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Jennifer Loy interviews Frank O’Donnell on China’s OBOR/BRI and the motivations behind it. Frank is a Stanton Nuclear Security Junior Faculty Fellow, International Security Program/Project on Managing the Atom.

In a simple way, can you explain China’s One Belt One Road (OBOR)/Belt Road Initiative (BRI)?

OBOR aims to fulfil multiple geopolitical objectives for China. The first is as a statement and demonstration of global influence. The Pakistan-specific element of OBOR alone, entitled China-Pakistan Economic Cooperation (CPEC), features an infrastructure loan to the Pakistan government of $46bn. This sum, as only one part of the overall OBOR initiative, has been estimated to be worth more than the total devoted to the Marshall Plan when converted into today’s dollar equivalents. The principal land corridor branch creates a land transport and infrastructure route from Chinese east coast cities through Xinjiang. It then enters Central Asia, Iran, Turkey and Russia, and terminates in Western Europe, China can improve its access to crucial energy resources in these states while elevating its influence in their politics. This will also serve to economically develop and further lock Xinjiang into the Chinese economic system – this province has been one the poorest and most isolated within China, and suffers from continuing Muslim extremism and brutal PLA Army crackdowns.

A branch of this corridor will also extend from Kashgar in Xinjiang through to the Gwadar port in Balochistan in southwestern Pakistan, sitting on the Arabian Sea. Both of these branches enable China to create viable alternative energy and other supply routes should the Malacca Strait become blocked for some reason. This second Pakistan branch also allows China to provide the aforementioned huge economic stimulus to Pakistan, to enable it to remain economically viable and also to upgrade its road and rail infrastructure. The latter is of relevance to Pakistan’s military, as these new networks can easily be commandeered for improved military logistics (for example surging Pakistani forces toward the Indian border) in a crisis.  As such, this second corridor – CPEC – enables Pakistan to remain militarily competitive with India, a core long-term foreign policy goal of Beijing.

The second major component of OBOR is the Maritime Silk Route. This intends to start from Chinese east coast ports and move through Hanoi, Jakarta, Singapore, Kuala Lumpur, Sri Lanka, the Maldives, East African port cities such as Mombasa and Dijibouti, before crossing through the Suez Canal to European Mediterranean ports. The Gwadar port in Pakistan could easily be added to this network. This Route extends Chinese political and economic influence to these states through port construction projects and associated generous loans. Building this network helps justify and regularize a growing Chinese military naval presence across the Indian Ocean. Many of these ports, such as Gwadar and Djibouti, are intended to be used for both Chinese military and commercial naval traffic.

The third major component of OBOR is ultimately domestic. While economically developing Xinjiang, the initiative more broadly aims to address a major long-term economic problem for China: its oversupply of steel, cement and other similar factories, with insufficient demand within China for their products. This is part of China’s general problem of its previous investment-heavy economic model, which relied upon international and domestic capital to invest in new factories to increase supply. While it is attempting to move toward more reliance upon domestic consumption as a driver of economic growth, all of these rail, road, energy, and port infrastructure projects create international demand for the products of these existing factories, and thus avoids the politically and economically difficult challenge for Beijing of overseeing their shuttering and deliberate contraction of this sector of the economy.

Click on the image to enlarge:

Sources: South China Morning Post; Mercator Institute for China Studies (Merics), IMF, World Bank, International Monetary Institute, Renmin University of China, Rhodium Group, HSBC, Daiwa Capital Markets, Geography Cement, hongxiang100.com

Do you believe Xi Jinping’s intentions are truly economic and almost nation-building, or do you think there are military motives as well?

There are clear military motives to OBOR. I have already pointed out their implications for Pakistan’s military competition with India, and for China’s naval ambitions. More subtly, the generous infrastructure projects and loans offered to OBOR member states are partly offered to bring certain of these states (such as Sri Lanka, Maldives, Nepal) more into China’s sphere of influence. This has obvious military implications in terms of threatening the continued ability of the United States to assemble and maintain a loose coalition of regional states that oppose the aggressive nature of China’s naval expansion. According to an excellent new report, titled “Harbored Ambitions,” on Chinese perspectives and management of the Maritime Silk Road project, they consistently view these projects as having greater strategic/military than economic importance.

The BRI is an incredible endeavor, a modern Silk Road.  How is the Chinese government funding this project?

