When Donald Trump became the U.S. president for the second time on January 20, he halted all American aid provided by the State Department and the United States Agency for International Development (USAID). Less than a month later came the news that Trump was also in the process of freezing funds under the Millennium Challenge Corporation (MCC), a bilateral foreign aid agency. Both these decisions had a direct impact on Nepal.
According to critics of U.S. aid, a big chunk of the money Nepal was getting from USAID was being wasted. However, at least some of it funded vital programs like the national micronutrient survey and various anti-HIV/AIDS related interventions.
Under the MCC, the Americans were helping Nepal build crucial power and road infrastructure. So, when Trump decided to cut back on the support, many in Kathmandu were curious if China would help Nepal fill the funding void.
It does not appear so.
During Nepali Prime Minister K.P. Sharma Oli’s visit to China in December 2024, the two sides signed the Belt and Road Initiative cooperation framework agreement. This was to be a vital step toward the implementation of the BRI, which Nepal joined in 2017. The two sides agreed to expedite 10 BRI projects: road and tunnel works, a cross-border railway, a university, a museum, an industrial park, and various kinds of sports infrastructure.
But six months on, there has been little progress on these projects.
While the Chinese would certainly like to fill the void left by the pull-back of U.S. aid, they are not ready to do so unconditionally. Perhaps the biggest stumbling block in China-Nepal BRI cooperation is the Chinese stand that projects under the initiative will largely be funded by loans, while Nepal maintains that only grant-funded projects are welcome.
Geopolitics is also at play. New Delhi does not want Nepal to be too close to Beijing. India is not a part of the Belt and Road, and it views BRI projects with suspicion.
The Nepali communist parties — currently, the second and the third biggest in the country — are more amenable to loan agreements with China. But the Nepali Congress, the largest parliamentary party that is also the biggest party in the ruling coalition, is traditionally closer to New Delhi, and it says Nepal cannot afford more foreign loans.
India also has reservations over particular projects agreed under the BRI. For instance, the proposed industrial park in eastern Nepal is close to the strategically important Siliguri corridor, the narrow strip of land connecting India’s Northeast to the rest of the country. New Delhi’s concerns over the China-funded park have intensified following reports that China is also helping build a military air base in Bangladesh, not too far from the corridor.
Given India’s frosty relations with Bangladesh of late, and the still fresh memories of the 2017 standoff with China over Doklam, a plateau in the India-China-Bhutan trijunction in the same region, New Delhi is wary of any permanent Chinese presence in Nepali territories nearby.
Likewise, India would have a problem with the proposed Chinese railway to Nepal as it would significantly curtail Indian influence in Kathmandu.
So, India has been quietly lobbying to stop these projects and propagate the narrative of the “debt trap” that big Chinese infrastructure projects supposedly bring in their wake. On and off, even senior U.S. officials have warned Nepal of the dangers of falling into such a debt trap.
The Chinese, meanwhile, have repeatedly conveyed to Nepali officials that while Beijing is ready to be generous to Nepal, if it agrees to build projects in Nepal under grants, it would be forced to do so even in other countries — and that is not feasible.
Beijing hopes that the Nepali communist parties can be reunited and come back to power, in which case, the BRI projects could also gain momentum. (Right now, even though the prime minister is a communist, his biggest coalition partner is the traditionally pro-India Nepali Congress.)
Nepal signed up to the BRI in the aftermath of the 2015-16 Indian blockade, in the belief that calibrated relations with India and China, its two big neighbors, are in its best interest. If Nepal could open up new trade and travel links with China, the country would not be in a position to be blackmailed by India again.
But this enthusiasm for closer ties with Beijing cooled as memories of the blockade faded.
Another big problem is the tendency of Nepali leaders to either lean too far toward India or China, as befits them politically. Even though there is a paucity of progress on the BRI under Oli as he seeks to mend his frayed ties with New Delhi, India continues to see him as “China’s pawn.” Interestingly, in the pre-blockade days, Oli was counted as among India’s most trusted friends in Kathmandu.
Oli is just a case in point. Owing to their tendency to put self-interest before national interest, other top Nepali leaders too have little credibility among Nepal’s international partners.
Nepal, a country precariously sandwiched between India and China, is destined to be buffeted by strong geopolitical currents. But as the slow progress of the BRI projects suggests, a lack of a collective foreign policy vision of the Nepali political class is also doing great harm to national interest.