07Jul2022

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Tag: China

South Asia Bulletin

SAB Blog – China

Domestic Update

Shanghai gears up to lift restrictions and resume regular daily operations from 1 June. China has taken a ‘zero tolerance’ approach to control the Covid-19 pandemic, locking millions of residents in pandemic-hit areas. The Chinese economic outlook is bleak because of the pandemic. Chinese Premier, Li Keqiang, held a massive video conference among provincial and local governments to revitalize the Covid-19-impacted economy. China introduced several measures to meet its 5.5 percent GDP growth target. It includes stimuli like handing Shenzhen 300 million digital money (RMB) to residents,  adding 40,000 non-commercial vehicle licenses to the total quota for this year, and 10,000 RMB worth of subsidy for replacing old cars with electric cars in Shanghai.

On 19 May, Premier Li attended the Symposium on the 70th Anniversary of the China Council for the Promotion of International Trade (CCPIT) in Beijing. The CCPIT has significantly strengthened the bond between Chinese and foreign businesses and promoted international economic and trade exchanges.

The 6th Hong Kong Chief Executive (CE) election, the highest office of the Hong Kong Special Administrative Region (HKSAR), was held on 8 May. The former Chief Secretary for Hong Kong and former Security Secretary John Lee Ka-Chiu were elected. The election was the first after the implementation of the national security law for HKSAR. His election indicates that Beijing views HKSAR increasingly through a security lens.

Regional Engagement

Following a suicide bomb blast that took the lives of three Chinese teachers at the Confucius Institute in Pakistan, Premier Li held a call on 16 May. He raised concern over the act of terrorism.

Coinciding with the 71st anniversary of Sino-Pakistan relations, Pakistan’s foreign minister Bilawal Bhutto Zardari made an official two-day visit to China in late May. It marked the first high-level in-person interaction between the two countries since former Prime Minister Imran Khan was ousted. Talks focused on reviewing bilateral relations, emphasizing economic cooperation and progress on China-Pakistan Economic Corridor (CPEC) and the Belt and Road Initiative (BRI).

China marked the first cross-border RMB direct investment business in Nepal with 750,000 RMB worth of investment funds remitted to Nepal by the Tibet Regional Branch of the Bank of China. With the launch of RMB in direct investment, China continues to promote its currency among the BRI members.

China has offered to lend “a few million dollars” to help crisis-stricken Sri Lanka purchase essential goods. However, the West accused China of ‘debt-trap diplomacy’ and forwarded Sri Lanka as the poster case. While China has been slow to come to Sri Lanka’s rescue, China only accounts for 15% of Sri Lanka’s debt. Meanwhile, the China-backed Asia Infrastructure Investment Bank (AIIB) has also approved a loan worth $250 million to Bangladesh for post-COVID-19 pandemic recovery.

China is currently building a bridge across a lake on China’s Himalayan border with India, which the Indian government has already condemned as “illegal construction”. On 31 May, China and India discussed the border and security issues virtually, and China vouched for a friendlier business environment for Chinese businesses in India.

Global Engagement

On 9 May, State Councilor and Foreign Minister Wang Yi virtually attended and addressed the opening ceremony of the High-Level Virtual Meeting of the Group of Friends of the Global Development Initiative (GDI) in Beijing. China pledged to enhance consultation with other emerging markets, step-up support for the South-South Cooperation Assistance Fund and China-UN Peace and Development Fund, establish a pool of GDI projects, and support countries in exploring suitable development paths.

On 16 May, Shanghai Cooperation Organization (SCO) members participated in a four-day counter-terrorism meeting, including delegations from India, China, Pakistan, and other SCO member countries. The SCO’s Regional Anti-Terrorist Structure (RATS) meeting is in New Delhi, India, which Chinese experts commended as a sign of effort towards regional stability and security. Chinese citizens have been targets of terrorist groups in Afghanistan in recent times.

On 19 May, BRICS released a joint statement on “Strengthen BRICS Solidarity and Cooperation, Respond to New Features and Challenges in International Situation”. Brazil, Russia, India, and South Africa met virtually under Chinese leadership. They expressed commitment to working together to ensure the success of the 14th BRICS Summit. During a Ministry of Foreign Affairs (MoFA) press conference on the same day, Zhao Lijian, spokesperson of the MoFA, condemned the US government’s Tibet envoy, Uzra Zeya’s meeting with the Dalai Lama. He urged the US to refrain from “using Tibet-related issues to interfere in China’s internal affairs”.

The United Nations High Commissioner for Human Rights, Michelle Bachelet, wrapped up her six-day visit to China, including its Xinjiang region. China hosted a UN High Commissioner for Human Rights for the first time in 17 years. Chinese President Xi Jinping virtually met with Michelle on 25 May in Beijing. The High Commissioner’s Office expressed willingness to enhance communication and explore cooperation with the Chinese side to make joint efforts for international human rights progress. Ding Xuexiang, Yang Jiechi, and Wang Yi (in Guangzhou) were the meeting attendees. However, western leaders and media criticized Bachelet’s visit to China.

