Nepal-China relationship under new coalition in Kathmandu

Deputy Prime Minister and Minister for Foreign Affairs Narayan Kaji Shrestha is paying an official visit to China from March 24 to April 1 at the invitation of his Chinese counterpart Wang Yi.

This visit marks the first significant diplomatic engagement by a senior minister since the formation of a new coalition government on March 4. Shrestha’s transition from the home ministry to the foreign affairs portfolio underscores the shifting dynamics within the government. In addition to bilateral discussions with his Chinese counterpart, Shrestha, a prominent Maoist leader, is scheduled to hold meetings with top officials and leaders of the Chinese Communist Party.

Given lingering suspicions and allegations surrounding China’s role in orchestrating the recent political realignment in Nepal, Shrestha’s visit carries considerable significance domestically and internationally. Despite assertions from ruling alliance leaders that the coalition shift was driven solely by internal factors, doubts persist regarding China's influence.

Notably, Shrestha’s departure for China lacked comprehensive briefings from all ministry departments, raising questions about preparedness amidst heightened Chinese pressure to advance the Belt and Road Initiative (BRI) agenda. 

During Prime Minister Dahal’s China visit last year, preparations were made to sign the BRI implementation agreement. But it was put off after Nepal sought some more time, citing the need for further homework. China has been pushing Nepal for BRI implementation, especially after Nepal ratified the US government’s Millennium Challenge Corporation (MCC) grant agreement.

While Shrestha has publicly advocated for prompt BRI implementation, the Dahal-led government has yet to reach a consensus on the matter, indicating a reluctance to hastily commit to China's initiatives. Even though Shrestha has said that implementation of past agreements remains the top agenda of his China visit,  highly placed government sources say the possibility of Nepal signing the BRI implementation agreement is very low. 

Nepal reportedly had proposed nine infrastructure projects under the BRI, but there has been no progress. 

Although Nepal signed the BRI framework agreement with China in 2017, no infrastructure project has moved forward so far. Of late, China has been trying to bring all areas of cooperation with Nepal under the BRI framework. Controversy has also arisen over China’s unilateral designation of Pokhara International Airport as a BRI project, exacerbating anxieties regarding debt sustainability. With the multi-million-dollar airport still unable to see international flights, there are concerns over how Nepal will repay the Chinese loan. 

Prime Minister Dahal has been urging the Chinese side to convert a significant portion, if not all, of the loan into a grant. He told a gathering in Pokhara a few days ago that efforts were underway to convince China on this matter. Dahal’s appeal for converting Chinese loans into grants reflects Nepal's growing apprehension towards accumulating debt, particularly in light of unfulfilled BRI promises and economic viability concerns.

The prime minister believes that if China converts the loan into a grant and makes it a gift project under the BRI, it would facilitate the BRI implementation agreement. China does not provide grants under the BRI, but the Chinese government could make such a decision if it desires. However, the Chinese side has not given a concrete response. 

Earlier last week, the Chinese Embassy in Kathmandu clarified that the Pokhara airport loan is not a noose around Nepal’s neck. It stated that Nepal’s external debt is higher from international institutions and other countries. China has expressed its willingness to bring international flights to Pokhara but has urged Nepal to provide new air routes for this purpose.

Previously, when the Nepali Congress was part of the ruling alliance, Prime Minister Dahal and other communist parties felt that relations with China were given low priority. China’s proactive engagement following the coalition reshuffle suggests a concerted effort to solidify ties with Nepal’s communist-led government. The absence of contentious issues such as the Nepal-China border dispute in the new alliance’s policy agenda signals an apparent alignment with Chinese interests, prompting optimism in Beijing regarding future cooperation.

Chinese activities seem to have increased in Nepal significantly following the formation of the new alliance. In the past, China has been slow to react to changes in government in Nepal. But this time, it issued a response soon after the new alliance was formed.

During her regular press briefing on March 4, Chinese Foreign Ministry spokesperson Mao Ning said: “We would like to work with the new government to uphold the Five Principles of Peaceful Coexistence, deepen traditional friendship, strengthen practical cooperation, advance the China-Nepal strategic partnership of cooperation featuring everlasting friendship for development and prosperity, and deliver more benefits to the peoples of the two countries.”

Two days later, Chinese Ambassador to Nepal Chen Song met with Foreign Minister Shrestha to extend congratulations and engage in in-depth and friendly discussions on bilateral relations and cooperation.

Vice-minister of the Chinese Communist Party Sun Haiyan also held talks with Nepali Ambassador to China Bishnu Pukar Shrestha right after the new alliance was formed.

During the meeting, she sought information about the recent political developments in Nepal. Vice-minister Haiyan had visited Nepal last month leading a delegation of the International Liaison Department of the Communist Party of China. During her interactions with Nepali political parties, she had remarked that efforts were being made to undermine Nepal-China relations.

Similarly, Lin Jian, a Chinese foreign affairs spokesperson, on March 22, reacted to Shrestha’s visit. In a regular press briefing in Beijing, he said: “The upcoming visit will be [Shrestha’s] first overseas visit after taking office as Nepal’s deputy prime minister and minister for foreign affairs.”

“China stands ready to work with Nepal to take this visit as an opportunity to further deliver on the important common understandings between leaders of the two countries, deepen political mutual trust, pursue high-quality Belt and Road cooperation, expand exchanges and cooperation in various areas and strive for new progress in building China-Nepal strategic partnership of cooperation featuring ever-lasting friendship for development and prosperity,” Lin said.

He added that China and Nepal were “traditional friends and neighbors linked by mountains and rivers. In recent years, our two countries maintained close high-level exchanges with deepening practical cooperation in various fields”. “Our two sides maintained close coordination and collaboration in regional and international affairs.”

Last September, Prime Minister Dahal paid an official visit to China and leaders of the two countries reached important common understandings on growing the China-Nepal relations.”  China expects its security concerns to be somewhat addressed under the communist government in Nepal, which is why Beijing appears more enthusiastic about the new alliance. Additionally, the Dahal-led government has fully banned activities concerning the free Tibet movement in Nepal. 

However, challenges persist in reconciling Nepal’s commitment to an independent foreign policy with the demands of regional stakeholders, particularly amid growing pressure to navigate competing geopolitical interests. Prime Minister Dahal’s emphasis on adopting a balanced diplomatic approach underscores the delicate balancing act facing Nepal’s leadership as it seeks to assert its autonomy while fostering fruitful relationships with key allies.