A China’s mission Belt and Road Initiative (BRI) is a foreign policy project signature of President Xi Jinping, launched in 2013A.D. It contains two components- overland belt connecting China with Central Asia, Russia, South Asia and Europe, and Maritime Silk Road for enhancing connectivity, and maritime cooperation linking Chinese ports with Southeast Asia, South Asia, Africa, the Middle East and Europe.
Nepal officially became a part of BRI by signing a Memorandum of Understanding on Framework Agreement in May 2017 for enhancing more connectivity and integration, though Nepal is not included in any of the six economic corridors unveiled by China. China recently suggesting Nepal to trim projects from 35 to 9 reflects the standard of the work done by the Nepali government and its lack of preparedness and seriousness. Infrastructure development is key to progress and prosperity. As China remains engaged in improving connectivity in the neighborhood, there is great buoyancy about BRI in Nepal. Against this background, this article looks at the significance of BRI, examines past attempts made at connectivity, responses to BRI and Nepal’s participation in it. It has both economic and strategic messages behind a massive infrastructure plan covering a vast network of connectivity linking with 60 countries around the global.
Historical development of BRI
The concept of BRI first emerged from a speech by President Xi at the Nazarbayev University, Astana, Kazakhstan, on 7 September 2013. In his address, he proposed to jointly build an “economic belt along the Silk Road” linking his home province Shaanxi, as the starting point of the ancient Silk Road, to Astana. This route was very much used by steady stream of envoys, caravans, travelers, scholars and artisans travelling between the East and the West. This overland belt connected China with Central Asia, Russia, South Asia, and Europe, which creating an economic belt along the Silk Road. This will create the biggest market in the world with enormous potential for trade, investment and cooperation between the relevant countries.
On October 2, 2013, President Xi in his speech at Indonesia’s Parliament talked about the Maritime Silk Road to increase connectivity and maritime cooperation with the Association of Southeast Asian Nations (ASEAN). The maritime road connected Chinese ports situated in Southeast Asia, South Asia, Africa, the Middle East and Europe. President Xi wants China to become global leader in terms of comprehensive national strength and international influence by midcentury. These steps of Xi are unveiling the dream of the great rejuvenation of the Chinese nation.‘ The two speeches given in Kazakhstan and Indonesia were combined to form a unified concept known as Belt and Road Initiative (BRI). This grand initiative, comprising various routes by sea and land, is intended to connect China with Southeast and South Asia, Central Asia, Pacific Oceania, Africa and Europe. It is centered on both soft and hard infrastructure connectivity, aiming to forge an integrated and extensive network of regional infrastructure with China at its hub (Yu, 2013). On 14 May 2014, China hosted the opening ceremony on the Belt and Road Forum for International Cooperation with a theme of “Work Together to Build the Silk Road Economic Belt and the 21st Century Maritime Silk Road.” This ceremony was attended by 60 nations including 28 heads of State. In this conference, President Xi called the BRI as a project of the century. The Silk Road spirit has become a heritage of human civilization (President Xi, 2017). Bijian (2014) described the May 14 conference on BRI as the next phase of globalization that promises a new foundation for shared growth of global engine. Bijian (2017) further said it is about building upon converging interests and fostering communities of interests with ―cooperative development. President Xi (2017) argued that the silk routes not only helped in trade (Chinese exporting silk, porcelain, lacquer work and ironware to the West, Chinese also importing pepper, flax, spices, grape and pomegranate from Southwest and Southeast Asia into China), but also helped to exchange knowledge. Additionally, these routes also facilitated the spread and exchange of religions; for example, Buddhism spread into Southeast Asia (Myanmar, Thailand, Cambodia, Laos, and Japan) and Islam penetrated into the western part of China (Xinjian, Ningxia, Gansu, and Quighai), southern part of Thailand, western part of Myanmar, Malaysia, all over Indonesia. Confucianism, which was born in China, appreciated much by the European thinkers such as Leibniz and Voltaire spread worldwide through this route. Calendars and medicines produced in the Middle East and Persia penetrated into China through these routes. The Silk Road also facilitated in the exchange of technology; for example, the exchange of silkworm breeding technology in different countries (President Xi, 2017). Within four years of the beginning of this project, over 100 countries and international organizations have supported and got involved in this initiative, and even the UN in its one of the important resolutions at the General Assembly and Security Council of 2017 mentioned about the BRI (Xi, 2017). The BRI has compressed spatial distances connecting many distantly located places. It has been instrumental in strengthening the friendship, sharing development, maintaining peace and harmony and making the future better. China has pledged substantial investment and made diplomatic commitments to countries in the belt. Where he focus it will brings China’s governance model at the front and center of its foreign policy, erasing the dividing line between domestic and foreign policy. These remarks of Xi suggest that Beijing is seeking to export its political values across the globe.
