Mar 6,Kathmandu-  Nepal's parliament has finally passed the Millennium Challenge Corporation (MCC) with some conditions, but the US aid project MCC is still being debated in Nepal. The MCC is being debated from the streets to parlianmnet. There was also a movement in which leaders of different parties, intellectuals, farmers, workers, students all showed interest in their own way. However, the Nepal Parliament  has approved it.

While the pros and cons of the MCC have been debated for the past few months, some have said that it would harm the nation. The U.S. military has claimed responsibility for the attack. The United States has said in a statement that the  500 million grant is part of a larger development project.

Nepal has been receiving grants and loans from various countries. Lately, Nepal has also been taking Chinese loans. This loan is also being spent on development projects. More than Rs. 21,210 crore has been taken for the construction of Pokhara Airport at 21 percent interest.

Belt and Road Initiative (BRI) In Nepal 

Nepal Belt and Road Historic Team is a member of Belt and Road Initiative (BRI). Nepal signed on to the Belt and Road Initiative in 2017 and since then the Nepali people are looking forward to improved connectivity infrastructure. China’s infrastructure network into and across Tibet is growing rapidly and by hooking Nepal onto Tiibet’s network, China will provide the Nepali people connectivity with the rest of China and also the world. Hitherto, landlocked Nepal has depended on India as its window to the world. The downside to such dependence was underscored to the Nepali peeople during the 2015 blockade when goods from and through India to Nepal were shut off. It prompted a desperate Nepal to turn to its northern neighbour. China, which has been looking to cross the Himalayas into Nepal, will be hoping that someday soon its roads and rails will enable its overland entry to the vast Indian market.Since then, Nepal has participated in BRI conferences held in 2018, 2019, 2020 and 2021 the latter two events held virtually due to the pandemic. The proposed projects of BRI have not started yet. However, work is being done on other projects.

Progress Report

Though the word “BRI” is conspicuously absent in the budgets of 2018, 2019, 2020 and 2021 railway finds a lot of mention in them.

“Construction work will be started by preparing Detailed Project Report of Rasuwagadhi-Kathmandu-Pokhara-Lumbini railway in the coming fiscal year,” states the buget of 2018. Nepal promised to conduct the “detailed feasibility reports of Birgunj-Kathmandu and Rasuwagadhi-Kathmandu railways that connect Kathmandu from both India and China” and said that “construction will be initiated within two years” in the buget of 2018 AD

The buget of 20120 goes a little further and says “detailed feasibility reports of Birgunj-Kathmandu and Rasuwagadhi-Kathmandu railways that connect Kathmandu from both India and China will be prepared, and construction will be initiated within two years.”

Similar mention has been made in the budget unveiled this year. In the upcoming fiscal year, the detailed project report of Raksaul-Kathmandu and Kerung-Kathmandu-Pokhara railway shall be prepared. Rs 10 billion 30 million has been allocated for railway, says the he buget of 2021  AD .

In 2018, a Chinese technical team conducted a pre-feasibility study of the proposed railway. Then in June, 2019, Nepal proposed China to conduct DPR of Nepal-China cross-border railway. As for the real BRI projects, there has not been much progress since January, 2019, when Nepal proposed nine projects, trimming down from earlier 35, to be built under the BRI framework. “Nepali side sent nine projects to Chinese side. The Chinese side is yet to respond,” said Dhani Ram Sharma, Joint Secretary at International Economic Cooperation Coordination Division at the Ministry of Finance.

Five years since Nepal agreed to become a part of the BRI framework, there is no focal office to follow up on the progress and pursue the projects. Ministries point to each other as more authentic authority to speak on the subject. Ask the Ministry of Finance about the real status of BRI and then it will point to the Ministry of Foreign Affairs and vice versa. In a way, BRI projects fall under the jurisdiction of the Foreign Ministry, Finance Ministry, Ministry of Infrastructure and Transport and Ministry of Energy. “All seem to own up the projects but none actually do,” said Rupak Sapkota, who is the Deputy Executive Director at Institute of Foreign Affairs, Nepal, a policy research think-tank of the government. “If we had created a focal office or a specific government mechanism for the BRI it would enable Nepal to better pursue the projects and we would know what actually is happening about them,” he said.

In the post-Covid world, what priorities China will accord to the BRI itself and the BRI projects proposed by Nepal and whether China will pursue it as aggressively is yet to be seen. But that’s beside the point here.

Historically, Nepal’s engagement with China has flourished mostly in the wake of events like the blockade by the Indian side. During such times, Nepal turns to China, a big ‘benign’ neighbor to its north.  Then once the relations with India normalize, political actors here give less priority to cooperation agreements with China.

Will Nepal’s BRI dream end up meeting the same fate? Time will tell.