Wang made a diplomatic tour of the Pacific Islands countries (PICs) and visited eight countries, including Kiribati, Samoa, Fiji, Tonga, Vanuatu, Papua New Guinea, and East Timor in ten days. This follows the first foreign ministers’ meeting (virtually) between China and PICs last year. He jointly chaired the second foreign ministers’ meeting in Fiji, during which both sides reached a new consensus to deepen cooperation on sectors including poverty alleviation, climate change, and agriculture. Wang urged Australia to stop viewing China as an adversary. On 24 May, Quadrilateral Security Dialogue (Quad) announced a USD 50 billion infrastructure aid and investment in the Indo-Pacific region over five years to maintain a “free and open Indo-Pacific”. The Quad sees this as an alternative to China’s BRI. Following the Quad summit in Tokyo, Wang Wenbin, a Chinese Foreign Ministry spokesperson, criticized the group for threatening peace, stability, and cooperation and claimed that it “runs counter to the trend of the times and is doomed to be rejected.”

NIPoRe DatavizNIPoRe Updates

NDV0008 – Nepali Prime Minister KP Sharma Oli’s Foreign Trips

For all the Heads of the States around the world, it is a commonplace phenomenon to travel around countries across the continents either for State Visits or Official Visits or attending major meetings. And Nepal’s incumbent Prime Minister, Mr. KP Sharma Oli, is not an exception. In fact, these trips not only help the leaders to make their all possible efforts to have their regional and global influence in highly globalized modern world but also to build better relations with respective countries’ diaspora across the globe through formal and informal gatherings.

In the case of Mr. Oli, who has been serving his second prime ministership since 15th February 2018, he has made foreign trips to ten countries (as of November 04, 2019). In addition to China and India, Nepal’s immediate neighbors, PM Oli has also travelled to four of the world’s major economies – France, Switzerland, the United Kingdom, and the United States of America. In addition, he and his delegation have also travelled to new and rising economies – Azerbaijan, Cambodia, Costa Rica, and Vietnam.

PM KP SHARMA OLI’S FOREIGN TRIPS

Below, we highlight PM Oli’s all foreign trips as the 41st Prime Minister of Nepal. We have discounted PM Oli’s two trips to Singapore (made during August – September, 2019) in this data visualizations as those visits were meant for his personal health check-ups only.

2019

Azerbaijan (October)

Nepali Prime Minister and his 21-member Nepali delegation travelled to Baku, Azerbaijan and attended the 18th Summit of Heads of State and Government of the Non-Aligned Movement (NAM) that ran for October 25-26, 2019. Nepal is one of the founding members of NAM and the principles of non-alignment form core strategy of Nepal’s foreign policy practices. While in Baku, PM Oli addressed the leaders of Summit on “Upholding the Bandung Principles to Ensure Concerted and Adequate Response to the Challenges of Contemporary World” topic.

France (June)

In June, PM Oli and his Nepali delegation went to Paris, France for an Official Visit. During the 3-day Visit (June 12-15) to the Republic, PM Oli attended a programme organized by the Federation of National Chambers of Industries and Commerce of France (MEDEF) at the Federation’s Headquarters. In addition, he also attended few gatherings organized by the Embassy of Nepal in Paris and also by France-Nepal Friendship Society. PM Oli also took his France Visit occasion to make an official announcement of Visit Nepal Year 2020 in the French Republic.

United Kingdom (June)

The Nepali Prime Minister and his official delegation made an Official Trip to Oxford and London in the United Kingdom. During the 3-day long trip (June 10-12), PM Oli addressed at the Oxford Union on ‘Peace, Democracy and Development’. While in London, the Nepali leader also held meetings with the then British Prime Minister, Theresa May, and a key member of the British Royal Family, Prince Harry. In addition, PM Oli also addressed a group of professionals representing the All Party Parliamentary Group for Nepal (APPG) and the British Group on Inter-Parliamentary Union (BGIPU). The Nepali delegation also held formal meetings with officials from the Confederation of British Industry (CBI), Non-Resident Nepalis, and the British Gurkhas. Towards the end of the Trip, a Joint UK-Nepal Communique was released by the Foreign Ministers of both the nations.

Switzerland (June)

To attend the Centenary International Labor Conference, PM Oli and a high-level official Nepali delegation travelled to Geneva, Switzerland. During his stay in Geneva (June June 09-10), PM Oli addressed the Conference participants. In addition, Mr. Oli also met Nepali community and Friends of Nepal in Geneva.

India (May)

At the invitation of his Indian counterpart Mr. Narendra Modi, the Nepali Prime Minister travelled to India for an official visit. During the visit (May 30-31), PM Oli attended the oath-taking ceremony of Mr. Modi, who was reelected as the Prime Minister of India from country’s 17th Loksabha Elections.

Cambodia (May)

The Nepali Prime Minister and an official delegation visited Cambodia for an official visit. During the 3-day visit (May 13-15), besides holding talks with the key Cambodian leaders, PM Oli and his Cambodian counterpart witnessed the signing of an agreement for Nepal-Cambodia trade and economic cooperation. In addition, the visit also made it possible for the Nepal Chamber of Commerce and Cambodia Chamber of Commerce to sign a Memorandum of Understanding (MoU). During the visit, PM Oli also addressed the participants of Nepal – Cambodia Business Forum. While in Phnom Penh, PM Oli and his delegation also met with representatives from Non-Resident Nepali Association (NRNA) Cambodia Chapter. The major accomplishments of this visit and future plans in this regard were later highlighted in a joint-statement.

