What next for Nepal if BRI fails to materialize?

Five years ago, during his visit to Kathmandu, Chinese President Xi Jinping issued a strong warning: “We will crush any force that casts an eye on China’s sovereignty.” This cautionary statement reflected his belief that powerful nations were using Nepal as an arena for anti-China activities.

Xi said this during his talks with Prime Minister KP Sharma Oli. As Oli prepares for his upcoming visit to China, it is likely that this issue will resurface. The key question is how Nepal will address these concerns and reassure its northern neighbor. Nepal must have carefully prepared its responses.

Xi has continued in power in China since that meeting in Kathmandu, while Oli has returned to power following shifts in Nepali political scene. Over the past five years, both domestic politics and the geopolitical environment have become more complex.

During Oli’s visit, the two leaders are expected to discuss bilateral relations, mutual cooperation, development, prosperity and the complexities of regional and global politics. Oli’s visit to China will be primarily focused on securing economic assistance and deepening bilateral relations. However, divisions within Nepal’s ruling coalition, particularly on cooperation under China’s Belt and Road Initiative (BRI), will pose a significant challenge for Oli. The Nepali Congress (NC), the leading party in the coalition, has firmly opposed BRI projects funded through loans, citing fears of Nepal falling into a Chinese debt trap. The Central Working Committee of the party has already resolved to reject any BRI loans. NC leaders are arguing that loan agreements come with long-term risks. Adding to the complexity is external pressure from regional and international powers which are discouraging Nepal from moving forward with BRI implementation.

Oli, however, supports BRI projects funded through subsidized loans if grants are not an option, and is trying to persuade the NC leadership. However, if China insists on loans and the NC maintains its opposition, Oli could find himself in a difficult situation. Speculation is already circulating that this visit might be limited to a mere “sightseeing tour” for the Prime Minister.

What next then?

Although the contents of the BRI agreement has not been made public yet, it has become a politically charged issue. It has become a tool for some to gain power and unseat others. The lack of consensus among ruling parties complicates Prime Minister Oli’s position, especially when addressing the Chinese leadership about Nepal’s reluctance to accept loans under BRI. While such political maneuvering might serve short-term goals, it raises concerns about the long-term impact on Nepal’s relations with China, a rising global power. A measured approach, therefore, is necessary.

If BRI loans cannot proceed, Oli could request China for grant support for two high-priority projects: a modern terminal building at Tribhuvan International Airport and a metro rail system for Kathmandu. The design of the airport terminal, estimated to cost Rs 40bn, has already been drawn. Although expansion works like building a taxiway are ongoing, it is certain that the existing terminal cannot handle passengers after five years.

On the other hand, the population of Kathmandu Valley has been increasing, with some estimating it has already reached six million. The existing transport infrastructure cannot handle visitor traffic 10 years from now. Considering growing urbanization, vehicle pressure, and population growth, there is a necessity to move forward with metro rail construction. Studies conducted 12 years ago by the Korea Rail Network Authority estimated the metro project’s cost at Rs 600bn. With limited scope for road expansion, initiating metro construction now could avert severe transportation challenges in the future.

Nepal’s economic constraints, including its reliance on domestic debt to pay the salary of public servants,make large-scale infrastructure projects unrealistic without foreign assistance. Instead of requesting piecemeal aid like ambulances and small-scale school buildings from its neighbors, Nepal should strategically seek substantial projects that enhance income generation and public services. If China agrees to fund one project as a grant, Nepal could approach India for the other. After the China visit, the Prime Minister will certainly visit India.

But for now, Nepal does not need to make rail construction the primary agenda with China and India. China’s rail network, which has reached Shigatse, will likely extend to Nepal to access South Asia’s markets. Similarly, India has begun feasibility studies for the Raxaul-Kathmandu rail line in response to China's Kerung-Kathmandu railway plans. Nepal should align its infrastructure priorities with these developments and seek support based on its most urgent needs.

Key agendas that Nepal must raise

Along with discussions on economic cooperation and mutual relations, Nepal must raise three critical issues with China during Prime Minister Oli’s visit. First, Nepal should emphasize the need for uninterrupted operation of northern border checkpoints, which have faced frequent closures and disruptions. Second, the persistent delays by Chinese contractors in handling infrastructure projects in Nepal must be raised, as they have negatively impacted public perception and project timelines. Lastly, the increasing involvement of Chinese nationals in criminal activities within Nepal requires serious attention to ensure law enforcement and maintain bilateral trust. Addressing these issues is crucial for strengthening Nepal-China ties and resolving ongoing challenges.

Irregular border checkpoints: Following the promulgation of a new constitution in 2015, Indian blockade caused severe shortages of essentials in Nepal, bringing daily life to a halt. During the crisis, China provided much-needed relief, including food grains, clothing, and even oil tankers, signaling its potential as an alternative supplier of petroleum products. In response, Nepal began prioritizing the opening of northern checkpoints and accelerating road construction towards China. However, since the COVID-19 pandemic, key checkpoints like Tatopani, Rasuwagadhi, Korala, Kodari, and Yari have become unreliable, with unpredictable closures disrupting trade. As a result, traders have been facing delays, which is causing perishable goods like fruits brought for major festivals to rot, resulting in huge losses. Therefore, Nepal remains cautious about the reliability and operational effectiveness of Chinese checkpoints. Ensuring smooth, transparent, and mutually beneficial checkpoint operations could facilitate easier trade and potentially strengthen bilateral relations between Nepal and China.

Working style of Chinese contractors: China’s rapid development, driven by its unmatched capacity, technology, and efficiency, has amazed the world. However, this renowned work ethic seems absent among Chinese contractors operating in Nepal. Many Nepali infrastructure projects handled by Chinese construction companies have been facing delays, mismanagement and negligence, leading to growing dissatisfaction among Nepalis. The stalled Narayangadh-Butwal road expansion project is a glaring example of this negligence. While the blame is not entirely one-sided, Nepal’s bureaucratic hurdles, complex policies, corruption, and irregularities also contribute to these challenges. It is necessary for the leaders of the two countries to address these issues for fostering productive partnerships and improving perceptions of Chinese contractors in Nepal.

Chinese citizens in criminal activities:  Since 2015, the influx of Chinese traders, tourists, and workers in Nepal has surged. Similarly, the number of Nepalis going to China for travel, study, training and seminars have also grown. Chinese investments have also expanded, particularly in hotels and restaurants in areas like Thamel, Jhamsikhel, Pokhara and Lumbini. However, this growing presence has been accompanied by a rise in criminal activities involving Chinese nationals, including kidnapping, bank fraud, cybercrime, counterfeit currency, and gold smuggling. Since the growing involvement of Chinese nationals in crime and irregularities in Nepal is not sending a good message, the issue needs to be discussed at the highest level during Oli’s China visit.