China Closely Watches Nepal Crisis... The Collapsing Belt and Road Initiative [Sisasyo]

Nepal Faces Surging National Debt and Widespread Protests
Major Setbacks for Belt and Road Initiative Across South Asia

■ Broadcast: The Asia Business Daily 'So Jongseop's Current Affairs Show'

■ Host: So Jongseop, Political Specialist

■ Director: Ma Yena, Producer

■ Guest: Reporter Lee Hyunwoo

A major political upheaval has occurred in Nepal. The sudden collapse of the Nepal Communist Party regime, led by former Prime Minister Sharma Oli, has resulted in the formation of an interim government, with general elections scheduled for March next year. At the heart of this crisis lies China's Belt and Road Initiative (the land and maritime Silk Road) and the resulting sharp increase in national debt, drawing significant attention.

Nepal's Pro-China Government Collapses Overnight... Public Outrage Over Belt and Road Initiative

On the 10th (local time), the Kathmandu Hilton Hotel in the capital of Nepal, Kathmandu, is burning due to anti-government protesters. Photo by AP Yonhap News

The speed of Nepal's regime collapse shocked the world: it took just six days after attending China's Victory Day event on September 3. Former Prime Minister Sharma Oli attended China's Victory Day celebrations on September 3, but just two days after returning, large-scale anti-government protests erupted on September 5, and by September 9 the regime had completely collapsed. The prime minister resigned, cabinet members fled abroad, and with the government paralyzed, an interim government was hastily established.

The backdrop to this sudden collapse was the economic pressure from Belt and Road Initiative projects with China, which led to severe hardship for ordinary citizens. The forces leading the protests expressed strong anti-China sentiment, which is analyzed as the result of accumulated dissatisfaction with Belt and Road projects over the past several years. The Belt and Road Initiative has been a double-edged sword for developing countries. While it offers opportunities for industrial development through large-scale investments in railways, airports, and roads, all costs ultimately become national debt, creating the risk of unmanageable financial burdens.

Nepal and China signed a memorandum of understanding on the Belt and Road Initiative in 2017, but for seven years progress was sluggish until full-scale projects began last year. This was due to serious disagreements within Nepal's political circles. The ruling Nepal Communist Party had actively supported the Belt and Road Initiative based on its close relationship with China, while the centrist-left Nepali Congress called for a more cautious approach, emphasizing the need to balance relations with India, the United States, and other Western countries.

The sharp increase in government debt following the launch of Belt and Road projects was a key factor in the crisis. The government debt ratio, which was around 20% of GDP until 2015, soared to 44% this year. In just a few years, the debt more than doubled, mainly due to consecutive large-scale infrastructure projects such as airport and railway construction. Nepali citizens complained that the Belt and Road Initiative only made Communist Party elites richer while making ordinary people poorer. This accumulated resentment ultimately led to the collapse of the regime.

Difficult to Maintain Pro-China Policy for Now... Fatal Blow to Belt and Road Initiative

Sushila Karki, Prime Minister of the Nepali Interim Government. Photo by AP Yonhap News

The Nepal interim government has announced that general elections will be held in March next year. Given the current spread of anti-China sentiment in Nepal, it is unlikely that a pro-China party like the Nepal Communist Party will regain power. Instead, there is a high possibility that a government seeking closer ties with India and the United States will come to power.

China's inability to protect the Nepal Communist Party regime is expected to negatively affect future China-Nepal relations. The collapse was so rapid that China had no time to intervene, and any rash intervention could have triggered responses from India and the United States, making China cautious. As a result, there are growing expectations that many existing Belt and Road projects in Nepal will be delayed or canceled. Considering Nepal's geopolitical importance, this would be a major setback for China's South Asia strategy.

Nepal's geopolitical position is extremely important for China's Belt and Road Initiative. The core of the initiative, the overland Silk Road, aims to connect China and Europe, and as previously planned routes have been blocked, the detour through Nepal has drawn attention. China initially pursued a northern route from Xinjiang through Afghanistan and Iran to Europe, but construction became difficult after the Taliban returned to power. The second alternative, the Tibet-Kashmir-Pakistan-Iran route, was blocked by the China-India dispute over Kashmir.

As a result, the third alternative route-Sichuan-Tibet-Nepal-India-Pakistan-became the focus, with expectations that it could serve as a hub directly connecting Southeast Asia via Bangladesh. However, with the collapse of Nepal's regime, even this route has become uncertain. An even more serious issue is the impact of the Nepal crisis on other South Asian countries. Anti-Belt and Road protests are already at high levels in Indonesia, Sri Lanka, and Bangladesh, and with Nepal's regime collapse broadcast live worldwide, anti-government protests in these countries are being further fueled.

If pro-China governments in South Asian countries collapse in succession, the Belt and Road Initiative will inevitably face major setbacks for some time. The United States and India are quickly moving to fill the vacuum created by China's waning influence. Since 2023, India has launched the 'India-Middle East-Europe Economic Corridor' project, similar to the Belt and Road Initiative, with participation from the United States, Saudi Arabia, and the European Union. If the balance of power in South Asia tilts toward the United States and India, China will be forced to make a strategic retreat from the region.

Concerns Over Further Escalation of Military Tensions in Northeast Asia

Yonhap News Agency

With a retreat from South Asia expected, China is likely to seek dominance in its core area, Northeast Asia. This could increase the risk of military conflict with the United States, especially tensions surrounding the Taiwan Strait. The presence of North Korea adds another variable to the already complex situation on the Korean Peninsula. While conflict may decrease in South Asia, the possibility of increased Chinese military provocations in Northeast Asia cannot be ruled out.

If pro-China governments collapse in South Asia, where China and India have been in direct confrontation, and the Belt and Road Initiative faces setbacks, China is likely to focus even more on expanding its influence in Northeast Asia. This could heighten military tensions in the region, including the Korean Peninsula. In addition, as the limitations of the Belt and Road Initiative become apparent, changes are expected in China's economic diplomacy strategy. This could also impact South Korea's strategy for economic cooperation with China, making it necessary for the government to conduct a thorough analysis and develop response strategies.

The political changes that began in the small country of Nepal have shaken China's massive Belt and Road Initiative and could alter the geopolitical landscape of all of Asia. The lesson from this event is significant. It is now time to closely monitor developments in South and Northeast Asia and devise strategies to minimize risks and maximize opportunities for South Korea's national interest.