Nepal’s veteran communist leader, K.P. Sharma Oli, recently assumed office as the country’s prime minister for the fourth time and is now looking to enhance infrastructure collaboration with China. This development signals a shift in Nepal’s diplomatic alignment as it seeks to reduce dependence on India and strengthen ties with its northern neighbor.
Oli made his first international visit since taking office in July by traveling to China this week for a four-day tour, diverging from the tradition of prioritizing India for such trips. The decision underscores Kathmandu’s intention to recalibrate its foreign policy and explore alternatives to India, with which it shares a deep-rooted historical connection.
Despite the visit, Oli has so far received commitments of continued assistance from Beijing, but no new investments have been announced. The agreements signed during his visit — a total of nine — were reiterations of previously settled projects, rather than fresh initiatives.
During a meeting with Chinese President Xi Jinping on Tuesday, Xi emphasized China’s support for Nepal’s development aspirations. “China will help Nepal transform from a landlocked country into a ‘land-linked’ one and will continue to support Nepal’s economic development to the best of its ability,” stated Xi, as reported by Chinese state media.
Nepal has been a participant in Xi’s Belt and Road Initiative (BRI), an ambitious plan to enhance China’s global infrastructure and trade connectivity. However, no BRI projects in Nepal have advanced since an initial agreement was signed in 2017. The country remains eager to launch key infrastructure projects, including road upgrades and the development of new transportation routes.
Oli’s agenda during the visit reflects Nepal’s strategic goal of reducing its economic reliance on India while fostering deeper economic ties with China. India currently dominates Nepal’s international trade, accounting for around two-thirds, while China’s share stands at only 14%. Nonetheless, China surpasses India as Nepal’s leading bilateral lender, having provided loans totaling more than $310 million, according to World Bank data.
Oli’s relationship with India has historically been fraught with challenges. In 2016, during his first tenure as prime minister, he secured a petroleum deal with China after India imposed a six-month blockade on oil supplies to Nepal in 2015. This move disrupted India’s monopoly as Nepal’s sole fuel supplier and paved the way for stronger cooperation with Beijing.
Challenges with Chinese Investments
One of the flagship projects under Chinese involvement in Nepal is the Pokhara International Airport, constructed with a $216 million loan from Beijing. The airport, located approximately 200 kilometers west of Kathmandu, commenced operations last year and is hailed by China as a symbol of its BRI success. However, it faces operational hurdles due to India’s refusal to allow international flights bound for Pokhara to use its airspace. As a result, the airport has struggled to attract sufficient international flights, limiting its effectiveness.
Debt-related concerns have also sparked debates within Nepal’s ruling coalition. The Nepali Congress party, a crucial ally supporting Oli’s administration, has opposed any large-scale projects financed by loans. Ahead of Oli’s China visit, the coalition, including his own Communist Party of Nepal (Unified Marxist Leninist), reached a consensus to prioritize grants over loans for BRI projects.
The decision was influenced by cautionary tales such as Sri Lanka’s experience. Sri Lanka, a significant recipient of Chinese loans for BRI projects, defaulted on its foreign debt in May 2022. This financial crisis has served as a warning to countries like Nepal about the potential risks of unsustainable borrowing.
China’s involvement in Nepal’s infrastructure is closely watched, not just for its economic implications but also for its geopolitical significance. As Nepal balances its relationships with its two giant neighbors, Oli’s government appears to be navigating a delicate path. While seeking economic diversification and modernization, Kathmandu remains cautious about the terms of its partnerships, particularly in light of debt and operational challenges linked to Chinese-funded projects.
Oli’s visit to Beijing marks a pivotal moment in Nepal’s foreign policy direction, emphasizing the importance of collaboration with China while recalibrating ties with India. Whether this shift will translate into concrete benefits for Nepal’s economy and infrastructure remains to be seen.