China’s ambitious plan to remain at the epicenter of global connectivity through land and sea, and provide China with a captive market of economies in Asia, Africa and Middle East shook the powers in the West which are used to having domination over Asian economies in the past.
The Belt and Road initiative of China has become a common agenda of 70 nation economies initially envisioned by Chinese president Xi Jingping. The concept of Belt and Road Initiative (BRI) emerged from the concept of revitalizing the old silk route to connect Asia and Europe.
One Belt One Road, also known as BRI links Asian c economies and fosters international relations. In the last five years, the BRI has become the most important element of Chinese economic and political diplomacy. It is said that BRI is the most ambitious, widely covered and largest multipurpose project of the world. When completed it will include more than 70-nations of the world with nearly two-thirds of the global population; two-fifth of the global GDP and three fourth of the global energy reserves. The BRI consists of more than 900 infrastructure projects valued around $1.3 trillion and the total investment requirements could be as much as $ 5 trillion.
Development of the silk route is expected to intensify trade, tourism, energy cooperation and promote socio-economic and socio-cultural and people to people relations.
China has achieved double digit growth on an average for more than two decades, the growth process mostly driven by international market for its merchandised exports. China’s population is 1.4 billion and about four times higher than the world’s largest economy, United States of America. China requires external market for merchandised export despite the growing middle class and rising consumption in its own country to sustain the high growth for which BRI provides an opportunity.
In terms of purchasing power parity, China is the world’s largest economy (The World Bank and International Monetary Fund). There has been prediction that China will surpass the US in terms of GDP size by 2029 and China’s efforts to enhance connectivity are also concentrated on that front. China’s foreign exchange reserves stood at $ 3.03 trillion in 2017, which peaked at $3.99 trillion in 2014. Foreign exchange reserve of China constitutes 25% of the global foreign exchange reserve. In this context, China has been pushing the agenda of enhancing connectivity through BRI.
Why Nepal needs One Belt One Road?
Nepal has signed a Memorandum of Understanding on the Belt and Road Initiative of China in May 2017. According to Ministry of Finance (MoF), Nepal will propose some connectivity and energy projects to take forward under the BRI. So far, Nepal is connected to the world through gateway seaports of its southern neighbor, India and its transit facility. Infrastructure bottlenecks across the border are considered to be major constraints. As a result, two-third of Nepal’s merchandised trade (both export and import) are confined to India. Economist Satis Devkota, who is currently serving as Assistant Professor of Economics at University of Minnesota in the United States, has said that Nepal’s unilateral dependence on India is crippling its economic potential and is a risky strategy from the perspective of economic sovereignty and energy security among others. India is not only the largest trading partner but also the source of incoming tourists, investment, and a prime destination for migrant workers. “Nepal must diversify the current status of unilateral dependence on its southern neighbour,” Devkota reiterated.
India and China, both neighbours of Nepal, are considered as the growth poles of the global economy. However, Nepal’s connectivity with China remains poor. A large chunk of merchandize trade between the two countries is carried via sea through India. Recently, China has agreed to allow Nepal to utilise four seaports, namely Tianjin, Shenzen, Lianyungang and Zhanjiang and three land ports, namely Lanzhou, Lhasa, Xigatse for third country trade. During the finalization of Nepal China Transit and Transport Agreement’s protocol recently, China has decided to provide access into Chinese territory from six checkpoints: Rasuwa, Tatopani (Sindhupalchok), Korala (Mustang), Kimathanka (Sankhuwasabha), Yari (Humla), Olangchung Gola (Taplejung). This has opened robust linkages with the northern neighbour. There have been proposals to take forward a railway project from Kyirong (China)-Rasuwagadhi to Kathmandu and the expansion of railway to Chitwan and Lumbini under the BRI. The 1,200 MW Budhigandaki Hydroelectric Project has also been proposed to be developed under BRI. However, economist Devkota has laid emphasis to look into return on equity of the project while accepting debt from China and the efficiency of investment into mega projects.
Transport Specialist Surya Raj Acharya opines that wider and robust connectivity is a must for intensifying economic relations and he believes that the connectivity projects under BRI will help trigger growth and trickle down the benefits from China’s rapid economic development. “Lack of cross border infrastructure to promote trade and tourism like road and rail, weak cross border financial linkages, and lack of bilateral investment treaty with China has posed limitations to deepen economic ties between China and Nepal,” Acharya asserted.