Nepal and BRI
There is a considerable interest in the BRI in Nepal. Early on in 2014, the Sushil Koirala government welcomed China’s One Belt One Road (OBOR) initiative (MoFA, 2015). Nepal expressed its desire “to work in close cooperation with China towards enhancing more connectivity and integration between nations and boost their infrastructure, trade, energy sector and tourism, which would ultimately contribute to regional harmony, peace and development” (MoFA, 2015).
In view of the desperate needs to expand infrastructures across the country, Nepal looks to benefit from the BRI in which opportunities to harness its vast potential sources —hydropower—for export. Nepal‘s Foreign Secretary and Chinese Ambassador in Nepal signed a Memorandum of Understanding (MoU) on the framework agreement on China’s ―One Belt One Road Initiative (OBOR), marking Nepal‘s official move to become part of Beijing’s ambitious plan to revive ancient Silk Road trade routes. The signing of the agreement took place in Kathmandu on May 12, 2017 just two days ahead of a summit on the Belt and Road Forum for International Cooperation in Beijing. The MoU provides to set up border economic zones and its expansion, and to rebuild Chinese-Nepali transit road network agreements. It is expected that BRI will bring the investment into the wide areas and help change the economic map of Nepal through developing local industries and improving the living standards of the low-income groups. The cross-border optical fiber network between Nepal and China, connectivity of its own kind established for the first time between the two neighbors through Geelong-Rasuwgadhi border point, has ended Nepal’s sole dependence on India for connecting the kingdom of Himalayan country with global telecom and internet services . MoU‘s major thrust was described as promoting cooperation on connectivity of facilities, trade and people, financial integration, and promoting people-to-people exchanges. It seeks to strengthen cooperation in connectivity sectors including transit transport, logistic systems, transport network and related infrastructure development such as railway, road, civil aviation, power grid, information and communication. MOU provides that Nepal and China would work collaboratively with a view to promoting China‘s investment in Nepali infrastructure, enhancing the regional stability and facilitating economic growth with all the neighbors. This agreement will bring Nepal and China closer through road connectivity and bring home the Chinese investment (Mahat, 2015). With the signing of the MoU, a new chapter has begun in the area of foreign investment and trade promotion,” adding Nepal would reap benefits from the Chinese project which would expand to Europe and Africa (Mahat, 2015). BRI was labeled as a significant achievement of Nepal’s development endeavour, by connecting capital Kathmandu with Lhasa in Tibet. Describing the agreement as a major development, he added the move is a major step forward in strengthening Nepal-China relations. Road and railway connectivity is very important for Nepal, and investment is needed for it. This project would serve the national interest (MJ in Xinhua, 2017). Nepali Planners and Policy makers termed this agreement as a step to open up a new door with multiple opportunities for infrastructure development and economic growth. BRI will include cross-broader highways, railways, transmission lines and internet connectivity that will contribute to bringing drastic changes in Nepal’s socio-economic landscape. As Asian region is seen as the hub of global economy, analysts often argue that the initiative will “improve physical connectivity, deepen economic integration among Asian countries, and thereby unleashing full potential of Asia”. With this project, Nepal would be able to reap the benefits to the global value chain through China. It is expected to bring tremendous opportunities creating a win-win situation between China and Nepal (New China, 2017). Nepal expressed its readiness to actively participate in the Belt and Road construction, to push Nepal-China all-round cooperation to new and higher levels (MoFA 2018).