Vietnam (May)

At the invitation of the Prime Minister of Vietnam, Mr. Nguyen Xuan Phuc, Nepali leader and his delegation travelled to Vietnam for a 5-day official visit. During the trip, PM Oli and his team visited few historical and touristic places in the country including Ha Long Bay, one of Vietnam’s UNESCO World Heritage Sites and released a English-Vietnamese translated book “Nepal: Peace is at Hand” to share Nepal’s experiences with the Vietnamese readers. In addition, the Nepali delegation also held a meeting with the representatives of Vietnam Chamber of Commerce and Industry (VCCI). During the trip, PM Oli addressed a gathering at the Ho Chi Minh National Academy of Politics. In addition, he also addressed the participants of Vietnam – Nepal Business Forum in Hanoi. Furthermore, PM Oli also attended and made an address at an event organized to mark the 16th UN Day of Vesar (Buddha’s Birthday) in Ha Nam Province. A joint-statement was also released on the occasion of PM Oli’s official visit to the Socialist Republic of Vietnam.

Switzerland (January)

In January 2019, Nepali Prime Minister KP Sharma Oli became the first sitting leader of the Himalayan nation to attend and speak at an annual meeting of the World Economic Forum in Davos, Switzerland. During his visit, PM Oli attended two sessions at the 49th Annual Meeting of the World Economic Forum (WEF) as a panelist, namely Strategic Outlook on South Asia and Shaping the Future of Democracy. Besides regular WEF events, PM Oli also met with the representatives from Non-Resident Nepali Association (NRNA) Switzerland Chapter, Swiss-Nepalese Society. While on his way to Kathmandu, PM Oli also visited Innovation and Entrepreneurship Centre at the Swiss Federal Institute of Technology (ETH Zurich).

2018

Costa Rica (September – October)

At the invitation of the President of the Republic of Costa Rica, Mr. Carlos Alvarado Quesada, the Nepali Prime Minister and his official delegation travelled to San José, the capital city of the Latin American nation. Mr. Oli became the first sitting Nepali Prime Minister to visit Costa Rica. Besides regular political and diplomatic meetings and also visiting a few places in the country, Mr. Oli also addressed a gathering at the University for Peace (UPEACE), the University later awarded Nepali Prime Minister with the Honorary Doctorate.

United States of America (September)

To attend the 73rd Session of the United Nations General Assembly (UNGA), leading the Nepali delegation, Mr. KP Sharma Oli visited the United States of America. While in New York, PM Oli addressed the 73rd Session of UNGA, made remarks at the High-Level Event on Action for Peacekeeping (A4P), and delivered a public lecture on “Peace, Democracy and Development” at the Asia Society.

China (June)

More than two months after his State Visit to country’s immediate southern neighbor, PM Oli and his delegation travelled to China, Nepal’s immediate northern neighbor, for a 6-day long Official Visit (June 19-24). PM Oli made this trip at the invitation of Chinese Premier Li Keqiang.

During this visit, PM Oli made series of high-level political and diplomatic meetings. In addition, Mr. Oli also witnessed the signing of an agreement for cooperation between Nepal Electricity Authority (NEA) and the State Grid Corporation of China for undertaking a feasibility study of Nepal-China cross-border power grid interconnection project across the Kerung-Rasuwagadhi-Galchhi-Ratmate transmission line (400 kV). Moreover, representatives from Nepali business and tourism communities also signed eight Memoranda of Understanding (MoUs) in the areas of hydropower generation, manufacturing, river training, and agriculture. The overall accomplishments of the visit and future course of actions in this regard were highlighted in a joint-statement between Nepal and the People’s Republic of China.

During the trip, PM Oli addressed a reception organized by the Embassy of Nepal in Beijing. In addition, the Nepali leader also inaugurated and addressed at the 2018 Nepal-China Business Forum. To enable Beijing-based Nepali diplomatic mission’s outreach among Chinese audiences, PM Oli also launched the official WeChat account of the Embassy of Nepal in Beijing.

India (April)

PM Oli made his first foreign trip to India after he assumed his second prime ministership responsibilities. At the invitation of his Indian counterpart, Mr. Narendra Modi, PM Oli and his Nepali delegation travelled to India on a State Visit during April 06-08, 2018.

During this trip, PM Oli and PM Modi inaugurated the Integrated Check Post at Birgunj (Nepal) with an aim to further boost cross-border trade and movement of people across Nepal-India border. The Nepal-India border is one of the oldest open borders in the world and remains one of the modern world’s very few such borders that witnesses flow of thousands of people on a single day.

This visit also witnessed the release of four joint-statements, one on the Nepali Prime Minister’s State Visit and three others on Nepal and India’s three key areas of interest. Three such statements were made, one each on, India-Nepal Statement on New Partnership in Agriculture, Expanding Rail Linkages: Connecting Raxaul in India to Kathmandu in Nepal, and New Connectivity between India and Nepal through Inland Waterways.

Research Commentaries

NRC0004 – Framing Nepal’s relations with China and India: balance or diversify?

Framing Nepal’s relations with China and India: balance or diversify?

Santosh Sharma Poudel

Synopsis

Scholars and political leaders, be it within or out of the government, have used various terms to describe the policies Nepal should adopt vis-à-vis China and India. From the evergreen ‘balance’ to short-lived ‘equi-distance’ to now buzz word ‘equi-proximity’ have been put forth. In essence, all these words convey that Nepal should maintain equal relations with both our giant neighbors. This commentary explains why these concepts (about balance) are problematic and Nepal needs a new ‘frame’ to describe our relations with China and India.

Balance: What do we mean?

In the context of Nepali foreign policy, ‘balance’ is a term that is most frequently used by decision-makers, academicians, journalists and the general public. I once talked to a former Prime Minister and asked him about his views on Nepal’s relations with China and India. His brief response was – “China and India are major powers. We need to have balanced relations with both”. It is so commonly used that many do not even feel the need to explain the term. The need for balance is pronounced even more after the India-imposed blockade along the Southern border in 2015. However, what do they refer to by ‘balance’?

