Due to political and geopolitical conflicts, the BRI implementation agreement could affect Nepal’s political stability. This is an agreement whose long-term impact will be felt across Nepal’s political, social, economic, and strategic spheres.
Prime Minister KP Sharma Oli has announced that the relationship between Nepal and China will take a new leap during his upcoming visit to China. At the heart of this visit is the BRI (Belt and Road Initiative) Implementation Agreement. The BRI has become not only a key element of Nepal-China bilateral relations but also a significant matter of national interest and geopolitical tension. Whether to proceed with the implementation of the agreement has become a growing challenge for the Nepali Congress.
Due to political and geopolitical conflicts, the implementation of the agreement could impact Nepal’s political stability. On one hand, this issue is tied to Nepal’s long-term interests, and on the other, it is deeply linked to geopolitical tensions and political instability. While Nepal generally perceives China’s BRI initiative as a form of loan assistance for infrastructure development projects, for China, the BRI is much more than just infrastructure or loans.
For several years, China has been working to strengthen its overall relationship with Nepal through the framework of the BRI, whether in terms of development cooperation or diplomatic relations. Therefore, when debating the BRI, we should not confuse it with the MCC. The MCC is an electric transmission line and road construction project, whereas the BRI implementation plan is a comprehensive, strategic agreement. This agreement will have long-term impacts on Nepal’s political, social, economic, and strategic spheres.
The BRI implementation plan currently under discussion is part of China’s broader diplomatic strategy towards Nepal, rather than just a specific project agreement. This plan has raised concerns not only within the Nepali Congress but also in India and the United States. If Prime Minister Oli signs the agreement without revising the current draft, it could destabilize Nepal’s internal politics as well as its relations with India and the U.S. for an extended period.
China views cross-border connectivity with Nepal as a strategic route to ultimately access the Indian market, as outlined in various official Chinese documents. Large cross-border projects, such as railways and industrial parks, will not be financially sustainable without access to the Indian market. Therefore, to ensure the success of the BRI and to act as a bridge between China and India, Nepal must establish a reliable relationship with both countries based on mutual trust.
It appears that China is currently aiming to strengthen its bilateral relations with Nepal under the framework of the BRI. The ongoing implementation plan has evolved into a diplomatic strategy toward Nepal, and it is crucial to examine what this agreement entails.
The BRI framework focuses on five key areas of cooperation: policy coordination among governments, infrastructure development, facilitation of barrier-free trade, financial integration, and strengthening people-to-people ties. The BRI implementation plan being negotiated between Nepal and China encompasses not only the infrastructure projects to be developed in Nepal but also a wide range of internal policies, including political relations, market access, economic policy, trade, financial policy, security, and the environment.
Currently, journalists, experts, and politicians in Nepal are hesitant to discuss China and India openly, and this issue is also prominent in Sri Lanka, Bangladesh, and Pakistan. It is vital for civil society and Parliament to be able to engage in open discussions about diplomatic relations. Ultimately, the interests of Nepal and its people should take precedence over the interests of any particular party or leader.
There is a significant difference between the Nepali Congress and the UML regarding the BRI implementation plan agreement. Although Nepal and China signed the BRI agreement in 2017, progress on the plan has been stalled in Nepal. Meanwhile, China has been exerting considerable pressure on Nepal to advance the plan. When Pushpa Kamal Dahal was Prime Minister, Nepal and China were close to finalizing the draft implementation agreement, but due to opposition from the Congress party and geopolitical factors, Dahal hesitated to sign the agreement at the final stage.
China’s National Development and Reform Commission (NDRC) played a key role in drafting the implementation agreement. The NDRC is responsible for monitoring foreign investments by Chinese companies, approving sensitive plans, and coordinating foreign aid in international development partnerships. In the case of Nepal, negotiations for BRI cooperation were carried out through various agencies, but at the final stage, the implementation plan document was jointly prepared by the NDRC and Nepal’s Planning Commission.
Questions Raised by the Implementation Agreement
Although the document was drafted a few years ago, Nepal has clearly failed to amend it to align with its own interests. This may be due to the influence of two factions who either seek to distance Nepal from China or are reluctant to fully embrace the BRI. The agreement contains several complicated provisions, one of which was Nepal’s rejection of an open trade agreement. According to an internal study conducted by Nepal, it was estimated that Nepal’s overall GDP would shrink if it entered into an open trade agreement with China. Despite this, China continues to push for its agenda of open trade and financial integration.
The current implementation plan document outlines three core principles of cooperation: joint consultation for common development, practical cooperation for meaningful results, and market-oriented policies guided by government direction. The principles of joint consultation and common development, along with the spirit of the Silk Road, have had a positive global impact. According to a World Bank study, the initiative could increase global income by 0.7 percent and contribute significantly to poverty reduction in developing countries.
The principle of practical cooperation and meaningful results is also a positive aspect of the BRI. The agreement envisions working toward the “long-term interests of the two countries.” While the draft does not explicitly state this, it implies that Nepal can prioritize projects that align with its long-term interests. This could allow Nepal to adopt a policy of selecting concrete and sustainable projects and increasing private sector involvement. Similarly, during implementation, Nepal could start with small, practical projects, advancing only those that are financially sustainable and capable of repaying debt. The focus should be on transparency, addressing local needs, and managing risks.
However, a more complex concept for Nepal is the principle of “market-orientation under government guidance.” In the context of Nepal, the real impact of China’s three-dimensional economic theory may be negative. According to the enterprise-led model, both private and public enterprises are supposed to make independent business decisions. In practice, however, China’s state-owned enterprises (SOEs) will likely maintain dominance. If the current BRI implementation agreement is adopted, Chinese government-owned companies are likely to dominate large-scale projects in Nepal, leaving little opportunity for Nepali companies. This could also deepen cronyism and corruption within Nepal’s economy.