It is being funded by multiple sources, but the most significant are Chinese state-owned banks, which are under direct control of the government, and therefore can be seen as spending from the central government budget by one remove. Second come international development banks in which China plays a leading role, such as the Asian Infrastructure Investment Bank (AIIB), BRICS New Development Bank, and the China Silk Road Fund sovereign wealth fund. Two good briefings on funding sources are available here and here

How do the Chinese people view such an extensive project?

It is difficult to accurately determine the level and quality of support for the initiative among the mass public. However, a useful recent article by Michael Swaine indicates that China’s political and strategic elite express consistent positive support for OBOR, but occasionally raise reasonable concerns relating to the sheer scale of the project and the accordant consequences of failure.

BRI projects would truly benefit the host nation if locals are employed.  Is this part of the BRI?

The majority of OBOR contracts go to Chinese state-owned construction and engineering enterprises who send Chinese workers and engineers to the host country to do the work. See here and the “Harbored Ambitions” report for details of this. This system permits maximum Chinese government control over the political and financial aspects of each project. In effect, it means that most projects take the form of a Chinese state-owned bank lending a recipient state a large sum of money with significant interest to pay for the project, which then goes directly to a Chinese state-owned construction or engineering firm that employs Chinese nationals. The Chinese firm may partner with a local firm from the recipient country, but it remains the lead contractor and in charge of the project.

Are the free-trade agreements China recently made in South Asia also part of the BRI or are they separate?

They are formally separate, but support the overarching Chinese effort to build economic and thus strategic influence within these countries, and lower political and economic barriers within these countries toward this end.

In Xi Jinping’s first address to the UN in 2013, he stressed, “We should build partnerships in which countries treat each other as equals, engage in mutual consultation, and show mutual understanding.”  I feel this does not prove true today with Sino-Indian relations, especially as China is gaining influence in South Asia.  What can you say to this in terms of the BRI?

I agree, and this is also shown by the nature of the OBOR projects I have discussed above. This demonstrates that this rhetoric by Xi Jinping is indeed just rhetoric.

India appears to be losing influence in Nepal, Sri Lanka, and the Maldives.  What do they need to do to regain this, or should they wait and see how the BRI aids the region?

Indian diplomats should warn their counterparts in these states of the dangers of agreeing direct OBOR projects, as evidenced by the recent Sri Lankan concession of the Hambantota port to China on a 99-year lease because it could not meet the payments of its loan agreement with China. India should, as far as is fiscally possible, offer its own competing economic development projects within these states that grant more of the contract to construction and engineering firms within those states, and on better loan terms. It should also seek to leverage the AIIB and New Development Bank to provide general and project-specific development loans to these states, to reduce their demand for the kinds of projects China would offer. Finally, given that it is now in greater direct competition for influence in these states with China, self-defeating Indian policies that only reduce its influence, such as the trade blockade with Nepal in 2015-16, should not be repeated (see here for the background).

What benefit(s) will India receive from the BRI?  What does it need to do to benefit from it?  Does Indian Prime Minister Modi even want Chinese investment?

Modi wants Chinese investment to help build Indian infrastructure, but is far more comfortable receiving it through the avenue of AIIB project funding, with the AIIB authorizing $1.5 billion of funding in 2018. This will largely be because India has a position on the AIIB board and ownership stake, and thus a greater degree of control in the terms of the loan. India actively opposes both the OBOR project and the idea of receiving direct Chinese funding through an OBOR-type agreement. New Delhi is also aware that withholding its support and cooperation with the broader OBOR network is a major point of leverage it has over Beijing. Scholars and analysts I spoke to in Beijing in January and February were well aware of the importance of Indian participation for the success of OBOR and that India had accordant leverage over China in continuing to refuse to participate.

Xi described the BRI as a “win-win” for the nations involved.  I understand it is too soon to truly tell.  Regardless, what needs to happen for it to be a “win-win” for those involved?

The OBOR projects would have to be structured as loans at low interest rates, if not grants, to support infrastructure development in the recipient countries, with the majority of contracts going to firms in those countries. There would need to be little military relevance to these projects, for example in the nature of port design. In such a way, the recipient countries would be able to modernise their infrastructure, while China would accrue important soft power benefits and be able to build a more positive image for itself in global politics and within the societies of the recipient countries.    

Jennifer is a Research Associate for Nepal Matters for America, Washington DC.   