First, most Nepali understand ‘balance’ at a strategic level. They feel that India has undue influence in Nepal and frequently applies bullying tactics to meet its interests. India has extensive access/influence over major political, business, security stakeholders, including academicians. To those, ‘balance’ means seeking the help of another big neighbor, China, as a counterweight to ‘excessive’ Indian influence. In doing so, it will increase the leverage of Nepalese domestic actors and hence reduce Indian high-handedness. This is ironic at best and counterproductive at the worst. Inviting a third country to ‘intervene’ to lower interference from another country simply leads to higher, not lower, interference cumulatively.

Second, ‘balance’ typically refers to a trading relationship. The ratio of Nepal’s export to import is 1:14.8 in the first 11 months of the fiscal year 2075/76. This means, for every dollar of export, we import 15 USD worth of goods. The vast proportion of such trade imbalance is with India. During this period, Nepal exported goods worth NPR 56.59 billion to India and imported goods worth NPR. 841.7 billion. While the export-import ratio is the same [it’s primarily because Nepal’s trade with India accounted for 65%]. It is the absolute amount of trade deficit that is concerning to many Nepalese. Many Nepali understand, and correctly, that this over-dependence on India provides enabling environment for extensive Indian influence. Hence, trade with other countries, especially China, should be increased to reduce such over-dependence. A similar case can be made for investment (China has become the largest investor in Nepal in recent years) or aid. However, the irony is that Nepal’s export-import ratio with China is 1:95. Hence, increased trade with China has furthered the trade deficit, not created ‘balance’.

Third, and related to the second, is ‘balance’ in terms of Nepal’s connectivity. Given the geographic location of Nepal, as of now, our access to the rest of the world is mostly through India and Indian ports. Therefore, India virtually has a monopoly over Nepal’s connectivity and supply of petroleum products. Hence, opening trading and connectivity links though China is understood as a ‘balance’. This intensified after the 2015 Indian blockade and resulted in multiple agreements of trade, transit, and connectivity between Nepal and China. In saying that, the connectivity with China will not come cheap.

Is Balance Possible?

The relation between any two countries is guided by the interests of the thus involved countries. Therefore, the relation between any two pairs of the country is never the same. Nepal has its dynamics concerning India and China.

Geographically, the Southern neighbor is easily accessible. Even the infrastructure along the Southern border is better than along the Himalayas. In line with geography, the population of Nepal is also concentrated along the Southern plain. Culturally, India and Nepal largely share the same civilizational roots, religion, linguistic origins, and social values. Nepal has a ‘roti-beti’ [bread and marriage] relations with India. The close socio-cultural ties along with open-border mean the movement of people across the border is thick. Varanasi was/is a major educational/religious center for the Nepalis and so is Pashupatinath and others for Indians.

Even in economic terms, Nepal trades five times more with India than with China. If we include the trade via India as well, the ratio will be even higher. Hundreds of thousands of Nepali workers migrate to India for work and education. A similar number of Indians enter Nepal for work and investment opportunities. A significant proportion of Nepalis can speak or understand Hindi/Bhojpuri and watch Indian TV channels.

Even in technical terms, Nepal’s resources are too limited to engage in a ‘balancing’ game or make any major impact on the overall balance of power in the region. Neither is our diplomatic practices sophisticated enough to handle the risks associated with having to balance the two powers.

Or desirable?

Both China and India have their interests in Nepal and Nepal has different interests in engaging with the two neighbors. Nepal should engage with them based on the actual premise of the relations, and not compare one to the other. When we frame our foreign policy as ‘balance’, we are weighing the importance/influence of those two countries. The interests of those two powers are different; the socio-cultural, economic, strategic context of Nepal’s relations with the two powers is different. Then, why should we put the relations between those two neighbors on the same scale and try to ‘balance’ them out?

Also, it is equally important in diplomacy how the other partner understands the policy or framing. India is wary of increasing Chinese presence/influence in the South Asian Region. In such a context, India likely understands Nepali ‘balance’ as an attempt to tilt away from India towards China. Hence, it is likely to resist such policies using every means available. This will provide fuel to further skepticism of Nepalis among Indian policy-makers. Increase in distrust with a major partner is not something that is in Nepal’s interest.

Diversification, not balance!

While balance may not be possible or desirable, all three understandings of ‘balance’ are relevant. Nepal cannot simply be passive and accept Indian domination as a ‘revenge of geography’. The common point in all three understandings of ‘balance’ is the need for diversification: diversify engagement of neighbors (and other major powers), trade/aid/investment or connectivity. They are not about reducing/increasing the influence of one neighbor vis-à-vis another but not being over-dependent on anyone so that Nepal retains diplomatic independence as required by the constitution of Nepal. Today, we have trade over-dependence on India. Soon, we might have investment over-dependence on China. Neither of them is healthy for Nepalese diplomacy even though some might suggest that creates balance between China and India.

Unlike in ‘balancing’, which is a zero-sum game, Nepal need not work towards reducing the role or significance of one neighbor against the other if it follows ‘diversification’. Instead, it can improve its trade and strategic relations with other members, as diversification is not a zero-sum game, while keeping the relations with others at the same level.

‘Balancing’ is a term loaded with strategic (and military) connotation, meaning chances of mistrust are higher. Meanwhile, ‘diversification’ has an economic connotation where cooperation is easier to achieve compared to strategic issues. Also, the ‘diversification’ is less threatening to the interest of dominant power than ‘balancing’. This could make India less skeptical about Nepalese intentions. While both may not have major differences in policies, the impact of the change in framing could make it easier for the implementation of the policy and therefore the impact of such framing should not be underestimated.

