An ambitious Chinese railway line across the Himalayas: a debt trap for Nepal?

The China Belt and Road Initiative (BRI) aims to redefine the global economy by connecting more than 60 countries in Asia, Europe and Africa through trade-related projects and infrastructure. In total, it is envisaged that almost two-thirds of the world's population will be in some way linked through BIS projects in the future. Some economists estimate that the BIS could increase world trade by 12%.

Despite these benefits, many questions have been raised about China's motives for this initiative and the question of whether Beijing could afford the trillion dollars that it has committed to projects. infrastructure and its partners can do it. to afford the debt that they take. Some fear that BRI will be a Trojan horse for global domination through debt traps.

Sri Lanka is often cited as an edifying account. Unable to repay its borrowings on a $ 1.5 billion port construction project, the Sri Lankan government agreed to give China a 99-year lease on the port. The Minister of Ports and Shipping said at the time.

We must make a decision to get out of this debt trap.

Nepal takes the plunge

Despite fears over loans, they can not repay. Many small countries have accepted the BIS as an alternative route to economic prosperity. Nepal is one of them – it entered the BIS last year with a lot of enthusiasm.

Then, in June of this year, the Nepalese Prime Minister, KP Sharma Oli went to China to sign agreements worth $ 2.4 billion, ranging from infrastructure and energy projects to post-disaster reconstruction efforts.

The culmination of these agreements is a bold plan aimed at railroading across the Himalayas. The line will link the Tibetan border town of Kerung with the Nepalese capital, Kathmandu, and the tourist towns of Pokhara and Lumbini (birthplace of the Buddha). The railway is considered a potential boon for the Nepalese tourism industry, with some 2.5 million Chinese tourists expected each year.

If the railway line is developed as proposed, Nepal would also be well positioned as the major trade hub between China and its rival, India. One study estimates that Nepali trade could increase by 35% to 45% when the railway line and other BIS infrastructure projects are completed.

The Chinese government has already conducted a pre-feasibility study on the Kerung-Kathmandu railway. He estimated that the 72.25 km line connecting the Chinese border to Kathmandu would cost 2.25 billion US dollars. (According to other estimates, the cost could be much higher.) The Nepalese railways say that 98.5% of the line would be crossed by tunnels and bridges because of the forbidden mountainous terrain.

Does Nepal incur a debt?

In Kathmandu, the main debate is whether the proposed railway line is technically and financially feasible and whether it is completed one day, if it is destined to become a white elephant – a expensive but largely underutilized transmission line.

Then there is the question of cost. In addition to the difficulties faced by Sri Lanka to repay the US $ 8 billion that it owes now to Chinese companies, many other countries are in the same situation.

Economists fear that Laos, which has seen its debt reach 68% of GDP, have difficulties paying a $ 6 billion railway line built by China. And in the Maldives, the opposition claims that the country is facing an imminent debt trap, with annual payments of $ 92 million due to China to pay for a modernization and airport bridge project, about 10% of the total budget.

In Nepal, the burning question was whether the trans-Himalayan railway line and other infrastructure projects would be built with similar loans or if the government would be able to get subsidies from China.

Nepali economists and planners believe that the railway line would be beneficial for the country's development, particularly because it would end Nepal's dependence on its traditional ally, India , for trade, fuels, food products and medical supplies.

The monthly blockade of the main trade route between Nepal and India in 2015 has given Nepalese policymakers more reasons to diversify their trading partners and better link them to global trade routes. Increased connectivity with China is also expected to boost Nepali special herbal exports and high demand agricultural commodities in China.

But given the debt problems in Sri Lanka and in other countries, the previous Nepalese government had initially been reluctant to follow. the same way in its relations with China. Last year, a Chinese power station built a $ 2.5 billion hydroelectric power plant due to the lack of a competitive bidding process. .

But since coming back to power in February, Oli has embarked on a much more favorable policy in Beijing. policies. Last month, he reinstated the hydroelectric power plant contract. And although Nepal is still seeking subsidies from China for the construction of the trans-Himalayan railway, it is not clear if Oli will make it a precondition for starting construction.

China offers low-rate loans to finance the railway. It also softened the deal in September by giving Nepal access to four of its seaports, which will for the first time provide Kathmandu with a viable commercial alternative to Indian ports.

Nepal and China have not yet reached an agreement on this issue. The issue of financing for BIS projects and construction has not started yet.

Interesting Interest in the @kathmandupost which seeks to overcome the fears of a Chinese debt trap in Nepal: https://t.co/ZEyBQAbFtK

– Amish Mulmi (@ amish973) 10 July 2018

Thinking Beyond the Traps of Debt

Indian politicians and media have been skeptical of China's efforts to try to convince Nepal, fearing BRI's efforts is a masquerade of Chinese rule through debt swap agreements. But India's real concern is to lose its long-standing influence on Nepal, with which it emerges a trade surplus of $ 5 billion.

For Nepal and other small countries in the region, however, the benefits that the BIS can bring, namely improved infrastructure and greater connectivity to the world – this seems too good to be missed . After all, Nepal's main concern is the economic growth, development and improvement of the livelihoods of its people.

For the country to really benefit from these projects, it must undertake them with caution, by putting in place good financing plans. The government sees these projects as potential mbadive political victories and could forget the security and financing issues when signing agreements with China.

But Nepal should not fall into the same debt trap as Sri Lanka; otherwise, his aspirations for a better future could turn into a mirage.

Jagannath Adhikari is an adjunct researcher at the Curtin University School of Design and the Built Environment

. This article was originally published in The Conversation . Read the original article.