Jennifer Loy

There is no doubt major clashes have affected Sino-Indian relations over the decades.  The 1959 Tibetan Uprising protesting Chinese rule resulted in Indian recognition and promised sanctuary of the Dalai Lama.  A disputed Himalayan border caused clashes with troops from both sides culminating a Chinese win in the 1962 Sino-Indian War.  Further border incidents occurred in 1967 and 1987.  Most recently, when China pursued building a road in Doklam, on the disputed Sino-Bhutanese border last year, another standoff ensued.  The Doklam Incident that began in June was quite reminiscent of 1962, but troops withdrew in August “shortly before Modi came to Xiamen for an emerging market summit.”

Borders are not the only issue between the two neighbors.  According to Dr. Siwei Liu of the Institute of Peace and Conflict Studies, he believes third-party actors are also involved.  These include the Belt Road Initiative, the Quad, and the role of media. On the one hand, India is concerned with the growing Chinese presence in the Indian Ocean and South Asia.  The BRI is the world’s largest economic endeavor potentially involving 60 nations and more than 4.4 billion people.  In recreating the famed Silk Road, Chinese investment has attracted many players, some of whom were strong benefactors of India.  After political upheaval in the Maldives, the island nation is looking more towards China for assistance than India.  Beijing garnered a 99-year lease of the Sri Lankan port Hambantota.  They are investing heavily in the Pakistani port cities of Jiwani and Gwadar, as well as the nation itself—perhaps the most concerning for India.  The late 2017 election of Communist Prime Minister Oli of Nepal also seems a blessing to China.  Perhaps India feels like Sinicization is closing in.

On the other hand, China’s third party actor may be with the Quad.  This potential alliance involves the United States, Japan, Australia, and India.  Dr. Liu writes, “these actors undoubtedly hope to make use of the contradictions and differences between China and India and seek their own best interests in the Indo-Pacific region and forcefully advocate for the revived ‘Quad’, a strategic alliance designed to have a negative impact on China.”  With the docking of the USS Carl Vinson in Vietnam and Trump’s recent tariffs on Chinese imports, Beijing may feel overwhelmed with a growing American presence.

Both nations also feel an increased negativity with the media, both domestically and internationally.  They fuel nationalist fervor and spread false information.  Dr. Liu explains, “his kind of reporting frequently and demonstrably results in…action traps for the respective leaderships, where compromise or even a basic explanation of positions to the satisfaction of the other is seen as retreat.Things seem to have reset.  In early March, Chinese foreign minister Wang Yi said to his Indian counterpart Vijay Gokhale, “‘the two sides should increase strategic mutual trust and accelerate common development based on the political consensus of the leaders of the two countries. It is hoped that India will handle sensitive issues with prudence and work toward the same goal of promoting healthy development of China-India relations.’”

In a South China Morning Post interview, Indian ambassador to China, Gautam Bambawale proves communication is consistent.  He explains that there is an existing Joint Economic Group between the two led by their respective commerce ministers.  “Chinese Commerce Minister Zhong Shan will be in India later this week…where they will discuss how to improve the trade relations and investments between India and China.” He went on to explain that talks between foreign ministers would take place at the end of March and Prime Minister Modi will visit with President Xi Jinping in June for the Shanghai Cooperation Organization (SCO). That March visit was a success according to Suhasini Haidar of The Hindu.  They celebrated Sino-Indian trade which reached a growth of 20.3% from the previous year resulting in $84.4 billion; China maintained its position as India’s largest trade partner.  In addition, Chinese investments in India have become one of the most significant.

“Mr. Zhong, who co-chaired the 11th meeting of the India-China Joint Group on Economic Relations, Trade, Science and Technology with Mr. Prabhu, said a free trade agreement (FTA) between India and China would be negotiated in due course, which would be a breakthrough in ties.”  As this is a future endeavor, there were four other foci of the meeting.  First, the two would promote the BRI and Indian investment projects equally.  Various campaigns including “Make in India” and “Digital India” would be exploited to its fullest.  The second is to promote Indian exports to China to aid in the trade imbalance.  Next, “the two sides agreed to set up a special working group to draw a road map for developing two-way trade…The two sides supported the multilateral trading system and safeguard the interests of developing members.”  Finally, in November 2018, Shanghai will host the first ever China International Import Expo.  More than 180 countries will attend with more than 1500 companies.  “The Indian government has made clear that it would actively organize Indian business to participate in the expo.”

