China moves to bring Nepal into its sphere of influence

From supplying school books to airport construction, China’s fingerprints are all over Nepal

Many of the dozens of Hindu and Buddhist temples dotted around Kathmandu’s Durbar Square were devastated in the April 2015 earthquake. Where ornate, Unesco-designated shrines once regally stood for centuries, today all that remains are the mounds of red bricks and the pyramid-shaped platforms on which they once sat. Many may never be rebuilt.

But not the stunning, nine-storey Nautale Durbar palace. From behind a ring of green tarpaulins, the sound of hammers meeting brick fills the air. This 18-century edifice is being brought back to life – all thanks to China. Chinese flags dot the perimeter fence where an exhibition of sorts, displayed in Chinese and English, charts the palace’s past damage and road to eventual rehabilitation.

This district of ornate palaces is one of Nepal’s top tourist attractions. Foreign visitors are charged the equivalent of €7.50 for entry, making the efforts of the China Aid Restoration Project to quickly return the neighbourhood to its former glory vital to government coffers.

In recent months, announcements of new Chinese projects opening across Nepal have been made almost weekly. On Friday, an agreement was reached paving the way for the mountainous, land-locked country to gain access to Chinese land and sea ports for third-country trade.


List of incentives It’s potentially a hugely favourable move for Nepal, and the latest in a growing list of incentives and investments offered by Beijing to pull it into its sphere of influence, and away from India. But it is one that may well come with exacting long-term conditions.

China's stamp on the landscape of post-earthquake Nepal isn't just limited to historical tourist attractions. In a city where paved streets and roads are uncommon, Kathmandu's eight-lane ring road is one of the few transport links that helps relieve the desperate traffic and pollution clogging the Nepali capital's arteries.

Sections of the road are being widened and expanded by Chinese construction companies – at no material cost to Nepal.

In the 10 months to July, 87 per cent of foreign direct investment pledges to Nepal, valued at more than €341 million, came from China, according to Nepal’s department of industry.

Experts say the earthquake in 2015 and a deadly, decade-long insurgency that ended in 2006, means the country is open to interest and support, wherever it can get it. China has been financing hydroelectric dams and a €115 million cement plant, while plans to step up a trans-Himalayan rail link are under way.

Last September saw the opening of the Friendship Highway that snakes through several 5,000 metre-plus mountain passes from Lhasa, the capital of Tibet, to China's border with Nepal.° "We badly need assistance in terms of infrastructure projects, reconstruction of Unesco heritage sites, rebuilding people's homes, schools and health posts," says Nishchal Pandey, director of the Centre for South Asian Studies in Kathmandu. "Just how acute our infrastructure situation is is that the parliament building in Kathmandu was itself [originally] constructed by the Chinese as a convention hall."

In June, the two countries signed a pact on eight agreements including the sale of up to half-a-million Nepali-made pashmina units to China while a discussion on a free trade agreement is said to be under way.

Beijing has parted with millions of dollars in grants to help develop infrastructure – including a €300 million police headquarters outside Kathmandu, built for free – as it attempts to put its mark on Nepal, which for decades fell under India’s sphere of influence.

From supplying school books to airport construction to television transmission towers, China’s fingerprints are now all over Nepal.

Aside from serving as a key cog in its hugely ambitious international Belt and Road Initiative, China’s motivation to help develop and win influence in Nepal lies in the two countries sharing a 1,236-kilometre border along the Himalaya mountain range, including – critically – Tibet, which China is keen to quietly keep under its full control.

About 20,000 Buddhist refugees fled Tibet for Nepal after a failed uprising against Beijing in 1959. Rights groups say Nepali authorities are under growing pressure from China to stop Tibetan refugees from reaching India.

China’s hold over Nepal worries India, Nepal’s traditional and still-largest trading partner by quite a distance, but whose investments over the past year have fallen 76 per cent to €275 million.

