China lobbying against MCC

A $500 million American grant to upgrade Nepal’s infrastructure appears at first glance to be delayed because of domestic politics. But the real reason seems to be Beijing’s opposition to the project, and its pressure on politicians not to implement the project.

Sources say the Chinese government has been showing unusual interest in the Millennium Challenge Corporation (MCC) project as Prime Minister Sher Bahadur Deuba prepares to present it for approval by the winter session of Parliament, despite opposition from coalition partners.

On 22 December, Chinese Ambassador to Nepal Hou Yanqi made a hasty trip to the Balkot residence of former prime minister KP Oli of the opposition UML. Oli and Deuba back the American project, and some see this meeting of minds on the MCC even triggering a breakup of the governing coalition.

On 13 December, Vice Minister Chen Zhou of the International Department of the Communist Party of China (CPC) held a video conference with the newly-elected UML General Secretary Shankar Pokharel.

Pokharel is said to have assured Zhou that his party would not allow activities that could damage Sino-Nepal relations. The UML’s Bishnu Rijal confirmed that Zhou’s call was about the MCC, but added ambiguously: “He must have had queries about development projects that China’s neighbouring country is undertaking.”

Missing links in Nepal’s MCC debate, Jeevan R Sharma and David Seddon

Zhou had a similar chat with Madhav Kumar Nepal of the Unified Socialists who is also reported to have reiterated that he opposed anti-China activity in Nepal. Nepal has publicly stated he would reject the MCC if it could affect ties with neighbouring countries. 

CPC officials also held virtual meetings with Pushpa Kamal Dahal of the Maoist Centre, who has not hidden his opposition to the MCC.

A government official, speaking on condition of anonymity, said: “There is no doubt that China does not want the MCC to go ahead, it has already conveyed as much to the top political leadership.”

Speaker Agni Prasad Sapkota of the Maoist Centre, who is close to Beijing, has said the MCC would not move forward under his watch. His predecessor Krishna Bahadur Mahara publicly admitted to stopping MCC ratification because it was anti-Chinese.

“China has already sent the message that it will not sit idly if the development activities in Nepal undermine its interests here,” Nepal’s former ambassador in Beijing Mahendra Bahadur Pandey told Nepali Times. “China has been concerned about the MCC from the very beginning, and views it with suspicion.”

MCC: damned if we do, damned if we don’t, Nepali Times

China’s objection to the MCC is most noticeably expressed through op-eds. Wang Yiwei, a professor of international relations at the Renmin University, in one interview with nepalkhabar.com last October called the MCC ‘an American ploy’.

Diplomatic affairs expert Geja Sharma Wagle says that besides the Americans, Nepal needs to balance the interests of its neighbours India and China as well. He says, “It is in Nepal’s best interest to implement both the American MCC and Chinese BRI projects based on our national needs.”

Many analysts see the MCC as America’s response to Beijing Belt-Road Initiative (BRI) which promotes connectivity and infrastructure in order to benefit China’s influence and trade in the region.

Apart from Dahal’s CPN (Maoist Centre) and Nepal’s CPN (Unified Socialist), other coalition members Janata Samajwadi Party and Rastriya Janamorcha are also against the American grant. Even the Hindu-Right Rastriya Prajatantra Party recently spoke against it. 

Deuba called an all-party meeting this week to discuss the MCC, but Oli did not show up. Representatives of other parties reiterated their opposition to the compact in its present form. Jhala Nath Khanal of Unified Socialists was once more named to a committee to further study the MCC agreement.

Dahal and Nepal used KP Oli’s support for the MCC against him in a bitter power struggle that did not just split the Nepal Communist Party, but also the UML. They were so successful in generating public opinion against the MCC, saying it was an American strategy against China, that they find it difficult to back it now, especially with elections a year away.  Dahal is also concerned about his Maoist Centre general convention.

At the height of political infighting last year, Chinese Ambassador Hou Yanqi lobbied unsuccessfully to keep Nepal’s communists united. Now that KP Oli is in the opposition, he is not as openly pro-MCC, but sees it as a weapon to get back at Deuba and Dahal by splitting their coalition — even if it means forging an alliance with the NC.

Nepal signed the MCC agreement in Washington in 2017 when Deuba led a similar NC-Maoist coalition. The US has repeatedly said that the project is a grant that Nepal qualified for, and has no strings attached. MCC Vice President Fatima Sumar and US Deputy Secretary of State Donald Lu visited Nepal recently, and reportedly gave Deuba an ultimatum to have Parliament ratification by the end of this year.

Experts say the MCC is important to expand Nepal’s power grid into the future with 400kVA transmission lines that can also allow Nepal to export more surplus electricity to India. Nepal will be generating 4,500MW of hydroelectricity in the next three years, and over 12,000MW by 2030, and much of it risks being wasted if it cannot be supplied to load centres. 

In monetary terms, Nepal’s power producers could lose at least Rs142 billion annually. Which is why energy experts say Nepal should start work immediately on transmission lines even if the MCC does not go ahead.

Although most of the $500 million project is for upgrading transmission lines, it will also improve highway connectivity in central Nepal to boost economic growth.  

Read also: The cost of no MCC, Nepali Times