With China’s Help, Nepal Chips Away at Its India-lockedness

With China's help, Nepal lifts its blockade on India

A woman holds a Chinese flag at the side of a road to welcome Chinese President Xi Jinping in Kathmandu, Nepal, Saturday, Oct. 12, 2019.

Credit: AP Photo/Bikram Rai

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

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

Landlocked Nepal’s connectivity to the rest of the world is through India. This has been a source of frustration for the Nepali public and lawmakers as it has made Nepal highly dependent on India. The railway to China offers Nepal a way to break its blockade of India and gives it alternative access to the rest of the world. In addition, there is a growing need for better connectivity, given the growing volume of trade between the two countries. It was after the Indian economic blockade of Nepal in 2015 that Nepal and China accelerated their efforts to make the railway project a reality.

The 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 the Beijing joint communiqué of the second Belt and Road Forum. Both countries signed a memorandum of understanding on the proposed railway feasibility study 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 country connected by land”. For China, the vision is part of Xi’s ambitious Belt and Road Initiative.

The proposed railway will connect with the Lasha-Shigatse railway in Tibet. Across the border, the railway could be extended to connect Pokhara and Lumbini, two other major cities in Nepal.

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The railway offers hope and has significant potential. It will symbolize the Nepalese dream of better infrastructure and economic connectivity and will represent the good relations between Nepal and China. Strategically, rail connectivity with China diversifies Nepal’s connectivity and reduces dependency on India. It will ensure that Nepal suffers minimal consequences if India imposes a lockdown in the future. Economically, it will facilitate trade with China. Supporters also point out that the railway could be instrumental in bringing large numbers of tourists from China to Nepal.

However, many obstacles remain. First, the railway has to traverse the mighty Himalayas. The terrain and ecology are challenging. China has shown that it can build a railway in a complex landscape. However, the transhimalayan railway will test Chinese skills. Almost 98 percent of the railway will be a bridge or tunnel due to the terrain.

Second, the cost of the railway is a primary concern. Former Dear put the cost at $3 billion. However, it is now expected cost about $8 billion (to connect to Shigatse). We will have a more precise estimate after the feasibility study. There is a high probability that the cost will be revised upwards. It will be a huge commitment for Nepal, whose GDP is around 30 billion dollars.

Third, China has provided a grant for the feasibility study, the cost of which is estimated at about $300 million. However, it will be the loans that are likely to finance the implementation of the project. There is a fear that Nepal may go the way of Sri Lanka if Nepal makes such loans without due diligence. The Nepalese media is full of fears about the “debt trap”, citing what happened at the Hambantota port in Sri Lanka. The Nepalese ambassador to China has tried to talk out such concerns, but it will not be easy.

Fourth, some are concerned that the railway will not benefit Nepal. Nepal’s trade with China amounted to 235 billion Nepali rupees ($1.8 billion) in 2020/21. However, Nepal’s exports amounted to a paltry 1,000 million Nepalese rupees (8 million dollars). With an export to import ratio of 1:234, the trains in operation will transport Chinese goods to Nepalese markets, but are expected to return empty. Therefore, the railway 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. You could see the railway as China tackling India’s security perimeter. India was not pleased when Nepal signed the BRI agreement in 2017.

Talks over a railway linking Nepal to China have had India on edge. In recent years, Nepal and India have upgraded and extended the dysfunctional Janakpur-Jayanagar railway to Kurtha. In April, Indian Prime Minister Narendra Modi and then Nepali Prime Minister Sher Bahadur Deuba jointly noted the cross-border rail service between Jayanagar (India) and Kurtha. The 35 km long railway was built with an Indian grant worth 10 billion Nepalese rupees ($75 million). In addition, work is underway on widening the road to Bardibas via Bijalpura. this is one of five cross-border links what is being talked about between Nepal and India.

Nepal has its homework cut out. First, you need to do a cost-benefit analysis in conjunction 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 logic and reassure Nepal that the railway will not affect Indian security interests. Nepal needs connectivity with both neighbors, and it is not a competition. Furthermore, Nepal needs to harmonize infrastructure development on its northern border with China and its southern border with India to support Nepal’s growth.

India is building a wider gauge railway and China is building a standard gauge railway. It will be a challenge for Nepal to find a way to make the railways built in collaboration with the two countries interoperable. This will be a great test for Nepalese diplomacy.

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