With the global geostrategic environment turning increasingly Asia-centric, US-China strategic competition is intensifying in the Indo-Pacific region. Global players are vying to make their presence felt, particularly in the South Asian subcontinent, of which India has traditionally been a dominant power, with China jockeying for position.
The geographically distant US looks to expand its options in countering China, not least by gaining Indian support on its Indo-Pacific strategy and working on the common aim to promote a free, open, and inclusive region in the maritime domain.
Aside from other maritime countries in South Asia, the Himalayan country of Nepal is of interest to the US in its Indo-Pacific strategy which focuses on “every corner of the region, from Northeast Asia and Southeast Asia to South Asia and Oceania, including the Pacific Islands”.
Historical ties
Nepal is located in the foothills of the mighty Mount Everest and occupies a critical geostrategic location in South Asia. In the north, Nepal shares a 1,414 km border with China and a 1,850 km border with India in the east, west and south.
Traditionally, Nepal has maintained closer ties with India. In fact, until the late 1940s, Nepal’s identity in international fora was closely tied with that of British India. But after India became independent in 1947, Nepal affirmed its sovereignty and formalised diplomatic ties with the US and India in 1947, and with France in 1949, during which it also applied for UN membership.
Nepal only established formal diplomatic relations with China later in 1955. This was due to a great distrust of China arising from the latter’s annexation of Tibet in 1950. Despite Nepal sharing a long border with China, King Tribhuvan of Nepal did not want to engage China for fear that Nepal would suffer the same fate as Tibet. It was only after his death in 1955 that the new King Mahendra sent a delegation to China and formalised bilateral relations with China.
Nonetheless, as Nepal shares a long border with China, the latter has always paid extra attention to moves by the US and India in Nepal. For instance, China became more wary of the US’s activities in Nepal after the latter’s support for the Khampa rebels in Tibet which had a hand in the Tibetan uprising of 1959.
From the early days until the present, US policy towards Nepal has been to build a peaceful, prosperous and democratic society, whereas China’s Nepal policy has been characterised by the five Panchsheel principles with emphasis on adherence to the “one China” policy.
Promises of China's BRI
Due to tensions between India and Nepal in recent years, China has been warmly welcomed by the Nepali communist government. This was clear from the regime’s decision to go ahead with the Belt and Road Initiative (BRI) in May 2017, giving China a much-needed symbolic presence in Nepal.
The international media painted Nepal’s involvement in the BRI as a strategic loss for India. While India had refused to sign on to the BRI, citing sovereignty issues over the China-Pakistan Economic Corridor (CPEC), which passes through disputed territory between India and Pakistan, Nepal called it a historic agreement.
With an initial 35 projects identified under the BRI, it was one of the largest development-oriented cooperation between China and Nepal in the last six decades of their diplomatic ties. Although the financial modalities of the BRI projects were not made public, the Nepali communist government took credit for re-energising relations with China.
The growing Chinese presence in Nepal in terms of development cooperation, joint-military exercises (in 2017 and 2018), connectivity and investment, made headlines in media and social media, especially at a time when India was facing political protests in Nepal due to India’s concerns and criticisms of Nepal’s newly implemented constitution in 2015.
US aid and the Indo-Pacific strategy
Amid the India-China contest, the US reached out to Nepal with a development grant of US$500 million under its foreign aid agency Millennium Challenge Corporation (MCC). The MCC signed the compact with Nepal in September 2017, three months after Nepal signed a memorandum of understanding (MOU) on the BRI with China.
As per the new constitution of Nepal, the MCC compact required parliamentary ratification. With a five-year timeframe given, the ratification soon ran into controversy as it was tagged as part of the US-led Indo-Pacific strategy aimed at countering China.
The MCC compact with Nepal has been in the public domain from the day of signing and no clauses or articles in the agreement makes Nepal a party to the Indo-Pacific strategy. However, on a visit to Nepal on 15 May 2019, then US acting deputy assistant secretary David J Ranz reportedly said that the compact was very much part of the Indo-Pacific strategy, which caused a political furor in Nepal, leading to violence and street protests. As a result, both the US and Nepal’s foreign minister issued clarifications that the compact was not a deliverable of the Indo-Pacific strategy.
Chinese state media called out the MCC agreement, calling it a “poisoned pact” which threatened “peace and development in South Asia”.
Nepal, in dire need of development assistance especially considering the impact of Covid-19 on its economy and setbacks in the tourism sector, saw ratifying MCC as an important step in its financial well-being. However, meeting the 28 February 2022 deadline was a challenge to the Nepali Congress-led government, which was sitting in the opposition until Congress leader Sher Bahadur Deuba was appointed prime minister just a few months ago, after the Supreme Court overruled communist coalition leader and Prime Minister KP Sharma Oli’s decision to dissolve the House of Representatives.
