– SANTOSH Sharma Poudel

The column originally appeared in The Diplomat on 16 January 2023. Please read the original article here.

Nepali politics continues to confound observers. Communist Party of Nepal-Maoist Center (CPN-MC) chief Pushpa Kamal Dahal, who was sworn in as prime minister on December 26 despite his party standing third in the recent general elections, received a strong but surprising boost in a trust vote in parliament on January 10 when his former electoral alliance partners, the Sher Bahadur Deuba-led Nepali Congress (NC) and the Madhav Kumar Nepal-led Communist Party of Nepal-United Socialist (CPN-US), voted in support of his new government.

Less than a fortnight ago, Dahal ditched the NC and CPN-US to head a government with support from the Khadga Prasad Sharma Oli-led Communist Party of Nepal-United Marxist Leninist (CPN-UML). NC and CPN-US backed Dahal in the confidence vote despite his last-minute betrayal.

The decision of the NC and CPN-US to support Dahal has become the topic of much discussion in Nepal. Some speculate that Deuba might have supported Dahal in an attempt to secure a share in the spoils of power. Others see Deuba’s move as aimed at driving a wedge between Dahal and Oli. Meanwhile, others see it as a shrewd move by Dahal to minimize Oli’s influence in the ruling coalition. Whatever the reason, it is evident that instrumentalism determines Nepali politics, and that gaining power is the only currency.

The ruling coalition comprises parties with diverse interests and political goals. Its survival and domestic issues will be Prime Minister Dahal’s primary focus. Speeches of leaders in the new parliament focused on domestic issues like good governance, political stability, corruption control, and effective implementation of federalism.

Coalition partners wield considerable leverage in the new government and Oli, who heads the largest party in this coalition, will exercise significant control. He leads the mechanism to support the government and develop a common minimum program for the coalition government. His leverage will increase if the presidency or the house speakership (or both) go to the CPN-UML. Dahal seems to be in for a rough ride.

Meanwhile, several issues on the foreign policy front deserve Dahal’s immediate attention. The need for Nepal to “balance” its engagement with the big powers – India, the U.S., and China – in the context of heightened Sino-Indian and Sino-U.S. competition while maintaining strategic autonomy and sovereignty will be a major challenge. Another is Nepal’s widening trade deficit. Such challenges have intensified in recent times.

Dahal will need to tackle several issues with India. Firstly, he will need to decide on India’s Agnipath scheme. The previous government, of which Dahal’s party was a coalition partner, kicked the Agnipath can down the road for the next government to deal with. The Agnipath scheme provides for short-term recruitment into the Indian Army, which violates the tripartite agreement between Nepal, Great Britain and India regarding the recruitment of Nepali Gurkhas into the Indian and British armies. Last year, such recruitment in Nepal was suspended because Kathmandu was opposed to the short-term recruitment of Nepalis into the Indian Army. The current government does not have the luxury of delaying a decision on the matter as Gurkha recruitment from Nepal, which has been a critical element in Indo-Nepal relations, is in jeopardy.

Secondly, Nepal needs New Delhi’s cooperation to export hydroelectricity to Bangladesh. In August last year, Nepal and Bangladesh decided to request India to allow the export of 40-50 MW of Nepali hydropower to Bangladesh as Nepal needs to use the Indian grid (via Indian territory) to export electricity to Bangladesh.

When Nepali officials raised the issue during the recent Power Summit organized by the Confederation of Indian Industries on grid connectivity in the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), Indian officials said that the Baharampur-Bheramara line connecting Nepal to Bangladesh was “fully occupied.” Therefore, the issue will test Dahal’s diplomatic skills.

Thirdly, Nepal has requested that India grant air entry points to facilitate aircraft movement to Bhairahawa and Pokhara. The two airports were built by Chinese companies, though the former was funded by the Asian Development Bank. Without India granting appropriate entry points, airplanes will need to circle in Nepal for a few minutes before landing, increasing operational costs. Kathmandu should engage India at the earliest to ensure the international airports are sustainable for airlines to use.