Nepal-China relations and development prospects in trans-Himalayan region‘, Foreign Minister of Nepal highlighted the development of cross border railways between Nepal and China as a priority for the Government of Nepal along with other connectivity related infrastructure (Gyawali, 2018). The BRI aims to have peace and prosperity in the region and beyond, which holds far-reaching implications for the development of its neighbors. Transit facility from China will leverage Nepal from transit bottleneck in its international trade. An official of the government of Nepal said the proposed 550 kilometer-long railway would connect China’s western Tibet region to Kathmandu and will carry goods and passengers. He said the railway will travel over 400 kilometers in China to the Nepal border, and then about another 150 kilometers from the Nepali border to Kathmandu. During the visit of Nepal‘s Prime Minister to China in June 2018, the two governments agreed to intensify implementation of the MoU on BRI to enhance connectivity, encompassing such vital components as ports, roads, railways, aviation and communications within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network. They also agreed to reopen the Zhangmu/Khasa port at an early date; improve the operation of the Jilong/Keyrung port; ensure the sound operation of Araniko Highway; and carry out the repair, maintenance and improvement of Syaphrubesi-Rasuwagadhi Highway and push forward the construction of a bridge over Karnali River at Hilsa of Pulan/Yari port at an early date (MoFA, 2108). During his visit to China in June 2018, Prime Minister K.P. Oli, during his meeting with his Chinese counterpart Li Keqiang at the Great Hall of the People in Beijing on June 21 presented the list of 35 projects to be funded under the BRI. With sluggish progress in negotiations, the Chinese side has now insisted that Nepal bring down the number of projects under Beijing‘s flagship foreign policy initiative to the single digit (Giri, 2019). Accordingly, the government is reported to be preparing a list of nine projects which will be funded under the BRI. They include: Upgradation of Rasuwagadhi-Kathmandu road, Kimathanka-Hile road construction, Dipayal to south border with China Tokha-Bidur road, Galchhi-Rasuwagadhi-Kerung 400kv transmission line Keyrung-Kathmandu rail (feasibility study), Tamor hydroelectricity project (762MW) and Phukot Karnali Hydro Electric Project (426MW) (The Kathmandu Post 2019). It demonstrates the confusion and lack of clarity in the Nepali leadership about the projects to be decided under BRI and utter unpreparedness on part of the government. About Indian concerns on Nepal’s participation in the OBOR, Nepal came out strongly to underscore the significance of its ties with India, saying no country can change its geography. An influential cabinet minister was quoted as saying ―We have conveyed to China that our joining the BRI is not at the cost of Nepal‘s relations with India, and its genuine security concerns. And China has appreciated it (Ghimire, 2017). What we have is only a framework agreement (on OBOR) with China and the modalities of terms and conditions for fund utilization will be worked out later. All such considerations will be made on merit and in keeping with our national interest,” said Nepal’s ambassador Deep Kumar Upadhyay. He argued, “Even China acknowledges that we can’t change geography. We need 365 days of continuous supplies. We joined OBOR, but we have also made it clear to the Chinese that by joining OBOR we don’t want to, or mean to, undermine the relationship with India which we are proud of (Parashar, 2017).” In an interview, Prime Minister K.P. Oli made it clear that Nepal decided to join OBOR absolutely in view of its well-judged national interest (Oli, 2018). Our interest in this regard is to develop infrastructure and connectivity with our northern neighbor and this is where our participation in OBOR is focused on. Under the BRI that Nepal signed with China, Nepal is also expected to receive huge investments to finance its vastly underfunded hydropower, connectivity and tourism sectors. Chinese tourists provide enormous potentials provided if there is a better connectivity and infrastructure in place. The Qinghai-Tibet railway line, which travels through the world‘s highest plateau, has arrived in Tibet‘s second city Shigatse and is expected to connect the Nepal-China border point of Kerung (also called Gyirong or Kyirong) by 2020 (Upadhyaya, 2018). China has emerged as an international actor and player. Its role in global peace, security and development is increasing and gaining importance. Issues that are associated with BRI drive China‘s relationship with the wider world. While projecting China as global power, statements of President Xi reveal a plan for a risen China sitting at the heart of a Sino-centric regional order (The Economist, 2018). The Xi Administration project China as the global power. It says BRI does not require recipient countries to transform their sociopolitical systems in exchange for investment.