Both China and India are powerful nations.  Their histories go back millennia as well as their inspiration in Asia.  The modern norm has always been a South Asian following of Indian influence and stimulus, but that is changing.  As China meets the demands of trade and infrastructure, some nations are straying from India, but have not turned their backs completely.  Globalization is changing the status quo worldwide, so why would Asia be any different?  The poorer nations that once looked only to India will grow immensely having two solid partners.  Standards of living will increase, and millions of lives will improve.  Pakistan, India’s greatest concern, will no doubt be forced by China’s BRI to quit harboring terrorists.  This win-win would be beneficial to all. These meetings appear to have given both Modi and Xi a solid footing in June.  In the end, regardless of Doklam, the increase in Chinese presence surrounding India, the potential for the Quad, other third-party actors, or the concerns of the neighboring countries, the Dragon and the Elephant must not get lost in translation.

Jennifer is Research Associate at Nepal Matters for America.

Dr. Janja Avgustin

Although China is a very important trading partner[i] for the former Soviet republics of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan), those same five countries together make up for only around 1% of all of China’s trade.[ii] Regarding trade, China[iii] mostly imports metals and mineral products (mainly petroleum gas and crude petroleum)[iv] and exports machines and textiles (mainly cotton)[v]. In both cases, Central Asia does not represent a significant source of import and export for China, even if trade has been steadily growing. So, why has China been attempting to enhance its relations with this region with a more assertive foreign policy, devising the so-called New Silk Road?[vi] The following paragraphs will briefly examine what scholars say about this.

Zhi (2016, 69) believes that the “New Silk Road Strategy provides an opportunity for China and the U.S. to cooperate in the region and reconsider their relationship within the context of their individual interests and strategy across the continent.” However, Rolland (2015, 4) argues that the “birth of a transcontinental economic corridor, as envisioned by the Chinese authorities, could change the global landscape, shifting the focus of strategy and commerce to the Eurasian landmass from the waters surrounding it and reducing the significance of U.S. naval supremacy. This corridor could further intensify intra-European divergences over Asia policy, cause deep differences between the United States and its European allies, and sharpen commercial rivalries.” A decade earlier Shambaugh (2005, 93) had already warned that “the United States views the increasing closeness between China and ASEAN with the same uncertainty that Beijing views the growing U.S. ties with India, Pakistan, and Central Asian states.”

Similarly, some point towards China’s fluctuating relationship with Russia. Odgaard (2017, 41), for example, finds that the “increased mutual concern for continued regional stability has encouraged Beijing and Moscow to coordinate their policies across a wide range of issue areas. Stability allows them to focus attention and resources on each of their different geostrategic priorities.” However, the difference in their priorities might take over making “future competition between Russia and China,[vii] as well as Russian and Chinese integration projects in Central Asia” indeed highly likely “due to their ambiguous bilateral relationship that involves close cooperation and intense competition simultaneously” (Muratshina 2017, 97). Samokhvalov (2018, 42) believes that “open conflict was prevented by close personal relations between Xi Jinping and Putin and signs of respect displayed by China to Russia in other spheres.”

From the perspective of Central Asia however, as Naarajärvi (2012, 113) concludes, “the actions and presence of China and Russia in Central Asia, together with inherently inauspicious characteristics of the region when compared to the post-Cold War new regionalist thinking, hinder the overall regionalisation in the area.” Also, “Central Asian states are at once desirous of the growing Chinese presence, wanting to take advantage of its economic dynamism and geostrategic influence, but also fearful of its potential demographic and cultural clout” (Peyrouse 2016, 14).

Stability[viii] of the region has been the cause of concern as well as a targeted aim.[ix] According to Rolland (2015, 2), “Beijing aims to build railways that will connect the Xinjiang region to its Kazakh and Kyrgyz neighbors, and then westward to the Middle East and Europe, in the hope that economic development brought by building infrastructure will enhance the political stability in these areas.” In fact, Musharaf and Manzoor (2017, 244) state that stability and security in the region is the only shared interest between China, Russia and the US. Naarajärvi (2012, 113) also points out that “regionalisation, hopefully in time leading to greater regional cooperation in Central Asia, is very much in the interests of Europe and the European Union (EU) as a potential peaceful way forward in the development of the region.” However, in his study Kavalski (2007, 855) predicted that “the inconclusive inference that the complexity of Central Asian interactions makes it unlikely to infer whether China, India or the EU would prevail as the model to be emulated by regional states. However, the likelihood of an extended rivalry (rather than cooperation) is something that is already apparent.”

It would seem that even though China’s strategy in Central Asia is clear, the existing complexity of relations, geostrategic importance of the region, and the political instability of the five countries makes it particularly difficult to gauge the consequences, impacts and possible combination of outcomes due to the diversity of actors and interests. Undoubtedly, the presence of China in Central Asia has been on the rise and while most look at the region from the perspective of interplay between China, US and Russia,[x] it is important to stress that in Central Asia itself there “is a predominant suspicion that China still has imperial designs on Central Asia and merely wants to conceal or delay them” (Peyrouse 2016, 22).