References
  1. Investment Promotion Board (2019), Reports, retrieved from: http://www.ibn.gov.np/
  2. Ministry of Finance (2019), Development Cooperation Report, retrieved from: https://mof.gov.np/uploads/document/file/20171231154547.pdf
  3. Ministry of Foreign Affairs (2019), Publications, retrieved from: https://mofa.gov.np/media-centre/publications/
  4. Ministry of Health and Population (2019), The Constitution of Nepal, retrieved from: https://www.mohp.gov.np/downloads/Constitution%20of%20Nepal%202072_full_english.pdf
  5. Ministry of Industry, Commerce and Supplies (2019), Transit Treaties Agreements of Nepal, retrieved from: https://www.moc.gov.np/downloadfile/Compendium%20of%20Transit%20Treaties%20and%20Agreements%20of%20Nepal%20Since%201950_1546239430.pdf
  6. The Kathmandu Post (20th August 2018), Kathmandu-Kerung Railway: Project to cost Rs. 257 bn, retrieved from: https://kathmandupost.com/national/2018/08/20/project-to-cost-rs257-billion
  7. Trade and Export Promotion Center (2019), Foreign Trade Balance of Nepal, retrieved from: https://www.tepc.gov.np/projects/tepc/assets/upload/fck_upload/First%20Eleven%20Months%202075_76_tables.pdf
Research Commentaries

NRC0002 – Nepal’s Leverage as a Founding Member of AIIB

Nepal’s Leverage as a Founding Member of AIIB

Nirnaya Bhatta

Synopsis

Following the decision in May 2019 to co-finance $90 million in the Upper Trisuli I Hydropower Project, the Asian Infrastructure Investment Bank (AIIB) started its official engagements with Nepal. The country has found yet another avenue to seek loans to fund its infrastructural financing needs. Despite much excitement about Nepal being a founding member of AIIB, how effectively it will be able to leverage the new China-led Multilateral Development Bank (MDB) to finance its massive infrastructure needs is up for discussion. This depends on concerted efforts put in to understand the newly-formed MDB by the recipient countries such as Nepal that hold minuscule voting rights in the institution. To that end, this commentary will identify Nepal’s place in AIIB, its governance structure, other approved projects, shareholder and voting powers, its collaboration with other major MDBs, Nepal’s shares and voting rights, and the recently approved project for Nepal.

Introduction

Nepal enjoys the status of being one of the founding members of the Asian Infrastructure Investment Bank (AIIB), which it does not with any other Multilateral Development Banks (MDBs) that have engaged with the country for many decades. Although, by the virtue of merely being a founding member of the newly-formed MDB hardly amounts to anything substantial unless Nepali policymakers closely acquaint themselves with it – especially on operational and administrative issues. It is laudable that over the years Nepali policymakers and political leaders have intensified efforts in wooing donors and investors, but it is also equally critical to understand them- their motivations, development philosophies, and the nature of engagement with other recipient nations.

The AIIB’s Board of Directors approved a loan of up to $90 million for the 216-megawatt Upper Trisuli 1 Hydropower Project. The project is expected to cost $647.4 million, and the rest of it will be co-financed by Asian Development Bank (ADB), International Finance Corporation (IFC) and a Korean Consortium. Given that AIIB has made multiple lending in its member countries (see Annex III), it is reasonable to believe that there is more scope in terms of future financing beyond the Upper Trisuli 1 Hydropower Project. Plus, investments in Nepal’s hydropower project is almost always desirable, given that the poor performance of the energy sector is widely recognized as a major constraint to economic growth.

The Asian Infrastructure Investment Bank

The AIIB was launched in October 2014 and boasted 97 approved members in April 2019. The AIIB owes its origins to the demand emanating from Asia’s massive infrastructure gap on the one hand, and the steady economic and political clout wielded by the People’s Republic of China (PRC). As a China-initiated MDB, the AIIB symbolises China’s increased ambition and role in the global affairs – especially those pertaining to the infrastructure development. To the surprise of many, European countries including the UK, Germany, France and Italy became members of the institution. Their decision may have been informed as they foresaw the inevitable influence that a China-led MDB would command in the close future in the global development arena.

Membership

AIIB comprises of regional and non-regional members. The following contributor generated map identifies AIIB’s regional and non-regional members:

Figure 1: AIIB’s Regional and Non-Regional Members (Data Source: AIIB)

Shareholders and voting rights

The AIIB’s authorized capital stock is US$100 billion, which is divided into shares valued at USD100, 000 each (Articles of Agreement). Meaning, each share is equivalent to USD100, 000. Regional members will hold 75% of total subscribed capital stock, while non-regional members will hold the rest. Nepal’s two neighboring countries China and India are the largest shareholders with 30.34% and 8.54% respectively of the total shares issued, while holding 26.06% and 7.51% voting rights (Articles of Agreement). Nepal holds a share of 0.08 percent (809 share units) and 0.33% voting rights. For a comparative perspective, take these numbers: China, India, and Russia hold 300,398, 86,267, 67,956 votes respectively (AIIB).

Selected AIIB Members’ Voting Rights in Percentage (Data Source: AIIB)

Nepal in AIIB

Nepal became one of the 57 prospective founding members of the AIIB by signing the Article of Agreement on 29 June 2015.