Prime Minister Sher Bahadur Deuba was heavily criticised by the communist factions within the government and opposition for compromising on Nepal’s foreign policy by ratifying the MCC. In the event, the MCC was finally approved on 27 February 2022, just a day before the deadline, but only after a 12-Point Interpretive Declaration addressing all doubts and clarifications concerning MCC grants was attached.
Unsurprisingly, the Chinese foreign ministry spokesman said that China had noted the ratification, but “no country should interfere in other country’s internal affairs, attach political strings, or engage in coercive diplomacy, still less undermine other country’s sovereignty and interests out of one’s self-interests,” targeting the US. Chinese state media called out the MCC agreement, calling it a “poisoned pact” which threatened “peace and development in South Asia”.
China’s discomfort was apparent from Chinese Foreign Minister Wang Yi’s four-day visit to Nepal in March 2022 involving a large delegation of 25 members. China had framed the visit as strengthening bilateral ties with Nepal under the BRI framework. Unfortunately, the BRI was not mentioned by Nepal in the official press release on Wang Yi’s visit. Overall, Nepal stood up to Chinese pressure in ratifying the MCC, which proved to be the right decision amid fears of descending into economic chaos à la Sri Lanka.
The US’s State-Sponsored Program (SPP)
The US’s State Partnership Program (SPP) is another programme that has come under contention. Through the SPP launched in 1991, the US seeks to partner with “countries around the world to promote access, increase military capability, improve interoperability and enhance the principles of responsible governance”.
In the case of Nepal, the Utah State National Guards were expected to hold military exercises with the Nepal Army on humanitarian and disaster management aims, but these plans have been put in cold storage.
Going back in history, Nepal suffered a devastating earthquake with a magnitude of 4.3 in April 2015. In the aftermath, Nepal signed a number of agreements with India, China, and the US to train its security forces in disaster management tactics.
In that regard, Nepal had requested the US to train the Nepali forces in disaster relief operations. Therefore, an SPP fact sheet by the US embassy in Nepal states that Nepal asked the “United States to participate in SPP twice, first in 2015 and again in 2017, and the US accepted Nepal’s request in 2019”.
However, with more doubts than details in the public domain, the SPP has raised several questions about Nepal’s intentions to bring foreign troops on Nepalese soil for a longer period, irrespective of its purpose. The SPP received more criticism after it was linked to the US-led Indo-Pacific strategy.
... after the present government ratified MCC, the US sent General Charles Flynn to Nepal in June 2022 for meetings with Prime Minister Deuba, the Nepal Army chief, and the foreign minister, among others.
Importantly, while it has clarified about the MCC compact, the US does not deny that the SPP is an instrument in the larger scheme of the Indo-Pacific strategy. In the same fact sheet, the US embassy in Nepal said that “SPP is mentioned in Indo-Pacific Strategy Reports, but this post-dates Nepal’s two requests to participate in SPP, which began in 2015 — before the Indo-Pacific Strategy existed”.
Since the US does not completely refute the Indo-Pacific element in the SPP, the latter is in violation of Nepal’s independent foreign policy, security strategy, and adherence to non-alignment as mentioned in the Nepalese constitution. The SPP could not move ahead despite Nepal’s own proposal to join the same due to the unwillingness of the past Communist government, which had struck a fine balance with China.
However, after the present government ratified MCC, the US sent General Charles Flynn to Nepal in June 2022 for meetings with Prime Minister Deuba, the Nepal Army chief, and the foreign minister, among others. This was to pave the way for a reported forthcoming state visit to the US by Prime Minister Deuba. However, amid protests within the government and opposition, the Nepalese parliament has decided to do away with the SPP.
US-China contest in Nepal
In the last few months, delegations from the US and China have tried to create an interest-based friendly space in Nepal. While the US seeks to minimise rising Chinese influence in the Himalayan region with strategies involving more democratic instruments of cooperation, China remains cautious of the US support to the more than 20,000 Tibetan refugees living in Nepal. In the past seven decades, the US has maintained a clear policy on Tibetan refugees to support them and advocate “free Tibet” movements.
Although the government of Nepal has endorsed the “one China” policy in all official exchanges between China and Nepal, the latter continues to host Tibetan refugees on its soil on humanitarian grounds under the purview of the United Nations High Commissioner for Refugees (UNHCR).
On several occasions, China has reportedly pressurised Nepal to take action against the “free Tibet” voices in Nepal, including the Tibetan uprising during the Beijing Olympics in 2008. Even though the US and China enjoy strategic cooperation with Nepal, the two are contesting to strengthen their political clout in the Himalayan nation.