 The BCC is followed by the MCC agreement. This could be seen as a step taken by the United States against China. However, the MCC is still in dispute after it was passed by the Parliament of Nepal. The BRI agreement has been reached and the only thing left is to accept the loan. The MCC project can determine its future.

Belt and Road Initiative (BRI) In Sri Lanka 

China-Sri Lanka relations date back to the 4th century AD  with the visit of Chinese monk Faxian.

During the 20th century, Sri Lanka-Chinese relations were solidified by the Rubber Rice pact in 1952, enabling the Chinese to purchase rubber at a time when they were unable to do so due to sanctions.This pact was operational for 30 years and according to Kelegam it was “one of the most successful and durable South-South trade agreements in the world”.  Sri Lanka has continuously supported China at the international level on two notable occasions: China’s admission to the UN Security Council in 1971, and support for China to enter the World Trade Organization in 2001.

Diplomatic relations with China was established in 1957. The Economic and Technological Cooperation Agreement in 1962 followed by the maritime agreement granted Most Favored Nation status to commercial vessels of cargo and passengers services between the two countries or a third country. In 1972, with Prime Minister Sirimao Bandaranaike visiting China, aid was granted to construct the Bandaranaike Memorial International Conference Hall (BMICH).

In 1982, the Sino-Lanka Joint Trade Committee was established. Two years later, Sino-Lanka Economic and Trade Cooperation committee was created. Both were amalgamated in 1991 as the Sino-Lanka Joint Commission for Economic and Trade Cooperation. In 1994 during the presidency of Chandrika Bandaranaike Kumaratunga, following in her mother’s footsteps’ the Sri Lanka-China Business Cooperation Council was formed. It must be noted that Chinese-Sri Lankan relations were never hostile but China has supported Sri Lanka throughout history.

When the Rubber-Rice pact was signed in 1952, several Western countries revoked aid for Sri Lanka despite which relations continued. It was the same case during Sri Lanka’s armed conflict with the terrorist organization of Liberation Tigers of Tamil Ealam. When many countries were reluctant citing human rights concerns,China Supplied Weapons , diplomatic support and aid to fight terrorism. In 2005, with the presidency of Mahinda Rajapaksa, bilateral relations further strengthened. Eight Memorandum of Understandings and Agreements were signed spanning various areas of cooperation such as business and technical assistance, urban development, sacred area development, investment promotion, film, television and radio industry, health, agriculture and establishment of a Confucius center. By 2010, China had become the largest foreign finace parnter  of Sri Lanka.

Infrastructure Projects

Most remarkable were the large scale infrastructure development projects which include: the Hambantota Port, the Mattala International Airport, the Colombo-Katunayake Expressway, the Narocholai Coal Power Plaint, the Moragahakanda Multipurpose Development Project, the Matara-Kataragama Railway Line, and the Colombo International Financial City (CIFC).

Out of these projects the CIFC and Hambantota port are flagship projects of the Belt and Road Initiative. The New York Times published an article 2018  which criticized the Hambantota port as a white elephant project trapping Sri Lanka in heavy debt with pessimistic tones the Port would not work. In fact, the negative narrative of the debt -equity swap, Sri Lanka conceding the port to Chinese control for cancelling debt, should be debunked. In 2017 a 70 percent stake of the port was leased to China Merchants Port Holdings Company Limited for 99 years for $1.12 billion. This was done to strengthen foreign reserves and cover balance of payment issues. The development of the Hambantota Industrial Zone is key to incentivize  connectivity offering Sri Lanka an opportunity to join regional and transnational ports network. Companies could now invest in oil refineries, storage facilities, and Liquified Natural Gas  (LNG) bunkering.  

The  Colombo International Finacial City  is the largest investment project in Sri Lanka which will be completed in 2040. This is a US$ 15 billion investment; a metropolis inside Colombo with a residential area, businesses, and recreation facilities. All the Chinese-funded infrastructure projects were initiated during the regime of President Mahinda Rajapaksa, who was heavily criticized by opposition parties in Sri Lanka for a pro-china leaning foreign policy. Even during the Sirisena-Yahapalanaya government in 2015, the Chinese development projects were continued but met with hostility by NGOs and pressure groups on various grounds such as environmental issues, sovereignty issues and corruption  etc. Although there was no Environmental Impact Assessment done initially for the CIFC, Chinese authorities have now responded to the criticisms and have committed to a long -term sustainability Master Plan.  The election of President Gotabhaya Rajapaksa who was formerly providing administrative direction to the Ministry of Urban Planning will strengthen ties with China to realize these projects and attract investors to compete with international financial cities like Hong Kong, Dubai and Singapore.