Although, what does it really mean for Nepal in terms of decision making in AIIB? Does it mean it is now in a better position to leverage more loans? It should be noted that a meager 600 votes are allotted to each founding member. In total, Nepal has been allocated 3839 votes- of 809 votes are based on the share purchases (worth USD80.9 million), basic votes of 2430 provided to each member, and 600 for being a founding member.

An American politician Michael Enzi remarked, “If you are not at the table, you are on the menu.” Despite the status that comes with being a founding member, it is unlikely that countries like Nepal (with negligible voting rights) will have an influence on major decisions at the institution. Hence, how Nepal fares in this institution may depend on the country’s concerted effort at understanding how the institution functions. While the Board of Governors consist a member from Nepal, they will at least be cognizant of the major decisions taken at the annual meetings. The following are the reasons why Government of Nepal needs to be ‘on top of things’ when it comes to any issue pertaining to AIIB:

  • To be legally on the safe side: To clearly understand the legal implications of being a member and a borrower. There may be conditions attached to specific projects that Nepal would rather be better off avoiding.
  • To avoid unnecessary politicization of infrastructure projects in Nepal: Once the Government of Nepal is well versed with the nitty-gritties associated with the MDB, it will be able to run more accurate and effective public discourses on the projects financed by AIIB. This will help avoid politicization of projects by opposing political parties. There has been disappointing wrangling among succeeding governments in Nepal recently with regard to awarding hydropower projects to its two mighty neighbors. Engaging in such public discourses will also encourage transparency and invite lesser political interventions.
  • Financial opportunities beyond Upper Trisuli I Hydropower Project: It may be useful to study the publicly available data on the 40 or so approved projects costing USD 8.03 billion by AIIB and identify the type of projects that possibly matches with Nepal’s infrastructural needs. Projects that are often financed are related with water resource management, energy, transport, telecom, landslide and disaster mitigation projects etc. Plus, it is also useful to be on the lookout for possible co-financiers because AIIB has not undertaken projects that require too big a financing. Detailed information is available on proposed and profiled projects (find link here). It is useful to note that AIIB has financed projects in the same country multiple times (Refer to Annex III). Indicating, that there may be a possibility of getting multiple projects financed in the country.
AIIB in Nepal

As it is typical of AIIB-financed projects, they are co-lending in Nepal too. As a new agency, it is understandable that they would seek to avoid major risks that come with lending considerable sums of money to nations like Nepal.

The total project cost of the Upper Trisuli I Hydropower Project is USD647.4 million, of which USD90 million will be loaned by AIIB. Not limited to just co-financing with other MDBs such as the ADB, IFC and a Korean Consortium in Nepal, AIIB will also adhere to the IFC’s Policy on Environmental and Social Sustainability (IFC Policy) and Performance Standards on Environmental and Social Sustainability (IFC PSs) (2012). Designated as Category A by AIIB, “The project is likely to have significant adverse environmental and social impacts that are irreversible, cumulative, diverse or unprecedented” (AIIB 2019).

Implications
  1. Smoother operations for an MBD in Nepal. The two largest shareholders in AIIB are China and India. This will likely deter adventurism by either party in the development sector in Nepal, as it happened recently with Budhi Gandaki Hydropower Project.
  2. Scope for growth: Recently, AIIB raised USD2.5 billion through its debut global stock in a matter of just a week time. This exhibits its immense capacity to raise finances and consequently potential for growth. Today, its authorized capital stock is less than that of the World Bank and Asian Development Bank and is not at par with such MDBs that have an institutional experience- in terms of research, network, and reputation- of more than 50 years. Nonetheless, AIIB will continue growing in terms of its financing capacity, and as mentioned earlier Nepal should be on the lookout for more funding shortly.
  3. With further diversification of MDBs in Nepal, it would foster competitiveness among them, especially with the entry of an institution led by emerging countries. While it is premature to exactly understand the implication of AIIB’s entry into Nepal, the Bank’s infrastructure-driven-economic-development model will indeed propel Nepal’s infrastructure forward on the whole.
Bibliography
  1. ADB. (2019, March 21 ). ADB and AIIB Presidents Discuss Strategic and Operational Issues. Retrieved from ADB : https://www.adb.org/news/adb-and-aiib-presidents-discuss-strategic-and-operational-issues
  2. AIIB. (2015, June 29). 50 Countries Sign the Articles of Agreement for the Asian Infrastructure Investment Bank. Retrieved from AIIB: https://www.aiib.org/en/news-events/news/2015/20150629_001.html
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  7. Reuters, Agence France-Presse. (2015). China to hold 30 per cent stake in AIIB and 26 per cent voting rights. Retrieved from South China Morning Post: https://www.scmp.com/news/china/policies-politics/article/1829095/founding-nations-attend-signing-ceremony-china-led

ANNEX I
Governance Structure

In an excellent comparative study of governance structures of major MDBs, Johns Hopins Professor Natalie Lichtenstein concludes, AIIB follows multilateral development banks (MDBs) such as the World Bank, Asian Development Bank, European Bank for Reconstruction and Development and Inter-American Development Bank in its governance structure (Board of Governors, Board of Directors and President)”.

For the extended organogram, visit AIIB

Important note: The Board of Directors consists of 12 Directors, and under each Director’s purview exists a constituency comprising a number of member countries. For instance, under the Director represented by the Philippines, the countries Bangladesh, Malaysia, Maldives, Nepal, and Thailand have been clustered (Article of Agreement).