Similarly, economist Keshav Acharya believes that robust connectivity and economic engagement with the northern neighbour will diversify risks associated with single country concentration on trade. Citing the context of series of impasse with India in trade and transit facilities, the latest supply line disruptions at the southern border following the promulgation of the Constitution in 2015 and dissatisfaction of Terai based political parties over it; Acharya said that trade obstruction crippled the economy severely as trade, industry, tourism and development came to a standstill with shortage of petroleum products, construction material and machineries. Economic growth nosedived below 1% and the government witnessed huge revenue losses.
According to Acharya, BRI is important for Nepal in the context of growing Nepal’s trade and investment relation with China. He said that the infrastructure developed under BRI will establish a wider connectivity with China, Central Asia and Eastern Europe and also facilitate the expansion of trade and investment relations with countries on the silk route corridor. There is also potential to attract tourist from China and Central Asia and Europe which will improve trade and investment competitiveness and boost the tourism industry, observed Acharya.
Very recently, African country Sierra Leone, one of the world’s developing countries, has scrapped plans to build a China-funded $318-million airport outside the capital, Freetown, according to international media reports.
This is the first instance of an African country announcing the cancellation of a China One Belt One Road project. It is reported that the World Bank and the International Monetary Fund (IMF) both warned earlier that this project may bring unnecessary debt burden to Sierra Leone. The airport project is a mega-project due for completion in 2022 and had been commissioned by former Sierra Leone President Ernest Bai Koroma. But the new President, Julius Maada Bio, has since reassessed the huge loans offered by China to his predecessor, as per reports.
Debt trap and reality
The belt and road project is being explained as ‘debt trap’ diplomacy of China as explained by Western powers and Western media. Following the rapidly ballooning debt of China in Sri Lanka, the deal between two countries for the reduction of debt concluded in providing Hambantota port for 99-year lease to Beijing as part of a debt-reduction deal. However, the portion of Chinese debt in that port out of overall Chinese debt in Sri Lanka is just around 9% which is considered nominal. Yet it has been widely shared as China’s neo imperialism and debt trap diplomacy.
Experience of BRI countries
Not only Sierra Leone, Malaysia had also announced cancelation of three BRI projects. Prime Minister Mahathir had announced the cancellation of three BRI projects: the East Coast Rail Link (ECRL) and two gas pipelines, the Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP) citing the fiscal health of the country. Throughout his election campaign, Mahathir had pledged to reduce the state’s rising debt levels and the BRI project would only prove to increase it. While scrapping the projects represents a blow to China’s BRI ambitions in Malaysia and the region, the Malaysia–China bilateral relationship was not adversely affected and instead will provide Beijing with an opportunity to learn valuable lessons and reassess project evaluation and implementation, as per international media reports. However, China still believes Malaysia and Pakistan have been resisting Western pressure and there are chances of fresh start of BRI projects in Malaysia, according to China Daily. So far, Pakistan has accepted Chinese assistance under BRI for the construction of China Pakistan Economic Corridor (CPEC).
“OBOR a win-win proposal for both China and Nepal”
One Belt, One Road (OBOR) is a win-win proposal for Nepal and several other countries including India which are looking for a greater connectivity. It is obvious that connectivity developed through OBOR initiative would be an alternative window for Nepal’s access to China, Central Asia and Eastern Europe. However, the country should start analysng the pros and cons of Nepal joining OBOR project and benefiting the most from the extended connectivity.
Identification of major infrastructure and services projects, connectivity points, modus operandi of their implementation, transparency in decisions, financing modalities, conditions of financing and operation will be crucial. Credible financing mechanism of OBOR related projects and their sustainability is important.
Besides, Nepal needs to promote strategic economic relations with China through Bilateral Investment Promotion and Protection Agreement, new Trade Agreement, Agreement on Avoidance of Double Taxation and on banking and finance and payment system along with what is being done with India. Nepal needs to promote strategic foreign relation with China to bring in investment, develop robust connectivity, and intensify economic engagements between two countries.