Janja is Academic Research Consultant at Nepal Matters for America.

Notes:

[i] For more information on trading partners see https://www.cia.gov/library/publications/the-world-factbook/fields/2061.html and https://www.cia.gov/library/publications/the-world-factbook/fields/2050.html

[ii] In 2016, all of China’s imports amounted to $1.32T and all its exports to $2.06T.

[iii] For more information, see the visualizations provided by the Observatory of Economic Complexity (OEC, MIT Media Lab) at https://atlas.media.mit.edu/en/

[iv] China controls large portions of the oil and gas fields in the region and is behind a large share of the investments in the region (Swanstörm 2005, 584).

[v] As Ma et al.  (2017, 45) confirm, “With regard to the export of agricultural products from Central Asia to China, we find that cotton is the top export product, which accounts for 64.32% of total agricultural export value.”

[vi] The idea of a new “Silk Road economic belt” was launched by President Xi during his tour of the Central Asian republics in October 2013 (Rolland 2015, 1).

[vii] Russia is promoting its integration policy in the region primarily through the Eurasian Economic Union and the Eurasian Development Bank, while China uses the Shanghai Cooperation Organisation and the Asian Infrastructure Investment Bank (Muratshina 2017, 97).

[viii] As Ferdinand points out, there aren’t only possible political risks of instability in Central Asia, but also “the danger of an increased Chinese presence in neighbouring regions stimulating fears about Beijing’s long-term intentions” (2016, 952).

[ix] Historically, the “PRC has done little to influence Central Asia, partly due to its own instability along its periphery, and internal problems in the Chinese heartland” (Sheives 2006, 205).

[x] As Musharaf and Manzoor (2017, 243) put it: “The energy rich newly independent Central Asian Republics became bone of contention among the world states in general and Russia, China and United States in particular.”

References

Ferdinand, Peter. 2016. Westward ho—the China dream and ‘one belt, one road’: Chinese foreign policy under Xi Jinping. In International Affairs 92(4): 941-57.

Iqbal, Musharaf and Manzoor Khan Afridi. 2017. New Great Game in Central Asia: Conflicts, Interests and Strategies of Russia, China and United States. In The Dialogue XII(3): 229-46.

Kavalski, Emilian. 2007. Partnership or Rivalry between the EU, China and India in Central Asia: The Normative Power of Regional Actors with Global Aspirations. In European Law Journal 13(6): 839-56.

Ma, Jiliang, Tomas Balezentis, Zhijun Zhao and Cheng Fang. 2017. One Bely One Road (OBOR) Initiative in Central Asia: The study of OBOR on China and Central Asia agricultural trade. In Transformations in Business & Economics 16(3): 41-55.

Muratshina, Ksenia. 2017. Asian Infrastructure Investment Bank and post-Soviet Central Asia: New Multilateral Bank Formation in the Context of China’s Economic Interaction with post-Soviet Central Asian Countries. In Central European Journal of International and Security Studies 11(3): 84-106.

Naarajärvi, Teemu. 2012. China, Russia and the Shanghai Cooperation Organisation: blessing or curse for new regionalism in Central Asia? In Asia Europe Journal 10: 113-26.

Odgaard, Liselotte. 2017. Beijing’s Quest for Stability in its Neighborhood: China’s Relations with Russia in Central Asia. In Asian Security 13(1): 41-58.

Peyrouse, Sébastien. 2016. Discussing China: Sinophilia and sinophobia in Central Asia. In Journal of Eurasian Studies 7: 14-23.

Reeves, Jeffrey. 2018. China’s Silk Road Economic Belt Initiative: Network and Influence Formation in Central Asia. In Journal of Contemporary China, accessible at: https://doi.org/10.1080/10670564.2018.1433480

Rolland, Nadège. 2015. China’s New Silk Road. Washington: The National Bureau of Asian Research.

Samokhvalov, Vsevolod. 2018. Russia and its shared neighbourhoods: A comparative analysis of Russia-EU and Russia-China relations in the EU’s Eastern neighbourhood and Central Asia. In Contemporary Politics 24(1): 30-45.

Shambaugh, David. 2005. China engages Asia: Reshaping the regional order. In International Security 29(3): 64-99.