BRI: Debt trap and Legal resolutions
As a country intending to benefit from the China-led Belt and Road Initiative (BRI) and its development potentials, Nepal needs to consider the criticisms regarding China’s practice of “debt-trap diplomacy.” Nepal also needs to work out the necessary strategies to avoid or escape a debt trap, if it indeed is a substantial threat. Under “debt-trap diplomacy,” borrower countries are unable to pay back to creditors the hefty loans with interest, and creditors are in a position to exert influence over national matters. If this is the case, the next issue is how the law and legal mechanisms may assist Nepal when adopting debt financing for heavy infrastructures. Firstly, the nature of the debt problem must be understood properly. It is more of a financial issue rather than a legal one. In the BRI strategies, China is, and will continue to grow as, a planner in addition to a leading investor in infrastructure projects that promote greater connectivity and trade. Many BRI countries in Asia, Africa, and Latin America are not only resource-rich or strategically-located, but oftentimes, struggling with weak social, political, and economic institutions. However, these are also the countries that desperately need an economic boost through mobilization of internal and external investment opportunities. They lack the infrastructures to facilitate trade, generate energy, promote the movement of goods and people, and stimulate societal growth, among other things. Needless to say, Nepal falls under this category. Foreign debt has remained a major issue in international development. Due to the myriad of economic, social, and political obstacles facing such countries, debt trap becomes a major issue when large-scale investments are financed by foreign investors. For a country like Nepal, which has a history of dependence on FDI and aid, high corruption rates, and slow development, it is important to evaluate the risks of participating in projects under the BRI, as noted above, because the inability to pay back loans can result in a crippling economy, a loss of political power, and, in the worst case, a loss of sovereignty. What does the debt trap look like? The Center for Global Development’s Policy Paper “Examining the Debt Implications of the BRI from a Policy Perspective” (CGD paper) examines the likelihood of problems related to debt sustainability (i.e. rising debt-to-GDP ratios) in 68 borrower countries; it found that eight were particularly vulnerable to debt distress (this did not include Nepal). Among these eight is neighboring Pakistan that has allegedly been charged a 5% interest rate on the China-Pakistan Economic Corridor projects that amount to approximately $63 billion, of which $33 billion is invested in infrastructure projects. Similarly, lawmakers in Myanmar are increasing pressure on the government to pay back its $4 billion debt (with a 4.5 interest rate) to China. Most of the debt is said to have accumulated from 1998 to 2011, when Myanmar was struggling with West-imposed sanctions and only China was willing to lend capital. The debt has caused the government to scale back parts of the Myanmar-China Economic Corridor as well as reexamine the terms of a $10 billion, China-funded port project. Among the critics of the BRI, Sri Lanka has become an example of how developing countries fall into China’s “debt trap.” In late December 2017, Sri Lanka handed over its Hambantota port and 15,000 hectares of the surrounding land to China on a 99-year lease to pay off $1.1 billion in debt. According to a New York Times investigation, large sums of money “flowed directly to campaign aides and activities for Mr. Mahinda Rajapaksa (the previous president)], who had agreed to Chinese terms at every turn and was seen as an important ally in China’s efforts to tilt influence away from India in South Asia.” Additionally, Sri Lanka continued to accumulate debt to China with interest rates higher than those offered in the international market. Many questioned why the funding was approved when preliminary reports indicated that it was not a profitable project.
