China increases aid, FDI significantly to Nepal

Nepal's northern neighbour China has upped its annual grant assistance to Nepal more than five-fold to 800 million yuan ($128.3 million), a move that could raise eyebrows in India at a time when both the Asian economic powerhouses are trying to expand their respective footprints in the South Asian region.

On the same day that China and Nepal signed the increased aid at Nepal's finance ministry, China's Hongshi Holdings Group signed a joint venture (JV) agreement with Shivam Holdings Nepal to set up a Nepali Rs.30 billion ($29.9 million) cement factory in the largest foreign direct investment (FDI) pledge from Nepal's northern neighbour so far.

Hongshi Holdings will invest Nepali Rs.21 billion (70 percent) in the hydroelectricity project while the Nepali partner will inject Nepali Rs.9 billion.

China decided to increase its aid to Nepal at a time when both countries are celebrating the 60th year of the establishment of their diplomatic relations and ahead of the visit of Nepal's President Ram Baran Yadav to China by this month-end.

Chinese economic, political and strategic clout in the Himalayan nation is in the upward trajectory since 2008 when Nepal removed a century-old monarchy.

Nepal's Finance Secretary Suman Prasad Sharma and Chinese ambassador to Nepal Wu Chuntai signed an accord on the increased aid at the finance ministry on Tuesday on behalf of their respective governments.

Nepal has been receiving 150 million yuan annually as grant assistance from the China. The increased amount has been received under the Economic and Technical Cooperation agreement.

Nepal is planning to spend the increased Chinese aid in infrastructure-related projects and national priority projects in the next fiscal year.

Chinese envoy Wu said the Chinese government was keen to support Nepal in the development of socio-economic areas.

"These include programmes related to technical assistance, training and food security," he said.

Besides the increase in aid, China has also pledged to provide a soft loan to buy four Chinese-made aircraft for Nepal Airlines Corporation and is also going to construct a regional airport in western Nepal's popular tourist destination, Pokhara.

Similarly, China's Three George's Company is eying a 750-MW hydroelectricity project in Nepal.

China has also granted aid to build an academy for Nepal's paramilitary and Armed Police Force.

Chinese leaders have said that they support Nepal's bid to graduate from the Least Developed Country status by 2022 and would be supporting it in nine areas of cooperation in this respect -- trade, investment, agriculture, tourism, energy, science and technology, security, law enforcement, and human resource development.

Meanwhile, China has emerged as one of the largest sources of FDI in Nepal. It recorded the highest foreign direct commitment in the last fiscal year, according to the Nepal's industry department.

(Anil Giri can be contacted at girianil@gmail.com)