Sheives, Kevin. 2006. China Turns West: Beijing’s Contemporary Strategy Towards Central Asia. In Pacific Affairs 79(2): 205-24.

Swanstörm, Niklas. 2005. China and Central Asia: a new Great Game or traditional vassal relations? In Journal of Contemporary China 14(45): 569-84.

Zhi, Wang. 2016. China’s New Silk Road Strategy and Foreign Policy Toward Central Asia. In Southeast Review of Asian Studies 38: 69-77.

Ipshita Bhattacharya

Pakistan suggests to Nepal to use the Gwadar Port in Balochistan via the Kerung-Tibet railway

A joint military guard of honor was given to Pakistan’s Prime Minister Shahid Khaqan Abbasi, in Kathmandu, Nepal in the first week of March, 2018. Since, 1960 however, only a few bilateral visits have been there. Since the last two decades this has been the first official visit by any Pakistani head of the state. The last Pakistani visit was by PM Benazir Bhutto’s in 1994. Other than previous SAARC (South Asian Association for Regional Cooperation) summits like in 2014, this kind of bilateral visit by Islamabad is unusual.

One of the most important agenda of  this visit was  to ensure the continuation of  SAARC . Pakistan has been extremely skeptical about India’s stance taken in cancelling the last SAARC summit in Islamabad, Pakistan in 2016, citing Pakistan’s involvement in fomenting cross border terror attacks. The other South Asian nations of Bangladesh, Bhutan, and Afghanistan also supported India’s position on SAARC and joined the boycott.  Meanwhile India’s interest in another regional grouping, i.e. the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) — which includes Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan, and Nepal as members — is seen as an alternative to SAARC by Pakistan.

This visit is hence taken as to maneuver strategies to invigorate their bilateral relations and to push the SAARC agenda on the forefront as Nepal holds the current chair of SAARC. PM Abbasi also addressed the program organized by SAARC secretariat that clearly indicates Pakistan’s sheer interest in hosting for next SAARC summit. Moreover,, economic cooperation and bilateral trade relations, Pakistan’s PM also announced an increase in scholarships to Nepali students in Pakistan.

On the other hand Nepal has always been a significant and worthy neighbor for India in South Asia. Since China is set up to build a ‘Sino centric’ stage in Asia, and also looking into the current shaky relations between India and Nepal, China is more alert and inspiring to a strategic Nepal-Pakistan relation to counter and make its presence in India’s proximity.

There are certain issues which are of Indian concern, as Pakistan is diplomatically operating with Nepal with vested mutual interest of Beijing and Islamabad both. Prime Minister Khadga Prasad Sharma Oli, the new PM of Nepal is known as a pro-China and considers India’s role in the fall of his government in August 2016, hence there could be a possible development of a rugged situation between India and Nepal in near future. The differences arose after Nepal’s proclamation of new constitution that came up in September, 2015 as there were claims that the  new constitution politically discriminated against 51% of the Madhesis, Tharus and other janjatis. India’s concern was its border as New Delhi wanted to stay away from protests and agitations taking place over political rights in Nepal that could seep into India through its porous border.

China and Pakistan already declared their all-weather friendship and China has been playing the big brother role to Pakistan. Nepal is already participating in the ambitious project of China’s Belt and Road Initiative. Moreover, recently China also ended India’s monopoly in internet services this year in Nepal. China’s infrastructural developments in Nepal, like building up of roads and railway lines, could lead to the end of dependency of Nepal on India for land routes trade. This weaning out of Nepal from India could be a major strategic achievement for Pakistan and China both in the region. The emboldening relations between Nepal and Pakistan will also advance their regional configuration which will give Nepal more options other than India and that is what precisely Pakistan and China want. One more area of concern for India would be to stop China’s entry in to SAARC, as Pakistan and Nepal are determined to bring China into the chapter. Before 2014, India successfully pushed back this proposal, but how far India would stall the move further as it did it in the past is a matter of concern.

The vibrant round of bilateral talks between Nepal and Pakistan to resurrect SAARC, regional connectivity and better economic relations ended with a suggestion to Nepal to use the Gwadar Port in Balochistan via the Kerung-Tibet railway line for its economic activities. Moreover, it seems that Pakistan is looking desperately towards Nepal as a game changer in South Asia.

Ipshita is a contributor for Nepal Matters for America

Photo: “Indian Ambassador Puri met Rt Hon’ble Prime Minister of Nepal Mr. KP Sharma Oli to offer his congratulation and handed over letter of congratulation from Prime Minister Shri Narendra Modi.”  Source: @IndiaInNepal

Dr. Anil Sigdel

Nepal’s PM Oli is all set to break the cliché that Nepal, like many other countries in Asia, will not like to choose between India and China, by challenging the Indian regional hegemony with the backing of China.

