How is the Chinese script unfolding in Nepal?

China had backed the merger of Nepal’s two biggest communist forces for a couple of reasons. China felt ideologically close to the two communist parties. The northern neighbor also hoped they could together form a strong, trustworthy government in Kathmandu.

Says Rupak Sapkota, deputy executive director at the Institute of Foreign Affairs (IFA) under the Ministry of Foreign Affairs, “China has for long backed stable and reliable forces in Nepal. It believes instability in Nepal would increase anti-China activities”. As most of China’s development projects in Nepal are under government-to-government modality, he adds, “China fears political instability could jeopardize them”.

But China is not alone in wishing for political stability in Nepal, says Amish Raj Mulmi, author of the new book 'All Roads Lead North: Nepal's Turn To China’. “Other development partners also wish the same to secure their investments.”

Chinese wishes aside, only two years into the merger of the two communist parties, a rift started developing between the two chairpersons of the united Nepal Communist Party (NCP). Chinese envoy to Nepal, Hou Yanqi, engaged in a series of meetings with ruling party leaders when the NCP disputes escalated. But the communist unity still unraveled after Prime Minister KP Oli unilaterally dissolved the federal lower house. 

Predictably, the House dissolution also soured PM Oli’s relation with China. This was someone who was consistently projected as pro-China, at home and abroad. 

To keep the NCP united, China at the end of December sent to Kathmandu a special mission under CPC vice-minister Guo Yezhou. But it was too late.

The decisive North turn

Nepal-India relations had soured when India tried to openly meddle in Nepal's internal politics in 2015 as the country was about to promulgate a new constitution. When India imposed a blockade on Nepal, the small landlocked country was left with no option but to reach out to China, the only other neighbor. For his brave blockade-time stand against India and for the historic agreements he signed with China, the communist coalition Oli led was rewarded handsomely in the 2017 general elections.  

Before that, Nepal had signed a bilateral cooperation agreement to join China’s Belt and Road Initiatives, China’s globe-spanning connectivity project. At the time, Pushpa Kamal Dahal was the prime minister after Oli had resigned ahead of the tabling of a joint Maoist-Nepali Congress no-confidence motion in the parliament.

When Oli was reelected prime minister later in 2017, he invited Chinese President Xi Jinping for an official visit. In 2019 Xi obliged, becoming the first Chinese president to visit Nepal in two decades, after Jiang Zemin’s historic 1996 trip. Nepal and China signed 18 memorandums of understanding during Xi’s visit, including some of strategic importance. 

During the trip, Xi committed to elevating Sino-Nepal relations to new heights. He also pledged help in Nepal’s quest to become a ‘land-linked country’ through multidimensional connectivity.

Unmet expectations

Oli had expected China to build Nepal-China railway on grant basis while China expected him to push for the implementation of BRI projects in Nepal. Both expectations proved misplaced.

“Under direct or indirect geopolitical pressure, Nepal’s political leadership couldn’t could push ahead with the BRI plans. The bureaucracy was also dissuaded when they heard rumors of debt trap in Sri Lanka,” says Sapkota of the IFA. “The regional equilibrium at the time was also disturbed due to the Doklam standoff between India and China”.

According to Sapkota, joining the BRI was an imperative if Nepal was to achieve its Vision 2030 goals as well as to fulfill the country’s development needs. “Most western donors have been extending assistance on human rights, women empowerment and similar issues. Nepal thus has to rely on neighbors for development projects, which are a must for the country,” he says.

Even as Nepal dilly-dallied on the BRI projects, the debate over a $500 million US grant engulfed the country’s politics, with the NCP sharply divided over whether to accept the grant without revising the underlying MCC agreement.

Then the Chinese weighed in. PM Oli was greatly miffed when the Chinese side told Oli he should be ready to resign as prime minister to maintain party unity, say NCP sources.  

In a reflection of the new state of play between the two countries, China offered Nepal 800,000 doses of Covid-19 vaccines only after India had itself supplied to Nepal a million doses. “Yes, China providing fewer vaccines than India was meaningful,” says a party source.

According to foreign affairs analysts, frustrations over delays in meeting expectations has resulted in a trust-deficit between Oli and Chinese side. But the Chinese have learned not to put all their eggs in a single basket, some say, and hence a change of guard in Kathmandu may not necessarily distress it.

The northern neighbor has always maintained good relations with all major political actors in Nepal. “China maintained very good relationship with BP Koirala even at the time of monarchy,” says Bhaskar Koirala, Director at the Nepal Institute of International and Strategic Relations. “China wants to maintain good relations with the NCP given its political strength. But aware of Nepal’s unstable political dynamics, it maintains relations with each and every political party in Nepal.”

Koirala recalls the meeting between Chinese Defense Minister Wei Fenghe and Nepali Congress President Sher Bahadur Deuba during Wei’s Nepal visit last November.

This had happened at a time China was unhappy with Congress after a party leader, Jeevan Bahadur Shahi, accused China of encroaching on Nepali territories in Humla district. Before that, in 2016, the then Prime Minister Deuba was drawn into controversy for sharing stage with the prime minister of Dalai Lama’s government in exile in 2016.

Still, China has tried to maintain good relations with the party. Chinese ambassador to Nepal Hou Yanqi even met Deuba after the parliament’s restoration last week.

“Chinese engagement in Nepal has increased unprecedentedly in the dozen years since the abolishment of monarchy. It has had to deal with different governments and leaders during the time. I believe the global power is slowly understanding Nepal,” Koirala says.

The great decoupling?

Irrespective of the less-than-perfect relations with Nepali government leadership, the Chinese ambassador was involved in initiation of two projects in Nepal this week. Prime Minister Oli laid the foundation stone for an industrial park in Jhapa, which is to be built with Chinese grant. He also laid the foundation of the Sunkoshi-Marine diversion project to be built by a Chinese company, again in Hou’s presence.

Separately, China Communication Construction Company with the Chinese government as its majority stakeholder is also interested in building Nijgadh International Airport, a strategically important international airport for Nepal.

Writer and analyst Mulmi believes China has given indications of decoupling investments and politics when it comes to Nepal. “I have also found some signs of that. But it would be too early to judge whether it has a political message or not”, he says.

Koirala says China will keep pushing its development initiatives irrespective of who is in power in Kathmandu. “This is not just the case of Nepal, it’s the same in other South Asian countries as well”.

He does not think China opposes the MCC in Nepal as it wants to invest in hydropower and without a cross-border transmission line power cannot be exported from Nepal. “In my opinion, the MCC serves the interests of all three major powers in India, China and the US,” adds Koirala. “The transmission line to be built by the US will help China to export electricity generated from its investment and India would get power supply from Nepal. The MCC uproar thus has more to do with Nepali domestic politics than it has to do with China”.