Fourthly, Dahal needs to continue the “return to normalcy” in India-Nepal relations after its nadir in 2020, when the Oli government amended the Nepali map to include Kalapani, Limpiyadhura, and Lipulekh in the far west – territories also claimed by India.

There are also issues with China that require immediate attention. One is China’s opening of the Kerung border point. This was closed with the outbreak of the COVID-19 pandemic but was reopened after Dahal assumed the premiership recently. There are concerns in Nepal over the reopening of this border point amid the surge in COVID-19 cases in China.

Nepal needs clarity on its position on Global Security Initiative (GSI), a Chinese initiative to counter rival regional blocs such as the Quad. Beijing is keen for Nepal to join the GSI. Although Nepal has clarified its commitment to non-alignment, which would mean Nepal will not join any security pacts with any country, President Bidhya Devi Bhandari joined the GSI meeting last year despite the Deuba-led government’s reservations.

Also, Beijing is impatient to see projects under the Belt and Road Initiative (BRI) take off in Nepal. Days after Dahal’s appointment as prime minister, a Chinese delegation came to Nepal to conduct a feasibility study of the Kathmandu-Kerung railway connectivity. With a friendlier government in power, Beijing would like to see BRI projects make concrete progress.

Whether Dahal makes New Delhi or Beijing the destination of his first foreign visit will be keenly watched. However, it will be pragmatic if he were to pick New Delhi first, ceteris paribus. As much as his visit to Beijing would show that he is attempting to balance between Nepal’s two giant neighbors, which every leader in Nepal professes and which is the official foreign policy, the fact is that Nepal has more issues that require immediate engagement with its southern neighbor.

Kathmandu is abuzz with speculation that New Delhi wanted Deuba, not Dahal, to lead the new government. However, despite New Delhi’s suspicions of Dahal and Dahal’s earlier misgivings regarding New Delhi, Nepal needs healthy relations with India. He might get a warmer welcome in Beijing than in New Delhi. Yet, a visit to New Delhi will show his intent to tackle difficult issues head-on, not shy away from them.

In this context, his decision to make New Delhi the first port of call, likely to be in late February or early March, is a mature decision. He has the experience of engaging India as prime minister and has a host of immediate and enduring issues on his plate. His level of success in resolving those issues will determine his legacy.

– NISCHAL Dhungel* and ABIJIT SHARMA

Dhungel is a non-resident fellow at NIPoRe. The opinion piece originally appeared in The Kathmandu Post on 18 January 2023. Please read the original article here.

With the onset of the Covid-19 pandemic and the Russia-Ukraine war, foreign relations trembled among major economic powers. While condemning Russia’s aggression and barraging the country with a series of sanctions, the West expected India to follow suit. However, New Delhi adopted studied public neutrality and abstained from successive votes condemning the Russian move in the UN Security Council, General Assembly, and Human Rights Council. Just like India, China maintained relative neutrality, with a solid foreign policy stance in response to the conflict. Despite its closeness with Russia, Beijing stopped short of supporting it in the war. It also stopped short of calling Russia the aggressor and abstained from a United Nations Security Council vote denouncing the ‘invasion’. Beijing and New Delhi had made their decision loud and clear. And they were not going to listen to anybody.

Assertive New Delhi

Speaking at the Globsec 2022 forum in Slovakia, Minister of External Affairs of India, Dr S Jaishankar laid clear India’s increasingly confident foreign policy. “Europe has to grow out of the mindset that Europe’s problems are the world’s problems, but the world’s problems are not Europe’s problems,” Jaishankar said. He criticised the West for hoarding vaccines, which impacted the Least Developed Countries (LDCs). It is crucial to understand how India came to this position, which was unimaginable until a few years ago.