How can Nepal approach the problems of debt traps? Despite these “debt traps,” countries, including Nepal, will continue to approve China’s investment. Sri Lanka and China are expected to sign a free-trade agreement to encourage Sri Lankan exports to China. The Sri Lankan ambassador to China has emphasized that the BRI is a great opportunity to make Colombo Port city a financial center in South Asia. Moreover, China and Singapore are in negotiations with Sri Lanka to invest $1.1 billion in cement and steel plants. There are various measures that Nepal can implement to prevent debt trap from becoming a reality. Additionally, Nepal itself needs to ensure the right funding plan, whether that’s grants or soft loans, are in place for large infrastructural projects like the trans-Himalayan railway or the Budhigandaki Hydropower Project. Borrower countries will accumulate significant debt if the projects do not produce anticipated profits. Therefore, it’s important to research and evaluate which infrastructures are essential to the country’s development and will stimulate the economy via, for example, trade, employment, and further investments. What can we take away for Nepal? Some experts opine that the debt traps caused by China’s investments counter China’s own interests and are not motivated to gain influence; in many cases, China is the only available lender of construction services or capital (as was the case with Myanmar). Debt traps would also pressure China’s foreign-reserve exchanges, as investments in infrastructure projects are funded by said exchanges. With BRI projects’ cheap financing and Chinese companies’ willingness to take on unprofitable projects, China would lose more if debt traps are widespread. Additionally, some argue that corruption and political interests, not Chinese investments, are major factors in projects turning over a loss and entrapping governments in unsustainable debt. Even still, the BRI has been accused of enabling and sustaining corrupt authoritarians who accept bribes or embezzle funds so that the country eventually goes into severe debt. Demanding transparency about the funding agencies and discouraging anonymity of investors will be important solutions in this regard. Criticisms about debt trap vis-a-vis China-funded projects often originate from Western media and, in the case of Nepal and other smaller South Asian countries, India. In response, China has emphasized that BRI projects have helped with development and improved livelihoods. (Currently, the US is promoting the Asia Pacific Economic Co-operation (APEC), a counterpart of the BRI, to promote free trade in the region.) On a positive note, China has defended the BRI and demonstrated its support for multilateralism and global governance standards. The Center for Strategic and International Studies estimates that the infrastructure needs of the developing parts of the Asia Pacific will require $26 trillion by 2030, and China has only pledged $1 trillion; this clearly indicates that the BRI is an opportunity for multilateral and private investors from the West, and not a Chinese hegemony. Therefore, Western critics and nations also have an equal opportunity to invest and demonstrate what they preach. Moreover, critics accuse the West of misrepresenting cases that supposedly exemplify China’s practices of “debt-trap diplomacy.” While the New York Times suggestively claimed that China forced Sri Lanka to “cough up a port” to pay back a part of its loans, local coverage of the exchange shows that it was Prime Minister Ranil Wickremesinghe who suggested the exchange during talks of debt restructuring, and it was largely perceived as a positive development. Similarly, others point out the requirements of IMF’s loan conditionality has hurt Pakistan’s economy and required multiple bailouts by IMF itself, further indebting Pakistan. Lawrence Freeman, a political-economic analyst, stresses that the accusations of debt trap are Western “propaganda and gossip” against China; he points to the British Jubilee Debt Campaign’s 2018 brief entitled “Africa’s growing debt crisis: Who is the debt owed to?” which shows that the maximum debt owed to China by African countries is estimated at $100 billion or 24 percent of the total debt. The rest is owed to a combination of other creditor groups: members of the Paris Club, the World Bank, the IMF, other multilateral institutions, and the private sector (excluding that of China). Debt trap is definitely an important consideration for Nepal as it joins the BRI. As of early 2018, foreign debt comprised of 16.9 percent of the total GDP and was owed largely to multilateral institutions like the World Bank and the Asian Development Bank followed by Japan, China, and India. The CGD paper does not consider Nepal to be at risk of debt distress, and Nepal has actively engaged in talks with China about bilateral lending for infrastructure projects. As far as China is concerned, it has always been considerate in its engagements with Nepal. This relationship is a major strength in dealing with a debt-trap scenario. Every investment assumes a reasonable level of risk. Most importantly, Nepal needs to carefully evaluate the process of selecting projects, of creating an investment portfolio (including considering the debt-to-equity ratio), and complying with the established laws and policies. The decision-making process must be based on the rule of law and the transparency of transactions. A competitive bidding process must not be compromised either. Additionally, the Nepali public should demand the opportunity to bring forth its concerns and actively engage in the process of finalizing important deals. Successful outcomes will depend on how well Nepal is able to negotiate the process of securing loans, resolve arising issues, and cultivate an environment that is conducive to sustainable investment and growth. (Dr Bipin Adhikari and Bidushi Adhikari , falgun 19, 2075, Setopati.)
