The race for influence in South Asia

Nepal's foreign minister, Shisir Khanal, visited China from June 14 to 17, following a trip to India. During his talks with Chinese officials, the long-standing issue of Lipulekh and Limpiyadhura, which China considers a bilateral matter between Nepal and India, was raised. Beijing also voiced concerns regarding the US-funded Millennium Challenge Compact (MCC) project and the State Partnership Programme, both of which Nepal ratified in 2022 and 2017 respectively.

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whether it is a gift or Pandora’s box, and that such assistance should not interfere with Nepal’s internal affairs.

China has viewed the MCC, a $500 million grant aimed at strengthening governance and investments in Nepal, with significant suspicion. A spokesperson for China's foreign office questioned whether the grant was a 'gift or Pandora's box,' emphasizing that such assistance should not infringe upon Nepal's internal affairs. The China Daily further characterized the MCC as a 'Trojan horse,' accusing the US of undermining Nepal's sovereignty. These sentiments were echoed by some Nepali policymakers and academics, who perceive the MCC as part of the US's broader Indo-Pacific strategy.

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Such concerns were also expressed by some Nepali policymakers and academics. In fact, MCC is seen as a part of the US’s Indo-Pacific strategy.

The article draws parallels with Sri Lanka's experience with the MCC. Sri Lanka, after initially applying in 2005 and later qualifying in 2015, was offered a grant primarily for transportation improvements and land record digitization. While the transportation component promised significant economic returns, the proposed digitization of state land records, particularly in the North where land ownership is sensitive, raised suspicions about US intentions. Critics noted that the US had previously opposed certain UN Human Rights Commission votes concerning Sri Lanka.

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According to the Sri Lankan government, the proposed digitisation would have an economic rate of return of 26 percent.

Despite the Sri Lankan government's projections of economic returns from digitization, the debate over the MCC grant became entangled with sovereignty concerns. Clauses granting the US significant influence, coupled with existing controversial agreements like the Acquisition and Cross Service Agreement (ACSA), fueled public and political opposition. Ultimately, the US withdrew the MCC grant in 2020. Shortly thereafter, Sri Lanka plunged into a severe economic crisis, declaring bankruptcy. The article notes that the debate over sovereignty, prominent in Sri Lanka's MCC discussions, was notably absent from Nepal's discourse.

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Therefore, the US withdrew the MCC grant in 2020, saying it depends on whether Sri Lanka wants to be part of it.