India’s political, social and economic fabric had been damaged after 200 years of colonialism. Its foreign policy could not remain untouched. Following independence, New Delhi slowly started to chart its own path, pursuing different strategic approaches from 1946 to 2013. Nehruvian influence persisted from 1946 to 62, an era of strategic non-alignment amidst US-Soviet Union rivalry. From 1962 to 1971, considered the decade of realism and recovery, India made pragmatic choices in national security and political challenges despite a lack of resources. The country went through a complex phase from 1971 to 1991 as the US-China-Pakistan axis came up. From 1991 to 1999, it had challenges in retaining its strategic autonomy in a unipolar world, whereas from 2000 to 2013, India focused on balancing power.

But since assuming office in 2014, Prime Minister Narendra Modi has made an unprecedented transformation of Indian foreign policy. Modi has put India as an emerging superpower on the map and sought to engage rather than remain ‘non-aligned actively’. New Delhi now understands that it deals with multiple global complexities, making decisions based on calculated risk-taking. As a result, India is slowly standing out, drifting away from strategic ambiguity to strategic freedom and taking a solid foreign policy stance on international fora. This is a significant departure from the older ‘non-alignment’ tenet that had long established India’s typical social values and norms, at least in foreign relations.

India’s central foreign policy tenet under Modi is seen to be guided by the Eastern principle of ‘Vasudhaiva Kutumbakam’, which translates to “the world is one family”. This was evident during the Covid-19 pandemic when New Delhi delivered more than 100 million doses to countries in Asia and Africa. While Modi has spearheaded this new brand of foreign policy, his bureaucrats and ministers have helped implement it. In 2015, just two days before his retirement, the Narendra Modi government appointed a highly agile foreign service officer, a foreign ambassador to the US and China, to the position of foreign secretary. Jaishankar has been the flag bearer of Modi’s foreign policy ever since Modi’s second term in office. Jaishankar openly admits India’s shortcomings and stays committed to securing its national interest with/without taking any sides.

‘Wolf-warrior’ in Beijing

Coinciding with India’s assertive stance in global politics is China’s equally aggressive stance, especially against the West. The Chinese foreign policy has been so assertive and aggressive in recent years that it has earned a new name: ‘Wolf-warrior’. While aggressive Chinese rhetoric might appear quite normal now, it is a shift from China’s earlier foreign policy. And the man to bring about this shift is none other than Xi Jinping. At heart, Xi’s diplomacy calls for a more active role for China as a great power on the world stage, including reforming the Western-dominated international order and creating what China calls “true multilateralism”.

When the architect of China’s economic reform, Deng Xiaoping, came to power following Mao Zedong’s death in the late 1970s, he prescribed a foreign policy which was subtle and cooperative. His approach focused on “biding one’s time without revealing one’s strength”. As a result, in the 1980s and 90s, Beijing was focused on “securing position, coping with affairs calmly and hiding capacities”. The leaders who came to power after Deng continued the policy.

But Xi’s ascendance since 2012 has slowly changed things in Beijing. Far from “biding time and hiding strengths”, it is now focused on making its stance clear on the global stage. Most importantly, it is open to show its strength. Take, for instance, its recent response to the Taiwan issue. Just before the then US House of Representatives Speaker Nancy Pelosi visited the island in August last year, the Chinese President issued a stern warning to his American counterpart, allegedly saying that “… those who play with fire would perish by it”. When its alarm went unheeded, the Chinese military launched targeted military exercises.

Xi’s ambitions to help China regain its glory of the Middle Kingdom years have been evident since he took office. Upon gaining power in 2012, he immediately identified “national rejuvenation” as his primary goal. The ambitious Belt and Road Initiative (BRI) was announced a year later. At the 19th Party Congress in 2017, Xi stated that China would no longer shy away from world leadership and efforts shaping the international order. The BRI is an important example of how China has pursued its foreign policy interest. The initiative has 147 signatories and includes US allies and partners such as Saudi Arabia, Greece and UAE.