China's Debt Burden In 165 Countries

Researchers have identified debts of at least $385bn (£286bn) owed by 165 countries to China for "Belt and road inititaive (BRI) project with loans systematically underreported to international bodies such as the World Bank.

The four-year study by US-based research lab AidData said the debt burdens were kept off the public balance sheets through the use of special purpose and semi-private loans, and were “substantially larger than research institutions, credit rating agencies, or intergovernmental organisations with surveillance responsibilities previously understood”.

It found 42 low-to-middle income countries (LMICs) had debt exposure to China  exceeding 10% of their GDP, including Laos, Papua New Guinea, the Maldives, Brunei, Cambodia and Myanmar. Laos had significant proportions of its debt classed by AidData as “hidden”, the report revealed. The $5.9bn China-Laos railway project is funded entirely with unofficial debt equivalent to about a third of its GDP.

The BRI was launched in 2013 as Xi Jinpining 's  signature international investment program . Hundreds of predominately low-to-middle income countries have signed up for Chinese loans towards massive infrastructure projects, but it is now facing competition from the G7’s " build back better world" infrastructure initiative.

In the report, AidData examined more than 13,000 BRI projects worth more than $843bn in 165 countries between 2000 and 2017. It found China’s overseas lending had dramatically shifted from government-to-government loans during the pre-BRI era, to almost 70% now going to state-owned companies and banks, joint ventures, private institutions, and special purpose vehicles (SPVs).

This had led to extensive underreporting of repayment obligations – to an estimated $385bn – because the primary borrowers are no longer central government institutions with stricter reporting requirements.

“These debts, for the most part, do not appear on government balance sheets in LMICs,” the report said. “However, most of them benefit from explicit or implicit forms of host government liability protection, which has blurred the distinction between private and public debt and introduced major public financial management challenges to LMICs.”

AidData said global organisations such as the World Bank and International Monetary Fund were aware of the problem generally but the report quantified the alarming scale.

Amid growing controversy around the initiative, and pushback from some governments that have sought to scrap or renegotiate projects, BRI lending has slowed in recent years, but the earlier debts remain. In 2019, Xi pledged to increase transparency and financial stability in the programme, and to have a “zero tolerance for corruption”.

While more than 100 ountries have signed up to the BRI, there have been long-running concerns about transparency, and suggestions that massive loans to high-risk countries were enabling "debt book diplomacy"  in some but not all regions, forcing them to cede ownership or control of major assets to Beijing in lieu of repayment.

However, the report noted asset seizure in lieu of repayment was only allowed in direct government loans, while the increasingly frequent arrangements made via SPVs and other semi-private mechanisms saw repayments taken from the revenue generated by the funded projects.

The shift towards the latter increased the risk to Chinese lenders, but the report said it was a “necessary work-around” if the lenders wanted to fulfil Xi’s BRI goals, because many countries were already laden with debt and not officially able to take on much more.

“Many poor governments could not take on any more loans,” AidData executive director Brad Parks told AFP. “So [China] got creative.” Peter Cai, a research fellow at the Australia-based Lowy Institute, said it would be difficult to enforce the debt repayments, particularly where there was civil unrest or poor governance. “There’s always a problem of enforceability,” he said.

The report also found China had rapidly scaled up its provision of loans to resource-rich countries that have high levels of corruption, and 35% of BRI projects had faced issues of corruption, labour violations, environmental pollution and public protests.

“Beijing is more willing to bankroll projects in risky countries than other official creditors, but it is also more aggressive than its peers at positioning itself at the front of the repayment line (via collateralisation),” the report said, noting 40 of the 50 largest loans were collateralised, often against future commodity exports.

Russia secured loans and export credits worth $125bn, mostly contracted by Russian state-owned oil and gas enterprises, collateralised with the proceeds from oil and gas sales to China. Venezuela secured $86bn in non-concessional and semi-concessional debt from China’s state-owned policy and commercial banks, mostly through loans collateralised against future oil exports.

AidData said a separate but related finding showed Beijing was disproportionately lending to countries that performed poorly on conventional measures of credit worthiness, in contrast to other international lenders, but demanded far higher interest rates with shorter repayment periods.

Cai noted the case of Pakistan, which Asia Nikkei reported had Chinese loans with average interest rates of 3.76%, compared with a typical OECD-linked loan’s rate of 1.1%.

“A lot of banks wouldn’t even lend to Pakistan. If you’re able to secure a loan you have to pay the higher risk premium,” he said. China’s foreign ministry said in a statement that “not all debts are unsustainable”, adding that since its launch the BRI had “consistently upheld principles of shared consultation, shared contributions and shared benefits”. We have a small favour to ask. Millions are turning to the Guardian for open, independent, quality news every day, and readers in 180 countries around the world now support us financially.

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