There were doubts about how far Oli would go in countering India. But Pakistan’s Prime Minister Abbasi’s visit to Nepal has made it clear that Oli will not be very concerned about India’s preferences.

For two basic reasons it is highly likely that Oli will be pursuing such policies. First, he resolved to let China in, a China which is now greatly resourceful and committed, in order to provide a counterweight to India’s domination.  This was especially in the context of a de facto trade embargo by India in 2015,for which he also has to show some reciprocity to China.

Second, encouraged by and relying on the Chinese commitments, he initiated the rhetoric of development and stability coupled with a respect for Nepal’s sovereignty vis-à-vis India for which he and his party (the CPN-UML) in alliance with the Maoist Prachanda seized a remarkable electoral victory.

Moreover, the timing and conditions could not have been better for Oli both domestically and regionally. Domestically, in the decade of Nepal’s peace transition after the Maoist insurgents signed a peace agreement in 2006, India actively manipulated Nepal’s domestic politics. While India proudly took the ownership of the peace agreement, the suspicion in Nepal about India’s covert role in supporting the Maoist insurgency, their representatives’ condescending behavior, and the overall role it played in the transition brought India into disrepute.

Similarly, the Western actors enthusiastically experimented with conflict resolution models of their choices in the transition. They succeeded to keep the country agitated for quite a while by further reinforcing the Maoist-era rhetoric of an ethnic homeland for certain ethnic groups, and enshrine their ideas into the new constitution. They eventually lost political clout in the country. Currently in Nepal, the level of political influence the Western countries could exert is very low.

Citizens of the country increasingly saw the combination of policies of India and Europe, though not fully aligned, as responsible for sustaining the disturbances which were directly and indirectly related to all kinds of troubles they faced. They were craving for some stability at any cost. The US managed to keep out of the controversy by not stressing ethno-politics unlike the Europeans. However, the US policy is seen as deeply aligned with India, thus at times being put into the same category with India. (Perhaps it is time for America to further improvise its diplomacy in Nepal as India will most likely continue to lose its influence in Nepal.)

Regionally, the Chinese inroads into South Asia were emerging as a serious security challenge for India, not to mention the loss of India’s traditional economic and political domination in its neighborhood. China’s swift and effective engagement both across the Himalayas and in the Indian Ocean left India encircled which it always feared. In fact, what has been happening in the surrounding waters poses for India a much bigger challenge than the politics of Nepal. Therefore, India is clearly not in a position to heavy-handedly control the situation in Nepal anymore.

Oli’s advisors have understood the fact that it is not Nepal but India which is the most vulnerable in the region now, and that India understands better the language of retaliation than submission. Oli is the first democratically elected leader in Nepal who has become the most powerful executive head by challenging India.  Consequently, the leftist forces in Nepal, who have always been very vocal about India’s domination in the country, are this close to settle accounts with India. Whether they will succeed remains to be seen.

Anil Sigdel is the Director at Nepal Matters for America, Washington DC.

Note: This article is first published in the Hudson Institute’s website

Nepal’s perception towards Chinese proximity and growing regional footprint has been a combination of hope, harmony, expectations, admiration, hesitation and uncertainty which has marked the character of Nepal-China relations since the Nepal-China Peace Agreement of 1792. However, through Chinese President Xi’s “new era”, China has demonstrated more clarity on its Nepal policy by active engagement. From high-level visits to tourism, China has been critical in developing infrastructure in Nepal such as hydropower stations, telecommunication networks, roads, training centers, airports, and restaurants.  Nepal’s northern neighbor has increased its presence in the country and deepened the economic engagement between the two nations.

China and Nepal revised their Bilateral Air Service Agreement in 2014 which enabled the two countries to increase flight frequency to roughly 70 per week, and to add more destinations and airlines. Nepali carriers can operate direct flights to Beijing, Kunming, Guangzhou, Shanghai, Chengdu, and Xi’an (also Lhasa and Hongkong). China Southern, China Eastern, Air China and Sichuan Airlines operate regular flights to Kathmandu from different Chinese cities. Kathmandu is the only international destination that has a direct flight connection to Lhasa. Air China runs daily round trip flights – Lhasa-KTM-Lhasa. China’s CAMC Engineering Co. Ltd. and the Northwest Civil Aviation are constructing the Pokhara Regional International Airport and the Lumbini International Airport respectively. China’s Export and Import (Exim) Bank has loaned $ 214.72 million for the Pokhara airport construction. Regarding the expansion of Qinghai-Tibet railway to the border of Nepal, Chinese companies have been conducting feasibility studies, and the Communist Party of Nepal- United Marxist Leninist’s leader K P Oli campaigned on the promise to bring a train from China.

