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OBOR: How Nepal can benefit amidst some skepticism

By Dr. Rajendra B. Shrestha

Introduction

The Belt and Road Initiative is a signature foreign policy priority of Chinese President Xi Jinping. It is the largest initiative of its kind launched by a single country. It comprises two large segments: the Silk Road Economic Belt, a land route starting in western China that goes through Central Asia and on to the Middle East; and the 21st Century Maritime Silk Road, a maritime route that goes around Southeast Asia, the Persian Gulf, and the Horn of Africa. All in all, it includes more than two thirds of world population and more than one third of global economic output, and could involve Chinese investments that total up to $4 trillion.

OBOR asit stands for One Belt One Road is thus an ambitious project of China to connect 4 major market centers of the world, in Asia, Africa, the Middle East and Europe. The project is going to be built at an estimated $1 trillion to start with. Although, it is one project, it has 6 major components including roads, ports, railways and other infrastructure. China claims that it will not only boost infrastructure in the 65 participating countries, but will also boost trade ties between different nations and their peoples. The participating countries will benefit in terms of infrastructure and trade. OBOR can be an easy and fast way for many small countries to acquire important infrastructure projects which they cannot afford otherwise.

China’s Interest

Despite the overwhelming focus on the geopolitical logic of the initiative, it is designed to meet Chinese objectives both at home and abroad. At home, China’s leaders hope it will help ease overcapacity in the country and spur growth in its underdeveloped border regions, boosting economic growth that underpins the survival of the Chinese Communist Party (CCP). Abroad, Belt and Road Initiative (BRI) is one means through which Beijing can use its economic (soft) power to advance diplomatic and strategic objectives, consolidating China’s position in Eurasia.

How Nepal Benefits

Ambassador Yu said the signing of the agreement will bring new opportunities for China-Nepal cooperation and South Asia development in the long run.

Chinese experts, who have welcomed the framework agreement between Nepal and China, stressed the need to focus on enhancing policy coordination, connectivity, infrastructure, unimpeded trade, investment, financial integration and people-to-people contact for realizing the goal of better connectivity.

According to Professor Li Tao, executive director at the Institute of South Asian Studies in Sichuan University, the deal carries vital importance not only for China, but also for Nepal.

Nepal is touted as a transit bridge for the second largest economy in the world to reach South Asia for the fact that Chinese borders with Pakistan and Afghanistan are restricted by extreme natural conditions, India has great historical burden with China and Bhutan does not have diplomatic relations with China.“Joining the Belt and Road Initiative will bring Nepal with investment and experience from China,” Li said.

According to Professor Huseng, the signing will bring bilateral economic and social cooperation, especially in the post-earthquake reconstruction in Nepal. The process will move in a more rapid and undisturbed way.In the coming months, it is very important to set up a joint working mechanism to match the post-earthquake reconstruction works projects in Nepal along with the potential Belt and Road initiative projects.

India’s neighbors are all involved in the efforts of building connectivity and economic cooperation in line with the Belt and Road Initiative (BRI) and when India has also made progress in its sub-regional integration effort such as Bangladesh, Bhutan, India, Nepal (BBIN) initiative, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, the Mekong-Ganga Cooperation, India will naturally become part of BRI.

On India’s reluctance to join the Chinese initiative, Li pointed at its core interests related with security and sovereignty. “By promoting Trans-Himalayan cooperation and attracting India in the China-Nepal cooperation, we can build a China-Nepal-India (CNI) economical corridor, which will benefit the whole region,” Li said.

Skepticism about OBOR

Some studies carried out on OBOR reveal that the grant element in OBOR is minimal. In CPEC, for example, the grant element is only four per cent as the rest of the amount is given to Pakistan at quite higher interest rate through the commercial banks of China.

The OBOR initiative provides China opportunity to exploit natural resources of the countries that join this club. It also provides market for the Chinese goods which often are of low quality. The local industries find it increasingly difficult to compete with such goods because of the price factor. As such, the unemployment rate in those countries is rising.

There is least use of local manpower in the OBOR projects. Often, China becomes assertive in controlling the management of mega projects that it supports, which is quite evident in the case of the Hambantota port of Sri Lanka and the Gwadar port of Pakistan.

Significantly, China has its own compulsion to promote the OBOR initiative in view of the overproduction of steel, cement and other construction materials in the country. Such materials have to be dumped somewhere to keep the Chinese factories running and also to maintain employment at home.

