Nepal asks China to cancel loan

KATHMANDU, Nepal — Nepal’s new international airport opened last year in one of the country’s largest cities, a milestone project expected to boost the wealth of one of Asia’s poorest nations while deepening its ties with China, which built and financed the project.

But the Pokhara airport has become a symbol of another kind: the shortcomings of China’s international infrastructure projects, which have been criticized for being expensive, poor quality and leaving borrowing countries with huge debts.

Nepal’s one-month-old government, led by Nepal’s largest Communist Party, which has close ties with Beijing, formally asked China on Thursday to convert a $216 million loan for the construction of the airport into a grant and cancel the debt. The government also invited a Chinese delegation, including Chinese Vice Foreign Minister Sun Weidong, to visit Nepal.

The airport has been plagued by problems. In January 2023, a few weeks after it opened, a domestic flight bound for the city crashed into a river valley, killing 72 people. The airport has not attracted any scheduled international flights, which has dimmed the project’s financial prospects. Over the past year, Nepal’s anti-corruption agency and a parliamentary committee have begun investigating the airport’s construction.

Last year, The New York Times reported that China National Mining and Engineering Corporation, a unit of state-owned enterprise group China National Machinery Industry Corporation, had inflated project costs and undermined Nepal’s efforts to monitor construction quality.

China is estimated to have provided more than $1 trillion in loans and grants for international infrastructure projects through its Belt and Road Initiative, a signature initiative of President Xi Jinping. The initiative is part of Beijing’s efforts to build economic and diplomatic ties with other countries while building a lucrative portfolio of construction works for its state-owned enterprises. But for some developing countries, the loans have become a financial burden that they are struggling to repay.

Nepal’s Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel said in an interview on Friday that Nepal has asked China to become “our neighbor” as Nepal is still working to revive its economy.

“We are hopeful,” Paudel said, declining to elaborate.

The Chinese Embassy in the Nepalese capital of Kathmandu did not immediately respond to a request for comment.

If Beijing agrees to Nepal’s request, it will once again show that the new Nepali government’s relations with China are strengthening.

In July, Nepal’s largest Communist Party joined forces with the Nepali Congress, the largest party in Nepal’s parliament, to form a coalition government led by Karnataka Prime Minister Sharma Oli, a three-time prime minister known for opposing influence from India, Nepal’s southern neighbor and a regional rival of China.

His administration has wasted no time in courting Beijing, and on Thursday he overturned a ban his predecessor had imposed less than a year ago on TikTok, a popular social media app owned by the Chinese tech giant ByteDance.

On the same day, Nepal also said that the two countries had agreed to a series of development projects, including the upgrading of two roads leading to the Chinese border. The two sides also agreed to build integrated checkpoints along the Nepal-China border.

Nepal’s economy, which relies heavily on remittances and tourism, has struggled to recover since the coronavirus outbreak. An international airport in Pokhara, a picturesque city nestled in the foothills of the Himalayas, is seen as a way to boost tourism and inject new life into the economy.

But so far the airport has not attracted any commercial international flights, largely because India refuses to allow its airlines to fly in and out of Pokhara. That has raised concerns that the airport’s revenue will not be enough to repay the loan from China Exim Bank, which Nepal plans to start repaying in 2026.

Meanwhile, two investigations into the airport’s construction are ongoing. Nepal’s Commission for the Investigation of Abuse of Power is looking into reports of corruption at the Chinese construction company, which compromised construction quality in order to maximize profits. Nepali officials are also accused of taking kickbacks in awarding the contract to China International Engineering Corporation. Nepal’s parliament has set up a separate committee to investigate possible irregularities in the construction.

CAMCE did not respond to a request for comment on the investigation.

Binoj Basnyat, a retired Nepali general and researcher at Thailand’s Rangsit University, said China may convert the loan into a grant because it wants to build a strong relationship with the Nepal Communist Party. He also pointed out that agreeing to the request would have another benefit for China.

“The investigation into the corruption allegations will be concluded soon,” Basniat said. “No one will talk about it anymore.”

This article was originally published on The New York Times.