Quite naturally, the West has been critical of this stance, often saying that it might invite dangerous confrontations between China and the West. But Beijing has maintained that it is not the real aggressor but simply responding to Western threats. Defending China’s aggressive foreign policy, the then-Chinese Foreign Vice Minister Le Yucheng said last year that Beijing “had no choice but to fight back against constant ‘nagging’ and ‘insults’ from foreign critics”. Interestingly China has many flag bearers of this new assertive foreign policy, most notably the foreign ministry spokesperson Zhao Lijian. Zhao has had public spats with US diplomats and has been a vocal critic of the West.

If there is any lesson that Nepal should learn from its neighbours, it is that we need to pursue an independent foreign policy, especially in light of the geo-political games often played in the country.

– SANTOSH Sharma Poudel

The column originally appeared in The Diplomat on 30 December 2022. Please read the original article here.

On December 27, a team of Chinese experts landed in Nepal to conduct the feasibility study of the Kathmandu-Kerung (Geelong) railway. On the same day, China opened the Rasuwagadhi border point, which had remained closed for 35 months because of the COVID-19 pandemic. It came a day after Communist Party of Nepal-Maoist Center (CPN-MC) Chairman Pushpa Kamal Dahal, a.k.a. Prachanda, assumed the premiership. These appear to be “goodwill” gestures from China to the new communist leader in Nepal.

The dream of a railroad linking Nepal to China is an old one. King Birendra Shah and Chairman Mao Zedong mooted the idea in 1973.

Landlocked Nepal’s connectivity with the rest of the world is through India. This has been a source of frustration for the Nepali public and policymakers as it has made Nepal very dependent on India. The railroad to China offers Nepal a way to break its India-lockedness and provides it with alternative access to the rest of the world. Also, there is an increasing need for better connectivity, given the expanding trade volume between the two countries. It was after the Indian economic blockade on Nepal in 2015 that Nepal and China accelerated their efforts on making the railway project a reality.

Then-Prime Minister Khadga Prasad Oli signed an agreement in 2018 during his visit to China. In April 2019, China included the Nepal-China Trans-Himalayan Multidimensional Connectivity Network in Beijing’s joint communiqué of the second Belt and Road Forum. The two countries signed an MoU on the feasibility study of the proposed railway during Chinese President Xi Jinping’s visit to Nepal in October 2019. Xi said the connectivity network would help Nepal “transform from a landlocked country to a land-linked country.” For China, the vision is a part of Xi’s ambitious Belt and Road Initiative.

The proposed rail will connect to the Lasha-Shigatse railway in Tibet. On the other side of the border, the rail could be expanded to connect Pokhara and Lumbini, two other major cities in Nepal.

The railroad offers hope and has significant potential. It will symbolize the Nepali dream of better infrastructure and economic connectivity and represent good Nepal-China relations. Strategically, railway connectivity with China diversifies Nepal’s connectivity and reduces dependence upon India. It will ensure Nepal will suffer minimal consequences if India imposes a blockade in the future. Economically, it will facilitate trade with China. Supporters also point out that the railroad could be instrumental in bringing a large number of tourists from China to Nepal.

However, obstacles aplenty remain. First, the railroad has to transverse the mighty Himalayas. The terrain and ecology are challenging. China has shown that it can build a railroad in a complex landscape. However, the trans-Himalayan railroad will test Chinese abilities. Almost 98 percent of the railroad will either be a bridge or tunnel because of the terrain.

Second, the cost of the railroad is a primary concern. Previous estimates put the cost at $3 billion. However, it is expected to now cost around $8 billion (to link up to Shigatse). We will have a more accurate estimate after the feasibility study. There is a high chance of the cost being revised upwards. It will be a massive commitment for Nepal, whose GDP is around $30 billion.

Third, China has provided a grant for the feasibility study, estimated to cost around $300 million. However, it will be loans that will likely fund the implementation of the project. There is a fear that Nepal could go the Sri Lankan way if Nepal undertakes such loans without due diligence. The Nepali media is abuzz with apprehensions over the “debt trap,” citing what transpired in Hambantota port in Sri Lanka. The Nepali ambassador to China has sought to dissuade such concerns, but it will not be easy.

