Nepal's strategic importance makes it courted by major powers

Like other nonaligned states in South Asia, Nepal seeks strategic space to pursue relations with China, India, and the United States on its own terms. That’s harder to do as countries fall over one another to court Kathmandu.

Feb 03, 2023
Victoria Nuland with PM Nepal Pushpa Kamal Dahal (Twitter)

China’s growing influence in Nepal has sent alarm bells ringing among South Asian watchers in Washington, fueling some "rapid-fire diplomacy", with the latest being the visit by Victoria Nuland, US undersecretary of state for political affairs, the most senior foreign official to travel to Nepal since Prime Minister Pushpa Kamal Dahal took office in December.

According to the South Asia Brief of Foreign Policy magazine, Beijing has no doubt increased investment and provided COVID-19 vaccines to the country,  but some of its other interventions are overtly political - it has reportedly sought to unite Nepal’s rival communist parties, which are ideologically aligned with China. These efforts appear to have paid off, as after elections last November the country’s two main communist parties formed a ruling coalition after burying their hatchet.

The United States has long viewed a closer partnership with Nepal as part of its Indo-Pacific strategy intended to counterbalance China. Last year, Nepal’s parliament ratified a $500 million Millennium Challenge Corporation (MCC) infrastructure grant after a five-year delay. For Washington, the package serves as pushback to Beijing’s infrastructure investments. Nonaligned Nepal initially resisted the grant in part out of fear that it would antagonize China. However, soon after Donald Lu, the top South Asia official at the U.S. State Department,  threatened to review future relations with Nepal, it was approved, Foreign Policy said. 

Unsurprisingly, keeping the MCC grant on track for formal implementation in August was a top discussion point while Nuland was in Kathmandu this week. But US-China competition loomed over her visit in other ways. She publicly lauded Nepal’s democratic successes since ending a decade-long civil war in 2006, contrasting this political evolution with unnamed autocracies. 

“We see autocrats trying to change the global rules of the road by force,” Nuland reportedly said in what was seen as a clear reference to Beijing. “That is not the Nepali way, and that is not the American way.”

Nuland also announced that the United States would invest more than $1 billion in clean energy, electrification, and small businesses in Nepal over the next five years. These plans conveyed the US intention to match China’s work in Nepal in terms of energy infrastructure investment as well as to fund projects in areas that Beijing has ignored. Nuland added that she supports Nepal’s “good relations with all of its neighbors,” a nod to the new government’s foreign policy emphasizing ties with both China and India, which also compete for strategic influence in the country.

Dahal has a long association with leftist politics—he was once a Maoist rebel leader—and has formed a new alliance with a party led by former Prime Minister K.P. Sharma Oli, who is seen as pro-Beijing. But Dahal’s party remains committed to ties with both of its powerful neighbors, which makes sense given Nepal’s history of nonalignment. It is also struggling economically, with inflation at its highest level in six years, and stands to benefit by courting financial assistance from both Beijing and New Delhi.

Still, managing geopolitical competition won’t be easy. Nepal’s implementation of the MCC grant will certainly spur China to pursue more investment, especially as recent projects have faced obstacles. That could prompt India to follow suit, with the United States—perhaps through financing from the International Development Finance Corporation—making additional pitches.

All of this would benefit Nepal’s immediate economic needs but perhaps not its long-term strategic interests. Like other nonaligned states in South Asia, Nepal seeks strategic space to pursue relations with China, India, and the United States on its own terms. That’s harder to do as countries fall over one another to court Kathmandu.

New Delhi is a U.S. strategic partner, and Washington is working to assist Colombo with its ailing economy. But Kathmandu has also quietly become a target of high-level US engagement, thanks to US-China competition, Foreign Policy said.  Nuland was visiting Nepal, India, and Sri Lanka this week. 

Nuland’s visit follows one last July by US Secretary of State Antony Blinken spoke with then Prime Minister Sher Bahadur Deuba last March. Samantha Power, the head of the U.S. Agency for International Development, will also visit this month, followed by another senior US official, Afreen Akhter.


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