One of the poorest countries in Asia with a GDP per capita of just €660, and which lost almost half its economic output in the April 2015 earthquake, Nepal finds itself sitting between two of the world’s most ambitious rising superpowers.

Disputes last year between China and India centred on a major border demarcation issue close to Doklam, east of Nepal, and water concerns whereby China is expected to alert India of potential monsoon flooding risks from the Brahmaputra river but last year failed to do so, claiming it was upgrading its systems.

‘Relations nose-dive’ Since then, both sides have added military aircraft and expanded facilities at air bases on their respective sides of the border east of Nepal. “There is no more challenging time for Nepal’s diplomacy than when Sino-Indian relations nose-dive like it happened last year. We would like to take benefit from their economic rise, not get entangled in their mutual rivalry,” says Pandey.

But while Nepal’s government, a union of communists and ex-Maoist rebels that was elected in December, may privately be keen to win favour with its co-political ideologues in Beijing, in public it has been careful not to anger either side.

“[Prime minister Khadga Prasad] Oli had positioned himself as a nationalist channelling anti-Indian sentiment and vowing to explore a closer relationship with Nepal’s giant northern neighbour, China,” a report by geopolitical intelligence agency Stratfor pointed out in April. “Once in office, however, he tempered his stance. He honoured tradition by choosing India as the destination for his first international visit on April 6th – a sign of his government’s pragmatic desire to maintain cordial relations with Nepal’s giant southern neighbour.”

On the streets of Kathmandu, it's clear that Nepal depends on and openly courts help from neighbouring countries. It's a country that is poorer than almost every other in Asia, according to the World Bank. And while city streets may today be jammed with Indian-made Tata cars and trucks, not Chinese models, that may soon change.

"Nepal is offering preferential policies to Chinese companies which want to invest in the country," Nepal's ambassador to China, Leela Mani Paudyal, admitted to an audience in Beijing last year. "For example, there is a 100 per cent [corporate income tax] exemption for 10 years and 50 per cent exemption in the following five years in the field of energy, and a 100 per cent exemption for five years in the tourism industry when investing more than two billion Nepalese rupees [€15 million]," added an embassy aide at the same seminar.

Senior Nepali leaders have stated it’s not their intention to “play games” with or between its more powerful neighbours, and China has been equally coy on what it plans to reap from its investment binge in Nepal.

Its track record in other developing countries across Asia and Africa, however, has evolved over the years into something far less altruistic than might originally have been perceived. International headlines were drawn to Sri Lanka last year when it found itself unable to pay debts to Chinese lenders and was forced to hand over a major port to China on a 99-year lease worth almost €1 billion.

Several agreements Nepal has signed up to could leave it open to exploitation. Among the array of investment here is a project that saw the laying of fibre optic cable from China into Nepal that will see customers accessing the internet through service providers Nepal Telecom and China Telecom Global.

While internet access is largely open in Nepal, China’s is one of the most restricted and heavily monitored in the world.

The agreement to allow Nepal access to China’s ports, expected to be signed off during a visit of senior Chinese officials to Kathmandu next year, grants China permission to track and electronically monitor each individual shipping container entering from Nepal, according to a Nepali ex-freight association representative.

Pressing concerns Nepal already holds a similar agreement with India, whose nearest sea port is 700k

m from its border. The nearest Chinese port, however, is almost four times that distance.

For the moment, these are not pressing concerns for Nepal. That the country has for decades remained impoverished while India and China shot ahead means that any opportunities now afforded it to catch up are being embraced.

The narrow streets of the hiking-themed Thamel district in central Kathmandu were once the final destination for Westerners travelling along the 1970s Hippie trail from Europe.

Today, they’re thronged with young Chinese tourists buying beer and western-brand chocolate. In the hills surrounding Kathmandu, Chinese couples aboard rented motorbikes fearlessly weave their way up hairpin turns, dressed in shawls and large sunglasses.

It’s clear to locals that the Chinese are good for business – and are here to stay.