China’s sole reliance on the communist parties in Nepal went in vain after the Nepali Congress Party formed the new government in mid-2021.
Nepal has made its stand clear on not engaging with Indo-Pacific or the Quad in any manner including through SPP. Nonetheless, China has been critical of US moves on such matters. Within five months of MCC ratification and political opposition to SPP, two high-level Chinese delegations visited Nepal, including a visit to Nepal by Chinese Foreign Minister Wang Yi in March and the head of the International Liaison Department of the Communist Party of China (ILDCPC) in July 2022. Earlier, Song Tao, the ex-head of the ILDCPC, paid frequent controversial visits to Nepal, in which he and the Chinese ambassador to Nepal tried to bring together Maoist Party Chief Pushpa Kamala Dahal and Unified Communist Leninist Party Chief KP Sharma Oli, who later led the government and continued with the coalition.
Since the communist government in Nepal was formed in February 2018 under the leadership of KP Sharma Oli, China has found a space of comfort in Nepal. However, China’s sole reliance on the communist parties in Nepal went in vain after the Nepali Congress Party formed the new government in mid-2021.
Chinese loans versus American grants
With the ratification of the MCC, China and the US seem to be in direct contest with each other in Nepal.
The MOU on the BRI with Nepal had put China in a stronger position vis-à-vis India and the US. However, the BRI continues to be symbolic in nature, given global allegations of a debt trap. Nepal’s political and government officials have also spoken about their preference to receive “soft loans” and “aid” for Nepal instead of high-interest-rate loans. On the other hand, the MCC is completely a grant-in-assistance programme.
In the public domain, MCC and the BRI both remain controversial. However, the US has proved its intentions are clear with its repeated clarifications. Chinese BRI is still marred by impracticalities involving projects like the Trans-Himalayan Multidimensional Connectivity Network, which aims to build railway and road across mighty Himalayan ranges.
Although India continues to be the top development partner in Nepal, the global contest between the US and China on trade, security, cyberspace, technology, etc., has reached a new level in Nepal.
China and the US have identified Nepal’s hydropower potential, and major investments under BRI and MCC are committed to the same.
Hydropower next contested domain
Nepal has 6000 rivers and four major river basins, namely the Sapta Koshi, Sapta Gandaki, Karnali, Mahakali, and Southern Rivers. These rivers altogether have the potential to produce more than 42,000 MW of clean energy.
This huge potential will not only satisfy Nepal’s local power needs but be ample enough to be exported to neighbouring countries. India for instance has invested in several mega hydropower projects in Nepal. In June 2022, Nepal began to export electricity to India.
On the other hand, China and the US have identified Nepal’s hydropower potential, and major investments under BRI and MCC are committed to the same. Importantly, a number of hydropower projects under MCC and BRI are planned in Southern Nepal (Terai region) close to an open border with India, which may emanate India’s security concerns.
Contrary to the Chinese projects, the US development assistance under the MCC aims to provide electricity for local needs and help Nepal generate revenue by making surplus power available in the Indian markets. The experts see no insecurities in India since there is an element of cohesion between the US, Nepal, and India. Still, Chinese investments in Terai are extremely critical to India’s security and Nepal itself due to no financial clarity provided by China in this regard.
The superpower contest between the US and China in Nepal largely revolves around building strong strategic space, addressing their insecurities in the Himalayas, and seeking business opportunities that too are strategic.
China has a two-way challenge with the US, which is firstly, subverting any potential Tibetan uprisings in Nepal that have often seen support from the US; and secondly, competing against potential trilateral development cooperation between the US, India, and Nepal, even if the trilateral cooperation is development-oriented.
While China has border disputes with India, it has a global contest with the US in almost every field. It is well aware that the US-India cooperation for development works and their larger strategic partnership under the Quad mechanism in the Indo-Pacific region is strongly aimed at opposing increasing Chinese influence.
Above all, the controversial SPP baffles China as Beijing sees American members of the National Security Guard (NSG) on the ground in Nepal; irrespective of their intentions and purpose, China sees SPP as in direct conflict with its interests in Nepal.
On the other hand, while maintaining its non-aligned foreign policy, Nepal is re-orienting its foreign policy priorities by avoiding any missteps that may hamper its national interest. Although Nepal had similar reservations about MCC, it chose to resolve them through dialogue with the US and looked at its economic benefits.
Also, although Nepal may not come out in the open about its intent to partner with global players, its powerful neighbourhood makes this inevitable in the foreseeable future, and a democratic alliance led by India and the US may prove to be in Nepal’s interests. At the same time, Nepal has to balance China's interests, especially that which is linked to Tibet and Tibetans living in Nepal.
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