The OBOR initiative is also a tool to enhance Chinese influence in its neighborhood in particular and other countries in general. Those countries that receive loans under this initiative are often coerced to work in Chinese interest. Countries like Laos, Cambodia, Myanmar and Thailand had to give up their common stand on the territorial claims in the South China Sea under the Chinese pressure. China could have blocked the loan for the OBORrelated projects to those countries had they not toed in China’s line.

Conditions attached to loans under OBOR initiative are so hard that several countries may find it increasingly difficult to get out of the debt trap. In such a short span of two to three years, discontentment against the OBOR initiative has started growing. In several countries, including Sri Lanka and Nigeria, enquiry has begun against certain Chinese companies that influenced regimes through illegal means.

Now coming to Nepal’s case, there are some apprehensions that the country may fail to deal with China in the matters of conditionality attached to the OBOR initiative. And the country may fall in China’s debt trap, and the infrastructure projects to be launched under this initiative may not benefit the economy as expected. Chinese Ambassador Yu said after the signing of the framework agreement that the initiative is not going to be China’s “solo show”, in an apparent indication that Beijing is aware of the criticism, as she described the project as a symphony performed by an orchestra.

Due to China’s growing influence in Southeast Asian countries, western powers do not appear too enthusiastic about China’s bankrolled infrastructure project through the BRI initiative.  They feel Beijing is trying to take its ambitious plan forward at a time when Washington under US President Donald Trump is making a pitch for “America First” stance.

Why India is skeptical about OBOR success

India in its backyard may somewhat lose its influence in Nepal because of the leverage that China may enjoy through the OBOR agreement with Nepal. But more so, Nepal may lose and may have to compromise its national interests as experienced in some other countries before it is too late to rectify the mistake.

China’s desire to pull India to support this ambitious initiative to transform Asia may be incomplete if New Delhi fails to buy into Chinese narratives in support of OBOR. The inherent problem lies in Beijing not comprehending India’s apprehensions and sensitivities, which discourage New Delhi to come forward wholeheartedly and support the initiative.

First, any Chinese assertiveness to persuade New Delhi to come on board will be a non-starter as the naysayers on OBOR in India hold that it is nothing more than a strategy to enlarge China’s sphere of global influence, endangering India’s strategic interests.

Second, broader mistrust in the bilateral relationship is hampering prospects for strategic cooperation between two Asian giants. It is believed that economic cooperation invariably boosts mutual trust and trickles down to cooperation in other fields. Unfortunately, this is not happening in the case of India-China relationship; the deep mistrust is not being offset by gains in other areas. The ghost of the 1962 war still haunts New Delhi and Indian media will not let go of it anytime soon. China hardly recalls the war, but being on the losing end, India will not overlook it.

Third, India, has traditionally followed an independent foreign policy. In this sense, convincing India to sign onto OBOR because other countries support it may not work. For that matter, even during the Cold War, the bipolar world system could not deter India to alter its position as it vociferously embraced a policy of nonalignment. India therefore, may choose to stand alone if its apprehensions are not addressed.

Fourth, the world is entering into an era of multipolarity. Isolation is no more a realistic strategic choice as it will push the country to balance the isolating power by joining hands with other powers. The best available choice, then, is to win over adversaries through dialogue and by building strategic partnership. With distrust growing between India and China, thanks to the media of both the countries, New Delhi is likely to look for partners to balance China. This may lead to the dream of an Asian century, with the two giants united,maylikely fail.

Fifth, the OBOR pushed on Beijing’s part may also shatter the dream of both countries to construct a new international order with India and China as leaders of the new system. India has positively supported and participated in China’s initiative of the Asian Infrastructure Investment Bank (AIIB), but there are limits to this cooperation. Both countries have come a long way also with the establishment of the New Development Bank under the aegis of the BRICS grouping, providing a new model of governance for the World.

In the end, it’s worth reckoning that if India doesn’t have an allergy to the OBOR initiative, it at least has some serious and enduring concerns. Beijing might reconsider its approach to convincing India. By joining OBOR, India will not only deepen the pool of mutual trust, but both countries could build a real strategic partnership to usher in a new type of bilateral relationship paving the way for a truly Asian century.

China, on its part, has also begun trying to address some of the concerns that critics had at the outset. Beijing’s efforts to stress the open, inclusive, and collaborative nature of the initiative, its shifting posture towards some controversial infrastructure projects, and attempts to address questions regarding standards and transparency, have not gone unrecognized in regional capitals. Even questions like financing have seen some incremental progress despite the long road ahead. The birth of the Asian Infrastructure Investment Bank (AIIB) along with other funding sources like the Silk Road Fund and the New Development Bank at least begin to answer the question of how to fund such a mammoth task, even if this is thus far just a drop in the bucket of what is required.