Fourth, some are concerned that the railway does not benefit Nepal. Nepal’s trade with China amounted to NRs 235 billion ($1.8 billion) in 2020/21. However, Nepal’s exports accounted for a paltry NRs 1 billion ($8 million). With a 1:234 export-to-import ratio, trains running will carry Chinese goods to Nepali markets but can be expected to return empty. Therefore, the railroad could only increase Nepal’s imports from China.

Fifth, India sees the Himalayas as its natural defense frontier and the region south of the Himalayas as its sphere of influence. It could see the railroad as China broaching India’s security perimeter. India was not pleased when Nepal signed the BRI agreement in 2017.

Talks of a railroad connecting Nepal to China has had India on its toes. In recent years, Nepal and India have upgraded and expanded the dysfunctional Janakpur-Jayanagar railway to Kurtha. In April, Indian Prime Minister Narendra Modi and then Nepali Prime Minister Sher Bahadur Deuba jointly flagged the cross-border railway service between Jayanagar (India) to Kurtha. The 35-km-long railway was built with an Indian grant worth NRs 10 billion ($75 million). In addition, work is underway to expand the road to Bardibas via Bijalpura. This is one of the five cross-border links being talked about between Nepal and India.

Nepal has its task cut out. Firstly, it needs to do a cost-benefit analysis in conjugation with the financing modality. If the current trade trend continues, the benefit to Nepal will be minimal. Meanwhile, Kathmandu needs to engage New Delhi to communicate Nepal’s rationale and assure it that the railway will not affect Indian security interests. Nepal needs connectivity with both neighbors, and it is not a competition. Also, Nepal needs to harmonize infrastructure development to its northern border with China and its southern border with India to support Nepal’s growth.

India builds a broader gauge railway, and China, a standard gauge. It will be a challenge for Nepal to find a way to make the railway tracks built in collaboration with the two countries interoperable. This will be a major test of Nepal’s diplomacy.

– SANTOSH Sharma Poudel

The column originally appeared in The Diplomat on 25 August 2022. Please read the original article here.

A day after U.S. House Speaker Nancy Pelosi visited Taiwan, Chinese Ambassador to Nepal Hou Yanqi released a statement denouncing the visit. In the statement, Hou “highly appreciated” Nepal’s longstanding commitment to the One China principle.

In a subtle warning, she reminded Nepal that the One China principle was the foundation of Sino-Nepali relations and expressed hope that Kathmandu would continue to abide by the principle and support China’s legitimate interests. Hou also urged cooperation to “defend each other’s sovereignty, security and territorial integrity.”

Then on August 5, Hou met with Nepali Home Minister Bal Krishna Khand. In the meeting, Khand reassured the Chinese envoy of Nepal’s position on the One China policy. Nepal would not allow any forces to use Nepali territory for “anti-China separatist activities,” he said.

This was followed by a hastily arranged trip of Nepali Foreign Minister Narayan Khadka to Beijing on August 9-11 at the invitation of China’s State Councilor and Minister of Foreign Affairs Wang Yi. Both countries billed his trip as a return visit in the wake of Wang’s visit to Nepal in March.

Khadka’s visit also followed two high-level Chinese visits in recent months. However, the timing and both countries’ statements during and after the visit indicate that Pelosi’s Taiwan visit was a critical factor.

Nepal frequently reiterates its commitments in support of the One China policy and “not allowing Nepali land to be used against Chinese interests.” Prime ministers, foreign ministers, foreign secretaries, and others in leadership positions across time and political parties have restated these commitments to the Chinese. Nepali Foreign Policy 2077 also codifies the latter. As Hou stated, these are the foundations of China-Nepal relations.

There is little doubt that Nepal is sincerely committed to these principles and policies. Unfortunately, Nepal’s understanding of the implications of those principles is less clear-cut.