Annex II

AIIB on social, labor and environmental guidelines

For parties who are skeptical of a China-led MDB complying with international social, labour and environmental standards, it should be consoling that AIIB has explicitly laid down legally binding guidelines to observe international standards (see AIIB Environmental and Social Framework). Furthermore, most of the approved projects AIIB is financing are co-financed by other MDBs such the World Bank, ADB, JICA, and the governments of recipient countries. There are very few stand-alone projects that the AIIB has undertaken (look at figure 03). Take for instance, as of now, AIIB and ADB have co-financed 5 projects: Bangladesh, Georgia, India, and Pakistan, and Myanmar. Further, in March 2019, AIIB and ADB also signed a Cofinancing Framework Agreement, ‘that will guide overall co-financing arrangements between the two institutions going forward, including regular meetings to discuss co-financing matters’ (ADB, 2019). Meaning, it can be expected that there will be collaboration between the AIIB and ADB wherever there is a convergence of strategic interests.

Hence, it is unlikely that AIIB financed projects will flout international standards on labor, environmental and social concerns given the multi-institutional collaboration they usually undertake. AIIB is also committed to a green imperative that aims at ‘Developing interconnected low-carbon power networks in Asia’, which demonstrates their commitment to environment and the climate (AIIB, 2018).

Annex III
AIIB Approved Projects in 2018 and 2019

 

Country Approval Date Sector Project Loans

M$

Co-financers
Nepal May 21, 2019 Energy Upper Trisuli I Hydropower Project 90.0 ADB, IFC, Korea Consortium
Sri Lanka April 04, 2019 Urban housing Colombo Urban Regeneration Project 200.0 Government of Sri Lanka and Private Partner
Sri Lanka April 04, 2019 energy Other Reduction of Landslide Vulnerability by Mitigation Measures (RLVMM) Project 80.0 Government of Sri Lanka
Lao PDR April 04, 2019 Transport National Road 13 Improvement and Maintenance Project 40.0 Government of Laos, NDF and IDA
Bangladesh Mar 26, 2019 Energy Power System Upgrade and Expansion Project 120.0 Government of Bangladesh and Power Grid Corporation of Bangladesh

 

India Dec 07, 2018 Water Andhra Pradesh Urban Water Supply and Septage Management Improvement Project 400.00 Government of Andhra Pradesh, Andhra Pradesh Urban Finance Infrastructure and Development Corporation
Indonesia Dec 07, 2018 Multi-sector Mandalika Urban and Tourism Infrastructure Project 248.39 Government of Indonesia
Turkey Sep 28, 2018 Finance TSKB Sustainable Energy and Infrastructure On-lending Facility 200.0 Sole finance by AIIB
Egypt Sep 28, 2018 Water Sustainable Rural Sanitation Services Program 300.0 World Bank
India Sep 28, 2018 Transport Andhra Pradesh Rural Roads Project 455.0 Government of Andhra Pradesh
Indonesia June 24, 2018 Water Strategic Irrigation Modernization and Urgent Rehabilitation Project 250.0 World Bank
Turkey June 24, 2018 Energy Tuz Golu Gar Storage Expansion Project 600.0 World Bank, Islamic Development Bank, BOTAS and commercial loans

 

India June 24, 2018 Finance National Investment and Infrastructure Fund 100.0 World Bank, Islamic Development Bank, BOTAS and commercial loans

 

India April 11, 2018 Transport Madhya Pradesh Rural Connectivity Project 140.0 World Bank
Bangladesh Feb 09, 2018 Energy Bangladesh Bhola IPP 60.0 Sole finance by AIIB

Table 1: AIIB Approved Projects in 2018 and 2019 (Source: AIIB)

Research Commentaries

NRC0001 – The Quad : To Join or Not?

Quad and Nepal: To Join Or Not?

Santosh Sharma Poudel

Synopsis

Foreign Minister Pradeep Gyawali’s discussion of Nepal’s potential participation in US-led Quad has ignited a debate in Nepal. The US invited Nepal to play a ‘central role’ in the Quad. FM Gyawali has denied that Nepal gave a positive nod to the US offer, and that Nepal practices the principle of non-alignment. However, a debate has raged on regarding Nepal’s potential role in Quad and its impact on Nepal-China relations especially in the context of Nepal’s involvement in BRI.

What is Quad?

Quad is an informal dialogue forum involving India, Japan, the US, and Australia. It is a strategic partnership, and not an alliance, that involves the four major maritime democratic powers of the Indo-Pacific region. It’s aims to keep free, open and inclusive Indo-Pacific, and preserve and promote the rules-based order in the region. In a recent meeting between the senior officials of the Quad in Bangkok on 31st May 2019, discussions were also held on encouraging transparent, principle-based investment on quality infrastructure, a not-so-subtle reference to the processes of China-led AIIB.

The initial concept of the Quad was laid out in the exploratory meeting in Manila, in 2007, at the proposal of Japan’s Prime Minister Shinzo Abe, who advocated ‘value-based’ foreign policy. The discussions cooled off after 2008. With the increasing competition between China and the US and the launch of Belt and Road Initiative by China, the Quad has come to the fore again in connection to the US’s Indo-Pacific strategy.

Indian PM Modi, during the ShangriLa Dialogue, said that Indo-Pacific is a natural region. The selection of Mr. S. Jaishankar, who was involved in initial discussions and the current revival of the Quad, as the Foreign Minister of India has also helped the cause of the Quad.

