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International relations

U.S. grant to Nepal swept up in superpower rivalry with China

Kathmandu in turmoil as Beijing turns 'coercion' accusation back on Washington

Demonstrators hurl stones at riot police during a protest against the $500 million U.S infrastructure grant in Kathmandu on Feb. 20.   © Reuters

KATHMANDU -- Nepalese Prime Minister Sher Bahadur Deuba's attempt to ratify an American infrastructure grant has laid bare yet another friction point between the U.S. and China, while threatening to unravel his coalition government.

The government tabled the bill in the legislature this past Sunday, while hundreds took to the streets of Kathmandu to protest against it. The $500 million Millennium Challenge Corporation (MCC)-Nepal compact would fund power transmission lines and highway upgrades, but critics -- including some of Deuba's own coalition partners -- argue it would undermine the Himalayan nation's sovereignty.

Experts say the heart of the matter is really the U.S.-China competition for influence.

Deuba is under heavy pressure from Washington to push the pact through by next Monday, which would require majority approval in parliament. Donald Lu, the U.S. assistant secretary of state for South and Central Asia, in early February warned that a failure to ratify it would force the U.S. to review its ties with Nepal.

Lu's warning came soon after Pushpa Kamal Dahal of the Communist Party of Nepal (Maoist Centre), a coalition member, held an hour-long virtual meeting late last month with Song Tao, head of the Chinese Communist Party's International Department.

It is not known whether they discussed the MCC. What is known is that China has cultivated close ties with Nepalese communists -- who make a habit of decrying "American imperialism" -- and many see Beijing's hand behind resistance to the grant.

Dahal himself has shown a contradictory stance. In public, he has vehemently opposed the MCC. Yet last September, he and Deuba sent a joint letter to the MCC board, pledging to support it. The letter leaked to the media in early February.

Either way, the issue has caused deep divisions. In a blow to Deuba last week, his coalition partners decided to vote against it. Even though they allowed the bill to be tabled, they remain steadfast in their opposition.

According to one observer, it may be too late to change that.

Communist "leaders inculcated in their cadres the notion of the grant being against Nepal's national interest," said Sudheer Sharma, a geopolitical commentator who edits the country's influential Kantipur newspaper. "Now, even if Dahal wants to change it, he cannot persuade them to support it."

The dispute has added fuel to the war of words between Washington and Beijing.

Last Friday, Chinese Foreign Ministry spokesperson Wang Wenbin said the grant "should not come with political strings attached," apparently in reference to statements like Lu's -- that U.S.-Nepal ties are at stake. "We oppose coercive diplomacy and actions that pursue selfish agenda at the expense of Nepal's sovereignty and interests," Wang said.

Such terms as "coercive diplomacy" are frequently used by Western critics to describe China's activities.

Sharma sees Nepal caught in the middle of hostile superpowers. Both the U.S. and China "have engaged in expanding their sphere of influence across the world," he said. "China is trying to curtail India's influence in Nepal. After China increased its presence in Nepal, the U.S. also followed."

In 2016, Nepal signed a slew of agreements with China during Prime Minister KP Sharma Oli's visit to the country. Chief among them was the Trade and Transit Treaty, which opened up an alternative to India, a vital trade route for the landlocked country.

In 2017, when Dahal was prime minister, Nepal signed on to China's ambitious Belt and Road Initiative.

Along the way, China made a point of courting Nepal's communists. Before the pandemic, Beijing funded visits by leaders and cadres to China. Now there are frequent high-level virtual meetings.

But in 2018, the U.S. announced Nepal was a part of the Indo-Pacific Strategy, ostensibly aimed at countering China's rise. The MCC, meanwhile, would help Nepal upgrade infrastructure along the Indian border -- potentially shifting the country away from China's orbit.

A 315 km double circuit 400 kilovolt transmission line under the project is expected to connect Lapsiphedi, northeast of Kathmandu, to the Indian boundary. Another component of the grant would be improvements to the 77 km highway that lies along the Indo-Nepal border.

Although the MCC predated the Indo-Pacific plan, China sees a connection between them.

As tensions between the U.S. and China grow in Nepal, some observers worry Kathmandu may be unable to handle this diplomatic minefield.

"If our government doesn't tactfully navigate this issue, it could close the door on foreign assistance for infrastructure development," said Geja Sharma Wagle, a visiting faculty member at Tribhuvan University's International Relations and Diplomacy Department. "There's a real risk of the country falling into this trap."

For Deuba, meanwhile, next Monday's deadline is approaching fast.

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