The implications of the One China principle are relatively easy to understand. Under the principle, Nepal (as do most countries worldwide) believes the People’s Republic of China to be the sole representative of China. In that context, Tibet and Taiwan are parts of China. Thus, Nepal has helped repress the political activities of the Tibetan refugees because China considers the Dalai Lama a separatist.

The implication of Nepal’s second commitment — i.e. not allowing its territory to be used for activities that could undermine Chinese interests — is more complex. The principle is sensible but requires an understanding and agreement between Nepal and China on what legitimate Chinese interests are.

Nepal’s lack of a shared national understanding allows for ad hoc decision-making. Also, not all of Nepal’s interests align perfectly with Chinese interests.

The Millennium Challenge Corporation (MCC), a $500-million grant program from the U.S. to build transport and energy infrastructure in Nepal, tested the principle. Beijing was fiercely opposed to Nepal ratifying the agreement and vocal in raising its concerns. Experts in Nepal were bitterly divided over whether Chinese security concerns regarding the grant were legitimate. Eventually, Nepal went ahead with the ratification, displeasing Beijing. Nepal has sought to reassure Beijing that its interests would not be harmed.

In July, Nepal wrote a letter to the U.S. government rescinding the State Partnership Program (SPP), an exchange program between an American state’s National Guard and a partner foreign country. Nepal and the Utah National Guard signed the SPP in 2019. In Beijing’s perception, the agreement is part of the U.S. Indo-Pacific strategy.

Despite American clarifications that the SPP is not a security or military alliance, Nepal decided to withdraw from the agreement to address Chinese sensitivity on the issue.

Nepal may have a rationale for both decisions, but they point to the ad hoc nature of understanding what constitutes actions against the interest of its neighbors. Such behavior opens the door for influence peddling or even bullying, especially given the meek nature of Nepali bureaucrats and political leaders vis-à-vis their Chinese counterparts.

Additionally, the need for Nepal to regurgitate those principles in every meeting with Chinese leaders indicates China’s insecurity over developments in its neighborhood. Beijing may also be justifiably concerned with Nepal’s ability to implement the principles, though it has praised Nepal’s efforts to limit the activities of Tibetan refugees.

Either way, it is high time that foreign and security policy stakeholders in Nepal reach a common minimum consensus. It would help Nepal engage China on an equal footing. At the same time, it will clarify what Nepali “red lines” are to Beijing. Without such understanding, Nepali policies will continue to be ad hoc and reactionary.

– NISCHAL Dhungel, Non-Resident Fellow

The column originally appeared in The Kathmandu Post on 4 August 2022. Read the original article here.

The geostrategic positioning of Nepal offers a unique opportunity to participate in numerous regional projects. Before engaging in such projects, it is essential to understand where our strengths lie concerning our connectivity, and the reasons holding back our connectivity with South Asian countries. In this regard, improving connectivity through sub-regional cooperation such as the Bangladesh, Bhutan, India, and Nepal Motor Vehicles Agreement (BBIN MVA) plays a crucial role in pushing forward social and economic development among these South Asian countries.

Following the failure of the South Asian Association for Regional Cooperation (SAARC) to reach a consensus on a regional motor vehicle accord at the Kathmandu Summit in 2014, primarily due to resistance from Pakistan, the BBIN MVA connectivity project was proposed. The BBIN MVA seeks to build a road-based economic corridor linking Bangladesh, Bhutan, India and Nepal. Bhutan has not ratified the agreement but encouraged the other three to approve and engage in the pact. The BBIN MVA aims to promote the smooth movement of passengers, personal and vehicular cargo traffic within and between the BBIN countries.