The market-orientation theory suggests that market forces will allocate resources efficiently. However, the reality is that the Chinese Communist Party (CCP) will maintain control, limiting the participation of local entrepreneurs in Nepal and preventing them from competing with large Chinese companies.
Government guidance is explained on paper as strategic guidelines only. But in practice, direct government control will increase in important areas. The biggest risk for Nepal is the possibility of losing its economic and strategic autonomy. Arrangements have also been made to strengthen cooperation in law enforcement between Nepal and China in order to create a favorable business environment for high-level cooperation. On the one hand, we are insulting the Indo-Pacific strategy and on the other hand, we are unknowingly challenging China’s security system within the country.
As far as there are priority areas under BRI, the essence of them is that China is trying to advance its influence, development cooperation and public diplomacy in Nepal and wants to connect Nepal closely. This closeness will not only be in development partnerships but in dozens of areas such as state policy, trade, e-commerce, infrastructure, science and technology. Which will affect Nepal’s internal market, financial sector, capital market, industry and business in the long run.
If we open Nepal’s natural resources, security cooperation, geography, market and economy to China, then we have to give the same opportunity to India. This will create an additional challenge. For example, one can look at the 12 primary areas of BRI cooperation. The implementation plan covers everything from transport and connectivity to rail projects and industrial parks to postal and courier services and cross-border e-commerce. Trade and industrial sectors range from energy development to investment cooperation. Under economic and financial cooperation, various financial models have been discussed, while expansion of Chinese banks in Nepal and provisions for bilateral trade in national currency have been made.
Other priority topics include academic, scientific and technical cooperation, intellectual property and standards, agriculture, forestry and water resources management, including integrated water resources management in the Himalayan region. Other areas China has prioritized are energy conservation and environmental protection, geosciences, customs simplification, health cooperation, and cultural and tourism exchanges. It also includes media sharing. Other areas discussed include tax system, livelihood development, good governance, legal cooperation and security cooperation.
How to proceed now?
There are conflicting narratives about BRI around the world and project-level data is not available. 35 percent of the world’s BRI projects became distressed due to the debt burden. Problems of administration and corruption were observed in many projects. Environmental impact became another problem. For this reason, China has recently been emphasizing economic potential, debt capacity, sustainability, good governance and the environment. For this, China has begun to prioritize small projects that have an impact at the local level, green development, private sector involvement and digital connectivity. China has been investing in projects of long-term strategic importance.
BRI experience around the world has taught some lessons. Under this guise, the implementation plan should be radically changed and moved forward. Countries that do not negotiate well in BRI are suffering negative effects. Sri Lanka and Pakistan are prime examples of this. But those who have negotiated well (eg Indonesia) have been able to benefit greatly from the BRI. A successful example of BRI diplomacy is Thailand. Thailand patiently negotiated with China for a long time to build a high-speed railway and finally chose terms and conditions that were favorable to it. The plan sought domestic financing for investment and gave China sole rights to build and operate. Similarly, Indonesia also adopted sophisticated policies to benefit from the BRI. He created a joint investment environment between Chinese and Indonesian companies. Introduced Chinese investment in production, succeeded in bringing knowledge and technology to their country.
plan to protect one’s interests while choosing an investment model, gain diplomatic leverage with China by ensuring internal and multilateral economic resources, develop projects without government guarantees, take plenty of time to negotiate without rushing, and pay attention to the country’s capacity development and technology transfer Nepal should not be left behind in giving.
The example of Sri Lanka’s Hambantota is the opposite. For personal gain, Sri Lankan leaders accepted other bad terms, including 6.3 percent for loans. Sri Lanka’s negotiating power was weakened when other potential partners rejected investment plans.
Therefore, Nepal should take good account of loan terms and conditions, seek multilateral partnerships and not depend on a single source for projects. The failure of Bangladesh and Sri Lanka shows that Nepal should build anti-corruption mechanisms before implementing the plan and adopt a lot of transparency during the talks or during the implementation. Financial feasibility of the scheme, ability to repay the loan are other aspects to be considered. If these preconditions are not met or the terms and conditions are negative, Nepal should keep the option of canceling or restructuring the project open.
China’s investment in Sri Lanka initially helped in infrastructure development. But gradually the challenges of Chinese investment started to appear. The main reason for this was the weakness in Sri Lanka’s debt management. Due to financially Chinese investments, the trade deficit with China’s China was increasing, technology and knowledge has not been handed over and the project had to rely on Chinese materials for the construction.
Conclusions regarding relations with China should be taken seriously for two important reasons. First, neglecting serious engagement with China may contribute to increased political instability in Nepal. Second, maintaining a good relationship with China can bring about positive changes, benefiting Nepal’s development and international standing.
The document was not explicitly mentioned in the documentation according to the “highest political layer” for the draft. However, a divide has emerged between political partners, which is causing delays in signing the implementation plan. For Nepal’s politics, this delay and the resulting controversy highlight serious weaknesses in both diplomacy and political capacity.
Taking a serious approach to the relationship with China requires advancing the BRI projects. While the BRI has faced criticism and negative outcomes globally, and China has been accused of using its influence as a tool for expansion, the highest levels of China are working to address these shortcomings. Nepal has several avenues to mitigate the negative impacts of the BRI. However, this requires stronger and more capable diplomacy—something that is currently lacking.
Source: Kantipur
