In just the last few months, China has increased its official aid to Nepal by five times, the largest Chinese investment pledge is in Nepal’s cement industry, and Chinese President Xi Jinping announced Rs 14 billion aid to Nepal during a meeting with his counterpart Ram Baran Yadav on the sidelines of the Boao Forum for Asia. Political leaders, the media, and businessmen from Nepal are visiting China more frequently. This year, Nepal and China will be marking 60 years of their bilateral diplomatic relationship. “Close neighbours are more important than distant relatives,” President Xi said during his speech at the Boao Forum.

Economic bottlenecks

At the Boao forum, President Yadav appealed to the international business community to invest in Nepal, pledging a liberal and welcoming investment regime. But he also pointed to Nepal’s problems with its economy—a lack of adequate infrastructure, a barely existent industrial base, inadequate capital, a lack of technological know-how, a shortage of skilled human resources, and low productive capacity. These bottlenecks have resulted in a lack of qualitative change in the living standard of Nepali people, despite an abundance of natural resources with enormous potential for tourism, hydropower, and agriculture.

The international community, however, has been hearing of these frustrating problems from Nepali leaders for decades. These problems continue to exist not because some outside forces are imposing them, but because there is a lack of political willingness on the part of the Nepali leadership to change things and lead the country towards prosperity.

Whatever foreign support Nepal receives, either from China or from any other country, cannot be credited to Nepal’s diplomacy. It is a haphazard in-pouring of aid money from different countries as and when they decide. President Yadav reiterated that Nepal would enthusiastically participate in the new multilateral lender, the Asian Infrastructure Investment Bank (AIIB), proposed by China. But does Nepal know what kind of projects it would like the AIIB to fund? Will Nepal be able to lobby strongly to have its representation in the bank’s administration? What is Nepal’s strategy for the bank? Where are the public discussions on such issues and what kind of homework has been done so far?

Highlighting China’s ‘Belt and Road’ initiative—a framework for organising multinational economic development along the revived Silk Road Economic Belt and the Maritime Silk Road—and the AIIB, President Xi has said that all Asian countries will benefit from a rising China. The prosperity of smaller countries is important for China’s continuous growth and to attain political power in the world order, but that will not necessarily make all small, underdeveloped countries prosperous. The prosperity of such small countries like Nepal lies in their political course and the development strategies these countries adopt.

China is striving, in the words of Chinese foreign policy maven Yan Xuetang, for achievement. Thus, one of its strategies is ‘peripheral’ or neighbourhood diplomacy. Nepal could benefit tremendously from this policy, but it does not mean much if Nepal does not map its own destiny.

Understanding China

The question is simple: does Nepal want to receive a lot of support and gifts without understanding the source enough and knowing their intentions? The Nepal government has yet to conduct serious research and analysis on the strategic relationship it should cultivate with China in order to gain desired support in areas that are important for Nepal’s long-term economic prosperity while also making certain that our interests do not collide with our neighbour’s.

Nepal needs investment, as President Yadav emphasised at the Boao Forum, in all sectors from small-scale industries to mega hydropower projects, which China can well afford. But as China is advancing its economy by letting the private sector excel in all areas, investment will not come without a cost-benefit analysis. Yes, Nepal will continue to receive state support, but that will not be enough in the days to come. For that reason alone, Nepal has to work on attracting the Chinese private sector in tandem with the Chinese government.

Chinese interests

China’s interest in Nepal results from multiple sources, such as the former’s eyes on the enormous South Asian market, the Tibet issue, and the objective of winning over neighbours. These Chinese interests should be understood well if Nepal seeks to capitalise on China’s rise. Nepal is undergoing a process of state restructuring and institutionalising democratic institutions. That does not bar it from designing a mechanism that will work on understanding and analysing the China factor in the country’s development process. The Investment Board of Nepal (IBN), established to attract and facilitate foreign direct investment (FDI) in the country, for instance, can start a unit to conduct primary homework on developing a platform to study China’s development strategy and how outbound Chinese FDI makes its way to various projects across the world and what Nepal should aspire to get from President Xi’s pet projects—the AIIB and the ‘Belt and Road’ initiative.

The haphazard inflow of Chinese aid and investment in different projects can result in more corruption and might contradict Nepal’s domestic policies, as has often been the case whenever Nepal received Chinese investment on a large scale. As President Xi said at the Boao Forum, history shapes the future and it has to be studied well to draw lessons from. Nepal has little time to play with dice; it must learn from the mistakes it has made. It is time to shift from a ‘strategy for survival’ to a ‘strategy for success’.

Poudel is a researcher at the Beijing-based ThinkIN China, an academic community (@bhojup)