Intraregional trade

With only 5 percent of the total trade in the region, intraregional trade in South Asia is among the lowest in the world. Significant challenges lie before implementing massive connectivity projects like the BBIN MVA. Traders usually have to visit more than 10 agencies for documentation clearances. The lack of accredited laboratories to certify export products often delays shipments by weeks. The lengthy border hold-ups add to the enormous trade costs among BBIN member nations. Regarding infrastructure gaps, congested borders, long and diversionary transport routes, and low quality roads increase trade cost and transit time which directly hampers the transport of goods and services. Besides these challenges, the development of inter-modal transhipment facilities, modern warehouse capacities, and gender-friendly infrastructure and trade and transit-related offices should be considered.

As Nepal is a landlocked mountainous nation with poor transportation infrastructure, improving road and railway connectivity is essential for the smooth flow of goods and services. Simplifying paperwork, advancing risk management practices to reduce physical checks, facilitating cross-border transit and modernising sanitary and phytosanitary measures will help streamline trade processes. To enable importers and exporters to submit their paperwork electronically, the World Bank assists Bangladesh and Nepal in building single electronic gateways. These National Single Windows which are anticipated to decrease clearing times require strong implementation support. Upgradation of the roads connecting integrated check posts and inland container depots will help smoothen large volumes of cross-border trade.

Hence, modernising infrastructure and integrated border points, developing and upgrading cross-border and internal roads, and increasing multi-modal transport networks, including road and railways, helps to bridge the infrastructure gaps. Also, local concepts such as border “haat” practised at the India-Bangladesh and India-Myanmar border points should be adopted on the India-Nepal border to provide economic opportunities to small entrepreneurs and women traders.

Looking at the composition of transport connectivity in Nepal, 90 percent of goods and passenger transport services take place via road, 8 percent by air and 2 percent by rail, rope and others. Nepal should prioritise high-quality road infrastructure to increase connectivity in the short term. At present, the upgradation of the east-west highway, which connects significant land ports (Birgunj, Biratnagar and Bhairahawa) is crucial for transport connectivity. High quality road infrastructure could be initially expensive. However, investing in such massive projects is worthwhile in the long term. Several studies in high-, middle- and low-income countries show a positive relationship between transport infrastructure and economic development. Therefore, transport infrastructure becomes extremely important as it is the primary driver of economic growth. Nepal can tap into two huge markets—China and India—if she can develop advanced road and railway systems.

South and Southeast Asia

The Greater Mekong Sub-Region (GMS) in Southeast Asia and the BBIN MVA in South Asia operate under a similar model (project-based). The GMS comprises six countries and is regarded as a successful development story. The GMS countries share the Mekong River in implementing high priority projects to facilitate doing business, accessing markets and engaging in other activities that comprehensively support trade and development in addition to developing infrastructure. Similarly, the BBIN countries can follow in the footsteps of the GMS by leveraging their economic corridors and concentrating on priority sectors to foster regional harmony and integration by cementing strong ties between their peoples.

A recent World Bank report entitled Deepening Linkages between South Asia and Southeast Asia examines new strategies for reviving trade and economic ties between the two regions, concentrating on sectors including digital systems, environmental goods and services. The gross domestic product (GDP) gains would be significant, amounting to about 17.6 percent for South Asia and 15.7 percent for Southeast Asia. Nepal will benefit from such regional South Asia and Southeast Asia cooperation by engaging in high priority projects.

Nepal confronts significant economic development obstacles due to electricity supply. Recently, there has been some positive developments. Nepal and Bangladesh intend to hold meetings about bilateral power trade and Bangladeshi investment in Nepal’s hydropower industry. The positive side of the bilateral power trade is that Nepal can buy power from Bangladesh during the winter and sell its power dominance during the rainy season. This increases the prospect of improving energy trade not only with India but also with Bangladesh. In this regard, The Millennium Challenge Cooperation (MCC) Nepal Compact ushers in a new era in United States-Nepal Partnership, which aims to improve road quality, increase the availability and reliability of electricity, and facilitate cross-border electricity trade between Nepal and India.