Areas Specified under BRI Project in Nepal
During the visit to Nepal, Shu Ya, the founder of One Belt One Road (OBOR) International Trade and Investment Platform, identified such areas of cooperation for investment purposes in Nepal as infrastructure development, commercial farming, energy, tourism, international trade and investment sectors. ( My Republica, Mar, 2018). Under BRI, a proposal for concessional funding had been submitted to Ministry of Finance to provide a concessional loan to Nepal upto $ 1 billion at 3 percent rate of interest. (The Kathmandu Post, April 3, 2018) However, not much was known about the funding modality of the BRI projects. On its part, Nepal government identified the list of 35 projects to be undertaken under BRI, which covers a wide-ranging area, including infrastructure development, energy, and construction of integrated check posts, free trade area, and irrigation. Given below is the list of some of these projects:
List of BRI Floated Projects
- View Tower in Negarkot
- Upgradation of Rasuwagadhi-Kathmandu road
- Korala-Pokhara road
- Kimathanka-Hile road construction
- Handicraft village in Humla, Simikot
- Exhibition centres in all seven provinces
- Multifunctional lab at Rasuwagdhi border point
- Free trade area in Betrawati of Nuwakot and Panchkhal, Kavre
- Construction of six ICPs in Pulang-Yari(Humla), Liji Nechung (Mustang),
Jilong-Rasuwa,Jangmu-Kodari,Reu-Olangchungola and Chentang-Kimathanka
- Karnali corridor (Jamunaha-Hilsa)
- Gandaki corridor (Belhaiya-Korala)
- Thori-Kerung corridor
- Kodari-Birgunj corridor
- Koshi corridor (Rani-Kimathanka)
- Bhittamod-Lamabagar-Lapcha corridor
- Mahadevkhola rainwater harvesting project
- Groundwater possibility in Kathmandu at Chandragiri
- Galchi-Rasuwagadhi-Kerung400 KV transmission line
- New city at Bheriganga, Surkhet
- Kathmandu Outer Ring Road
- Sunkoshi Marin diversion multi-purpose project
- Mid-Tarai lift irrigation project
- Lift irrigation project in Panchkhal, Kavre
- Araniko Highway disaster and climate change project
(Source: Kathmandu Post, Oct.10, 2018)
As per the agreement made between the Investment Board of Government of Nepal and China’s Huaxin, there will be an investment of $130 million the cement plant in Nepal, which is expected to produce 3,000 tons of cement each day. Besides, a 164 MW hydropower plant will be set up at Kaligandaki Gorge on the build-own-operate-transfer model. Apart from this, a 40 MW hydropower plant would be set up at Siuri Nyadi on a different model. Additionally, the 600 MW hydropower project is likely to be set up at Marsyangdi Cascade and another 75MW plant at Trishuli Galchhi. A Memorandum of understanding has also been signed between the two countries for the construction of Eastern Tarai Irrigation System around the Biring, Kamala and Kankai rivers. A highland food part is also envisaged at the cost of $46 million to supply fruits and vegetables.(Chinese Investment in Nepal in the Context of BRI: Hari Bansh Jha, Oct.19, 2019.)
The concerned ministries of Nepal have been asked to work on the financial and investment models of these projects. Estimates are that these projects would cost the US $10 billion to Nepal. (The Kathmandu Post, October 10, 2018.) The Chinese have opened a Commercial Counselor Office in Kathmandu to facilitate the work on Chinese funded projects in Nepal.
BRI is a foreign-policy program aiming at: intensification economic collaboration, improving road connectivity, promoting trade and investment, facilitating currency conversion, and bolstering people-to-people exchanges. Overland and maritime Silk Road contains a scheme for the re-establishment of the old sea networks to create a 21st century maritime Silk Road to promote international connectivity, scientific and environmental research. With economic strength in China, is strategically moving forward around Asia and in the rest of the world, which creates a significant geopolitical transformation and challenges. Xi Jinping Thought on Socialism with Chinese characteristics for a New Era was enshrined. BRI reflects the superiority of China politically, economically and strategically. It is cited to be a symbol of China‘s reappearance as a world power, a tool to sustain economic growth, as a foresight for the unchallenged leading power. It is therefore important to understand BRI in wider perspectives. Though much has been written and discussed, BRI is still evolving and its research for many seems to be in first phase and basic stage. However, despite some confusion, some twists and bumps in initial phase, BRI has acquired an undeniable momentum. China hopes that carrying out of the China Dream would benefit the people of the world as it is based on principles of peace, development, cooperation and win-win relations. Critics say BRI fails to take a holistic view of risks and opportunities. China says: BRI is all about connectivity and development with larger ownership and dominant local stakes.