The participating states claim that it is not targeted against any country. However, it should be noted that all four countries share major concerns regarding the rise of China and its role in the Indo-Pacific. A report by (the) Congressional Research Service also indicates that the Quad was a response to China’s increasing economic, military and diplomatic strength. A senior defense analyst analysis at RAND writes that the Quad can be an effective forum to push against Beijing’s excessiveness. Given the geo-strategic location of Nepal vis-à-vis China, it is not difficult to understand the American invitation. Japanese foreign minister Taro Kono also suggested that Nepal join the Quad during his visit to Nepal in January 2019.

Whether Quad is strategic or value-based, it is clear that it has an eye on the rise of China, and most Chinese see it as American attempt to contain Chinese activities in Indo-Pacific and provide an alternative to China’s Belt and Road Initiative.

Nepal’s foreign policy practice

The Article 51 (m) of the Nepalese constitution states that Nepal is to conduct independent foreign policy based on the Charter of the UN and non-alignment among others. This is to say that Nepal should not ally with one country against the other.

Since coming to power in 2018, Prime Minister KP Oli has shown great interest in Nepalese foreign policy. He has continued to promote strong links with China and visited several countries, trying to raise Nepalese profile. With the end of political instability and transition, Nepal has made some assertive moves in foreign policy.

In this context, the Foreign Minister Pradeep Gyawali visited the US and met with US Secretary of State Michael Pompeo at the latter’s invitation on 18th December 2018. This was the first meeting at the foreign ministerial level between the two countries in 16 years. During the meeting, Mr. Pompeo invited Nepal to join the Quad, and play a central role in a free, open and prosperous Indo-Pacific. They also discussed Nepal’s $500 million Millennium Challenge Corporation compact that Nepal signed in 2017. It aims at boosting Nepal’s investment in electricity and transportation infrastructure.

Nepali dilemma

Nepal is one of the least developed countries with a GDP per capita of about $1000. In 2018, Nepal ranked 109 out of 140 economies in the Global Competitiveness Index with a ranking of 117 in infrastructure. This gives a clear indication of the need to develop infrastructure in Nepal if Nepal is to make any significant and sustained economic development. In order to mitigate the infrastructure bottleneck, ESCAP estimates that Nepal needs to spend 8-12% of GDP in infrastructure. That amounts to $2-3 billion a year. With the internal revenue of roughly $10 billion and the current expenditure of more than $8 billion, Nepal has huge infrastructure investment gap. Nepal needs external resources to bridge that gap.

Yet, some analysts have raised concerns regarding Nepal’s participation in the Quad. Some have pointed at the strategic nature of the Quad and argued that Nepal should not and cannot participate in any ‘alliance’. Others have raised that Nepal’s participation in a rival grouping to Belt and Road Initiative (to which Nepal is a signatory) could raise concerns in China. It is understandable given the massive interest in China and Nepal to improve connectivity between the two. However, both of these are misguided concerns.

First, while Nepal has a lot to gain from BRI, the country should not put all (its) eggs in one basket. Instead, it is in Nepal’s interest to have a healthy competition among the major powers for their influence in Nepal/the country. This will increase Nepal’s leverage and leadership as well as keep the powers on their toes.

Second, Quad and other multilateral cooperation mechanisms are not exclusive. Nepal can draw lessons from India in this respect. Despite being a major part of Quad, India is also actively promoting cooperation with China and Russia at the same time. Hence, China promoted BRI and the US-promoted Quad need not necessarily be mutually exclusive. Rather, ‘connectivity’ is the common theme on both.

Third, it is judicious of the government to say that Nepal will not be a part of any strategic alliance, but the Quad is not an alliance. Hence, Nepal being an active member of the Non-Aligned Movement or the guiding principle of Nepalese foreign policy as mentioned in the constitution is not incompatible with potential Nepalese participation in the Quad.

Therefore, the debate should be whether Nepal should join the Quad based on the potential benefits and costs, not if Nepal can join the Quad.

Implications for Nepal

There was no mention of the topic of Quad at the Press Briefing note of the Nepali Foreign Minister on the USA visit. Given the concerns of critics, the hesitancy of MOFA to include the topic in the press release is understandable. However, this reflects the face of Nepalese foreign policy-making mechanism. First, this shows the lack of confidence among Nepalese decision-makers regarding how external stakeholders will react to Nepal’s potential participation on the Quad despite Nepal being a sovereign country.

Second, the plans to discuss or participate in the initiative (FM Gyawali insists that Nepal has not committed to participate yet) was not discussed enough with various domestic and international stakeholders. Some stakeholders such as China were not taken into confidence in advance.

Third, it shows that Nepalese foreign policy-making is still tactical than principled. If not, FM Gyawali would have confidently mentioned after the meeting with Mr. Pompeo that Nepal discussed the Quad based on Nepal’s strategic interest and open regionalism.

Way forward

The fact that Nepal has been invited to join the Quad is an indication of Nepal’s geostrategic location and hints at the increased global profile of Nepal. This represents a foreign policy success for Nepal, though a minor one. It’s too early to analyze the benefits and costs of joining the Quad, especially because the Quad itself is taking shape, but it’s a good sign for Nepal. It offers the potential for much-needed investment in infrastructure and diversifies the source of investment.

To avoid potential negative impacts, Nepal should take a principled stand and abide by the constitution and the policy of ‘amity with all, enmity with none’. We should make sure we are not pressed into taking ‘sides’. Nepal should also strengthen its institutional capacity so that the undue influence of external powers brought about by increased investment in infrastructure can be negated. Additionally, transparent and robust discussion nationally on any foreign policy issue would help raise awareness and bring all stakeholders on the same page. That way, next time the FM discusses some proposals from a foreign country, he will be less hesitant to discuss that in public.

References
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