Nepalwas an absolute monarchy from 1960-90, a Constitutional monarchy until April2008. In Sept 2015, Nepal adopted its new Constitution as a multi-partydemocracy under a Federal Republic, for the first time since its founding in1768. Nepal occupies a strategiclocation along the Himalayan foothills dividing China and India. Out of the two neighbors, India provides it with the moreconvenient trade route geographically.
The terrain between Nepal and India comprisesof mountains ranging between 600 meters and 2,200 meters, valleys and plains.In contrast, the terrain to Nepal’s north consists of mountains with an averageheight of 6100 meters, which face the arid Tibetan plateau. Most of the passesbetween Nepal and China are snowbound throughout the year. Hence, travel andtransport through the Indian plains is the easier option. With travel to theIndian plains easier and with less daunting terrain, the 1751 km longIndia-Nepal border is a porous one. India has beenNepal’s largest trade partner, accounting for nearly two-thirds of Nepal’sforeign trade and providing a market for around 70 percent of its exports.
According to a Nepal Rashtra Bank report, “India’s share of Nepal’s exportsballooned fourfold while its share of imports swelled three times” between the1990s and 2010 (Kathmandu Post, February 4, 2014). As for foreign direct investment (FDI),until recently, India was Nepal’s largest investor (Kathmandu Post, July 21, 2014). It has played an important role in Nepal’sinfrastructure building, especially in the construction of roads, bridges,airports and hydropower projects as well as in the development of its humanresources.
Bilateral defense relations have also been robust with India beingNepal’s largest supplier of military equipment. Also, the two militariescooperate through joint exercises, training and educational exchanges. Cultural and religious bonds and socioeconomic tieshave drawn India and Nepal closer. The Nepal-Indiarelations started deteriorating after New Delhi refrained from welcomingNepal’s new constitution in September 2015. The subsequent border blockadeimposed by political parties further soured the bilateral ties, with Kathmandublaming New Delhi for the blockade.WhileChina-Nepal relations go back into the border conflicts that resulted inNepal-Tibet-China war (1789-1792) over territorial dispute. Nepal and Chinaresumed diplomatic relations in the mid 1950s. Thereafter,China has constantly spread its influence on the Himalayan Kingdom by expanding greater economiclinkages and extending substantial military assistance to Nepal.
As India is the largesteconomy of south Asia and has been emerging as a leader of South Asiancountries, China wants to contain India’s growing power and status which maybecome a threat to Chinese dream of becoming the superpower. In 2011-2012,India-Nepal trade was USD 3 billion and the total volume of trade between Nepaland China amounted to USD 1.2 billion. To enhance these ties, China has offeredzero-tariff treatment to 60 per cent products of Nepal. When there was blockadeof fuel and necessary supplies on India-Nepal border due to protest by Madhesi,China gave 1.
3 million liters of petrol to Nepal as a grant, with the promiseof following up after a commercial arrangement was signed between companies onthe two sides. In 2014, China overtook India as the biggest sourceof Nepal’s foreign investment. Nepalese see Chinese aid as positive because ofits focus on infrastructure development, an area in which Chinese seem to have beenexcelling. China’s open diplomatic policy in Nepal remains to exploit theresources of Nepal and take advantage of Indian market. Hence, it has completed22km road in central Nepal connecting its southern plains with Kyirong, countyof Tibet, making the shortest motorable overland route between China and India. Chinaalso has deeper motives than just business cooperation.
The Tibetan communityin Nepal is a serious concern for the Chinese authorities. In particular, theclandestine operations that have its roots in Nepal pose greater challenges forthe unity of China’s southern periphery. In April 2008, China could use itsinfluence on Nepalese administration to crackdown on Tibetan activities. Hence,it is not wrong to state that China’s business ties are redefining the powerequations with that of Nepal. Beijing’sBelt and Road Initiative (BRI) is a possible alternative gateway forNepalese access to China, Central Asia, and Eastern Europe. TheBRI, which is exclusively focused on bridging the infrastructure gap, canhelp fill the financial and material void of the Himalayan nation, remarkableopportunities for tourism and export for Nepal.
China in2014 proposed the Trans-Himalayan EconomicCorridor to connect with Nepal which will reduceNepal’s dependence on India for transit as an economic corridor. China andNepal are also discussing a rail link.China has also completed a highway linking Kathmandu to Kodari nearNepal’s border with China. Several other roads followed such as theKathmandu-Bhaktapur highway and the Kathmandu-Pokhara highway.
China is alsoinvesting in hydropower projects,cement, real estate and tourism in Nepal. Chinese FDI in Nepal has surgedin recent years, in fiscal year 2012-13, it touched $19.39 billion (30.89percent of Nepal’s total FDI) to topple India as Nepal’s top investor (GlobalTimes, August 21, 2013).
Nepal will also have to realise that like free market economics, thereare also no free lunches in geopolitics. Beyond China’s idealist narratives of”win-win,” all countries are driven by cost-benefit calculations and interests.Nepal should realise that “it is rather immature to think that this can comewithout any conditions attached to it.” Beijing’s current promises ofsupport for Nepal will thus also come with a price. The cases of Myanmar andSri Lanka since the 2000s reflect the Chinese stratergy with all itsdevastating consequences, as grand infrastructure projects have quickly turnedinto liabilities for the host countries, increasing their debt and, in turn,allowing Beijing to convert its financial clout in the region. Nepal is certainlynext in line and the sooner it prepares for China’s financial juggernaut, thebetter. Besides such long-term consequences of Chinese economic assistance,Kathmandu would also do well to remind itself of the risks of banking onBeijing to bail it out of Indian pressure.
While a more powerful China is nowwilling to hold Nepal’s hand much longer in such situations, as during the 2015blockade, when it offered Nepal alternative fuel supplies. It will continue tolet go as soon as the costs of jeopardising relations with India outweigh thebenefits of supporting Nepal. Past crises, whether in the late 1980s or mid 2000sshow that when Delhi and Kathmandu are on a collision course, China willeventually back off, leaving Nepal out in the cold. However, inspite of the newfound bonhomie with China in terms of infrastructure development, trade tiesetc, Nepal should be vary of China considering the way she treats TibetAutonomous Region(TAR) and its interference in Myanmar’s internal affairs.Nepal should also not alienate India, a time tested friend, in terms of ethnic/cultural relations, trade ties and military ties without any expansionistdesigns.