The MCC Nepal Compact and bilateral power trade with Bangladesh will be an opportunity for Nepal to improve its connectivity and engage in power trade with India and Bangladesh respectively. Nepal can also benefit from new railway connectivity with another neighbouring country China. The feasibility study for the proposed Kerung-Kathmandu railway project would significantly boost the development of a “cross-Himalayan connectivity network” using transportation, ports for trade, roads and telecommunication. While implementing projects like the BBIN MVA, Nepal should be free from political ties and act in the country’s best interests. Swift implementation of high priority connectivity projects should be first on the agenda, bringing considerable macro economic benefits not limited to generating thousands of jobs for the Nepali people.

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.”

Domestic Updates

Nepal held local elections on 13 May. It was the second such election after Nepal went into the federal governance structure. A few results were surprising as independent candidates won top mayoral positions in major cities like Kathmandu metropolitan city (the capital) and Dharan sub-metropolitan city. Nepali Congress topped the charts among the ruling coalition of five parties, and the Communist Party of Nepal (Maoist Centre) did well to come in third. The main opposition party, the Communist Party of Nepal (United Marxist Leninist), came second though most expected the party to perform better. Nepal will also hold its federal elections later this year in November.

A Tara Air flight carrying 22 people crashed into a mountain at an altitude of about 14,500 feet. It was Nepal’s 19th plane crash in 10 years and Tara Air’s 10th fatal one during the same period. The European Union (EU) has barred Nepali airlines from European airspace since 2013 owing to poor safety records. Meanwhile, Prime Minister Sher Bahadur Deuba inaugurated Nepal’s second international airport in Lumbini, the birthplace of Gautam Buddha.

Regional Engagement

On the occasion of Buddha Jayanti (Buddha’s birth, nirvana, and death all were on the same date), Indian Prime Minister Narendra Modi visited Lumbini, the birthplace of Buddha. The visit was Modi’s fifth to Nepal, and he had visited Hindu religious sites in his four previous visits. Nepali Prime Minister Sher Bahadur Deuba and Modi witnessed the exchange of six MOUs relating to the power and education sector. One was between India’s Satluj Jal Vidyut Nigam Ltd and Nepal Electricity Authority (NEA) to develop and implement the Arun IV hydropower project. Additionally, Nepal has signed agreements to sell up to 364 MW of electricity in the open market in India.

Nepal-India relation has been hot and cold during Modi’s reign. In 2014, Modi became the first Indian prime minister to visit Nepal in 17 years and received adulation across the board. However, the Indian blockade of Nepal in 2015 and overlapping territorial claims have tested the relations. Nevertheless, the relationship has recently improved, especially in energy connectivity.

Deuba inaugurated Gautam Buddha International Airport earlier that day, but Modi chose to land on a custom-built helipad 16 kilometers away. Many analysts argue that Modi snubbed the airport because it was built by a Chinese contractor (though financed by the Asian Development Bank). Nepal has the daunting task of balancing Indian and Chinese engagement and interests in Nepal.

At the foreign secretary-level, the 14th meeting of the Nepal-China Diplomatic Consultation Mechanism took place. Both sides talked about cooperation for mutual benefits and the further promotion of bilateral ties. However, China expressed displeasure at the US Undersecretary of State for Civilian Security, Democracy and Human Rights, Uzra Zeya’s visit to Tibetan refugee camps in Kathmandu (more on this below).

Global Engagement

Zeya, the United States under secretary for civilian security, democracy, and human rights, visited two Tibetan refugee camps in Nepal. She is also the special coordinator for Tibetan issues. She went forward with visiting refugee camps despite Nepal’s reservations, though Nepal formally feigned ignorance of the visit. Nepal is home to over 13,000 Tibetan refugees and is a sensitive issue in Nepal-China relations. Nepal ascribes to the one-China policy, which states Tibet and Taiwan are integral parts of China, ever since diplomatic relations were established.

To assuage Chinese concerns, Nepal re-expressed its commitment to the One-China policy. However, the amalgamation of geopolitics and human rights principles makes Nepal’s handling of Tibetan refugees tricky. It has also been an arena for Sino-US competition in Nepal.