub will help optimise the benefits from the project investment.

Nepal has floated the idea of AIIB issuing bond in Nepali currency to finance infrastructure projects in Nepal. In this context, Nepal’s central bank can help AIIB to administer such activity. But more than that, Nepal can itself issue the bond for BRI/OBOR to create matching funds for BRI/OBOR projects.

Nepal, also China for that matter, should not view BRI/OBOR in the traditional multilateral financing mode of a client-donor relationship. AIIB and all other BRI/OBOR bilateral as well as multi-lateral financing mechanism must have improved transaction efficiency and strengthened good investment-friendly integrity procedures. Just the other day on July 24, the Asia Financial Cooperation Association (AFCA) was founded in a ceremony in Beijing. AFCA, an outcome of one of the Belt and Road Forum for International Cooperation held in Beijing in May last, upholds the principle of “connectivity, cooperation, joint governance, and shared benefits”.

Nepal and China, within the BRI/OBOR and its financing framework,  should be able to view the cooperation mechanism as a mutually and equitably beneficial exchange of resources whereby Nepal would offer what it can in terms of specific natural resources (water, forest, minerals) development project  in return of financial and technology investment. Africa has used this alternative successfully. Nepal’s comparative resource advantage should receive recognition and a fair deal. 

So far the talks on BRI/OBOR have been more on a political level. Both the countries need to regularise the BRI/OBOR development cooperation process into their legitimate policy, planning and development institutions.

Nepal needs to go through a deep relearning and great harmonisation process vis-à-vis China’s connectivity policy, periodic development planning and communication and available options of project financing.

Nepal needs to establish a high level Joint Nepal-China Inter-governmental leading group with the representations/membership from National Planning Commission, ministries of foreign, finance, commerce, home; development ministries, central bank, think tanks and private sectors. This group will maintain regular contacts with relevant Chinese agencies collectively as well as individually as per the need.

To learn about the BRI/OBOR project planning and implementation processes and the associated institutional framework for decision making, Nepal government officials instead of complaining about their lack of knowledge and information on BRI/OBOR should depute planning, development, finance, communication and think tank teams to undertake study visits in the countries like neighbouring Mongolia and Pakistan where BRI/OBOR projects have made significant strides.

BRI/OBOR projects are different from traditional bilateral projects. These projects are visualised aiming at global integration, connectivity and mutually beneficial and complementing framework. Traditional bilateral projects had never been of this type encompassing bankable financing mechanism and forward linkages.

Five pillars of OBOR will have implications on the country’s policy-planning, infrastructure connectivity, trade, financial and public diplomacy systems.  Nepal’s institutional human resource can be capable enough to manage activities in these areas. More human resources capability in the private sector will be attracted towards it when projects are streamlined.

Nepal with the existing underutilised intuition and human resources can utilise them fully if significant projects in BRI/OBOR framework get speedily implemented. First it will be in learning by doing mode.

Nepal’s BRI/OBOR commitment and capability will proportionally and functionally increase once the BRI/OBOR Projects are on line to serve Nepal’s core interest. Along with BRI/OBOR project, Nepal will have more opportunities to employ its human resources and develop their capabilities at the same time.

As BRI/OBOR needs multi-dimensional capability, project in the BIR/OBOR framework will help Nepal human resources to enrich itself interfacing with China’s multi-dimensional counterpart capability

This writer sees very good results of BRI/OBOR on Nepal if significant projects within BRI/OBOR framework are implemented sincerely, seriously and without delay. In the name of “balanced” international relations, Nepal must not cherish in complacency as the factor of instability and interference designed along with the new Cold War in the Trans-Himalaya region would hate the BRI/OBOR making any headway in Nepal.

The net impact of the five pillars of BRI/OBOR on Nepal’s development planning, infrastructure, trade, finance and soft connectivity will lead to a functional, diversified and unlocked economy and governance in Nepal.  Especially for a landlocked and least developed country like Nepal, BRI/OBOR is a boon as it provides it with double happiness in the form of land as well as the 21st century maritime connectivity.

Nepal needs to proactively address instability and interference against national integrity and harmonious development. Along with China, it has to comprehensively promote public diplomacy. Contents of this diplomacy should be entrepreneurially strategic, and its guiding principle should be mutual trust and co-existence characterised by courage and devoid of any appeasement. Chinese people have a saying, “Ivory cannot grow on a jackal’s mouth.”