An increasing number of Chinese tourists, second only to Indian visitors, has provided much-needed relief for Nepal’s travel entrepreneurs.  Demand for Mandarin-speaking guides dramatically rose and Chinese language institutes have mushroomed nationwide.  A few existing Mandarin speakers have made a fortune as travel guides. The Chinese citizens, who had begun to enter Nepal in the early 1980s for careers in industrial production or hospitality, are now in restaurant business as well.

China is involved in cement factories, telecom companies, hydropower projects, in addition to reconstructing quake-damaged popular heritage sites in Kathmandu. Shanghai Zhongji Investment Holdings Chinese has proposed an infrastructure development bank in Nepal to facilitate many Chinese firms working in different sectors there with an offer of free shares amounting to  $ 195.2 million to the Nepal government. In the recent visit, officials from the Lhasa Economic and Technology Investment Zone have proposed $ 3.25 billion industrial park in the Jhapa district of eastern Nepal (K P Oli’s district) as part of China’s Belt and Road initiative. China has given financial gifts such as military equipment and the construction of training center to the Nepal Armed Police and the Nepal Army respectively, and has built civil service hospitals and educational institutions

China’s Huawei and ZTE have dominated Nepal’s telecom industry as the nation’s giants Nepal Telecom and Ncell operate on their technology.  Huawei has also bagged the Nepal Telecom contract in providing ten million cell phones in the country. They have also tendered Nepal Telecom’s $ 312.32 million project of 4G coverage expansion at a lower price, which has increased their chance of winning the bid on the project. Recently, Nepal Telecom and China Telecom Global have worked together to overcome Nepal’s dependence on India for internet service by building additional fiber optic cable connections.

Additional economic plans include the building of factories and the improvements to infrastructure. Chinese Hongshi and Nepal’s Shivam and already signed a $359.18 million Joint Venture Company (which has also provided jobs for over 1000 Nepalis) with the daily production capacity of 12 thousand tons of cement. The Chinese firm Huaxin plans to build cement factory, and   Shanghai Construction is building an expansion to Kathmandu’s ring road. Over 60 Chinese firms have registered this fiscal year in the Department of Industry pledging up to $ 8 billion in various projects throughout the country.

China has also been building additional infrastructure projects that allow Nepal to tap domestic renewable energy sources.  Many hydro power projects contracts have gone to Chinese firms. Several of them such as the Power China Resources Ltd., Three Gorges, China Gezhouba Group Corporation (CGGC), Sinohydro are working in many hyrdro projects from 14 MW to 456 MW capacity.  Chinese firms have also received the contract for civil, hydro-mechanical and hydro-electrical works for the projects with investment other than Chinese. In this way, Chinese firms have bagged projects such as Kulekhani -3 14MW (civil), Nyadi 30 MW (civil, hydro-mechanical-electrical), Chameliya 30 MW (civil structure), Sanjen, Bhotekosi, Tamakosi 456 MW (civil) and Rasuagadhi. The Power China Resources Ltd. recently completed the 50 MW Upper Marsyangdi Hydropower Project. The Human Allonward supplies equipment to Nepal. Many other joint hydro projects between China and Nepal are being considered as well.

China’s growing engagement in Nepal is not unique to China-Nepal relations but a part of China’s new global approach, exemplified by its newly introduced Belt and Road initiative. However, the sensitivity of the Tibet issue in Nepal adds a unique flavor to this relationship. After the pro-Tibetan protests ahead of the 2008 Beijing Olympic, Nepal’s importance grew for China incentivizing Beijing to increase its outreach to the Nepali security agencies. However, many questions remain unanswered, such as: to what extent is China willing to go in terms of influencing Nepal’s politics? To what extent Nepalese stakeholders can rely on China or is it a good idea in the first place? Nikkei Asian Review’s commentator Hiroyuki Akita in Tokyo says: “By conducting a smart strategy Nepal can have a favorable relationship with both [India and China] by letting them compete over Nepal. However, this strategy also contains huge risk because that alienates both India and China. “

by Dr. Anil Sigdel

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