More troubling, are the structural challenges that confront BRI, which dwarf any progress being made and show few signs of being addressed in any meaningful way. Of these, three are notable: coordination, calibration, and credibility.

Of the three, the credibility challenge is where work is most needed but could prove toughest to address. Chinese officials have paid close attention to how the initiative is marketed and perceived in the region and have adjusted their approach accordingly.

Conclusion

Silk Road provides unique opportunity for development of Nepali tourism and for connecting Nepal to the several ancient Buddhist sites along the route. China has already proposed joint development of Nepal-China Silk Road Economic Belt. This includes development of rail network from Tibet to Kathmandu and from Kathmandu to Patna, India.

Historically, Nepal provided free and unrestricted trade route between South Asia and China and even to central Asia via Lhasa. This is why a large number of Nepaleseare settled in Lhasa and other parts of Tibet and why there is a Nepali consulate in Lhasa, the only diplomatic mission in Tibet. Now is the time to revive these ancient roots of our friendship and unlock the true trade and connectivity potential between China and Nepal. At present Nepal and China have only a few designated routes for trade and other exchanges.

We can work on development of promising new routes like the Lumbini-Mustang corridor that crosses Mustang and enters Tibet following the Kali Gandaki River.China and Nepal also have to encourage their private sectors to explore new trade opportunities between the two countries. Parallel to this, Nepal needs to plan, design and start building infrastructures directly linked to the OBOR project. With this Nepal can tap the various Silk Route funds that China has set up.

Nepal can once again connect Tibetan plateau  andto the fertile valleys in northern part of the Indian sub-continent. Experts say rail connectivity with China will spur the globalization of Nepali economy. Once a rail connection with China is established, Nepali goods can be transported to international markets through the Eurasian transport network, which is vital if we are to overcome our geopolitical constraints. The entire South Asia can benefit from this network.

China has repeatedly assured that it greatly values friendship with Nepal.  China may have some hidden motive behind pushing OBOR but we should not hesitate to benefit from this initiative for that reason alone, as we are all aware of the consequences of over-dependency on a single country.As a sovereign nation,Nepal is entitled to make decisions on its interests.

Lhasa in Tibet is emerging as a major transportation hub in Western China. China recently announced that it would build another railway to connect Lhasa with Chengdu. As a result, Chinese growth centers/manufacturing hubs are moving closer to Nepal and India. There are now very compelling reasons to revive the land-link role of Nepal not only between India and China but all of South Asia, Central Asia, and East Asia eventually.

Nepal’s diplomacy should make an effort to revive Southwestern Silk Rout (SWSR) to be an integral part of Silk Road Economic Belt with extension of BCIM economic corridor into Bhutan, Sikkim. Nepal should promote aggressively the concept of Trans Himalayan Economic Belt. The loop connecting Yunan, Myanmar, India, Nepal and Tibet (that existed in the past) will then be complete.  Similarly, Yunnan is a planned bridgehead for integration with Myanmar, Bangladesh and India’s North East. We now need to study integration possibilities with Tibet,Yunan and Sichuan Provinces.

Hence there is good potential for Nepal as a transit corridor initially and then ultimately as economic corridor between China and India that will benefit from being an integral part of Silk Road Economic Belt.

Economic Corridors add far more value than Transport Corridors through backward and forward linkages in the economy. There is no doubt that vast opportunities for tri-lateral economic cooperation between China-Nepal-India exist. Nepal stands to benefit from this tremendously if its foreign policy can focus more on economic and sustainable development diplomacy and work closely with both the neighbors in a win-win situation.

Some speculations exist whether India will be willing for tri-lateralism and if Nepal’s diplomacy can bring the two (China and India) to meet in Nepal for this. If tri-lateralism is to materialize and succeed, I believe, certain pre-conditions need to be met which include:

Change in mindsetsfrom conflict to cooperation mode; Synergize effortsto deal un-resolved issues with new understandings and values; Under OBOR initiative, Nepal can further understanding between the three countries for common interest projectsby involving think tanks, track two diplomacy. Think tanksplay crucial role in promoting track two diplomacy to achieve results; Hold regular bi-/trilateral dialogues and high level visitsto ensure progress and build consensus; Nepal need to act assertively in implementing its FP as an independent, sovereign, trust worthy and respectful  friendin winning the cooperation from both the neighbors to its benefit; and Promote mutual trustbased on common wisdom, cultural values, historical ties, relative strengths and comparative advantage to grow together for a common prosperity.

(Dr. Shrestha is the member of the High Level Committee on Foreign Policy, MoFA)

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