AFTER Prachanda, the leader of Nepal's Maoists, stepped down as prime minister in 2009 he several times met representatives of the “Asia Pacific Exchange and Co-operation Foundation”. The Nepalese media speculated that this mysterious organisation was a front for either the Indian or the Chinese intelligence services, the two giant neighbours often accused of meddling in Nepal's politics. The truth seems even stranger.

In July Chinese media reported that the Hong-Kong-based foundation—which is widely thought to have China's backing—had signed an agreement with UNIDO, the UN's industrial-development organisation, to invest $3 billion in Lumbini, a village in southern Nepal. Lumbini is the birthplace of the Buddha, which the project aimed to make a “Mecca for Buddhists”, with train links, an international airport, hotels and a Buddhist university.

The news caused uproar in Nepal. Neither the central government nor the local authorities responsible for Lumbini said they had been consulted about, or even heard of, the project. UNIDO's officers say they will not comment on the affair while they try to discover how the organisation got involved. If this was an exercise in Chinese “soft power”, it was a disaster.

India is highly sensitive to Chinese activities in Nepal. It regards Nepal as part of the Indian sphere of influence, and it is easily Nepal's biggest trading partner and source of investment. Nepal pegs its currency to the Indian rupee. Through close cultural and linguistic ties, and the machinations of its diplomats and spies, India has long exercised a strong influence on Nepal's politics. It is widely believed that India helped topple Prachanda (whose real name is Pushpa Kamal Dahal) as prime minister in 2009 partly because he was thought to be too close to China.