New Delhi between Kathmandu-Beijing

By – Samrat Shrestha

The late king Prithivi Narayan Shah, the founder of unified modern Nepal stated that ‘Nepal’ is like “Dui Dhunga Bich Ko Tarul”, a Nepali saying which translates to “A yam between the two big rocks”. This gives us a slight hint of what the position of Nepal is between the two giant nations India and China. Nepal has always been able to maintain a balanced relation with both of these nations from a very long time. There might arise some disputes and disagreements of Nepal with both China and India now and then but no one can deny that Nepal cannot afford to jeopardize its relation in a permanently adverse manner with either of the two Asian giants. In this context, what purview and policies have guided Nepal’s China outlook and what does the future hold for Kathmandu-Beijing ties in context of the New Delhi balance?

Geopolitical significance of Nepal for China

Nepal is situated right in the middle of India and China, the major emerging economies in the world. Nepal has a vital geopolitical significance because of its geography as it is one of the major gateways to central and south Asia for China.  One of the reasons why China has invested so aggressively in Nepal is because of its geographical significance and Nepal can be one of the major routes for China to trade with other Asian economies like India which is already emerging as one of the biggest markets for China.  

Nepal has a significant role in the foreign policy of China as it shares around 1400kms of border with Nepal and it is a major concern for the national security of China’s territory as well. China is already one of the major superpowers of the world and it has already started to have influence on the other nations from its foreign policy strategies . Belt and Road Initiative (BRI) is one of the most ambitious projects of 21st century that was put forward by President. Xi which incorporates the development of infrastructures and connect more than a hundred nations via the route that China plans to build by 2049. Although India remains the biggest investor for Nepal , China comes second. There have been many projects in Nepal  under the Belt and Road Initiative (BRI), one of the major projects that China has pledged to develop  under BRI is the trans-Himalayan railway route that connects Kathmandu with Xigatse via the Kerung border which is located in Rasuwa of Nepal. 

Nepal’s disputes with India and China’s stand

Nepal was hit by a massive earthquake in 2015 that killed around 10000 people and just after few months of the earthquake India imposed a harsh economic blockade in Nepal (although India denies the same). India wanted Nepal to make amendments in the new constitution of Nepal and India showed its disagreements in the constitution that was put forward by Nepal back then. There was a humanitarian crisis in Nepal following the blockade as there was shortage of major essential things that was imported from India like LPG gas, medicines and Petrol. Despite having a “bhai bhai” (elder and younger brothers) relations with India, the tyrannical economic blockade left a grudge in the heart of majority of people in Nepal against India at that time. Although India has always come forward to help Nepal in times of crisis, that one event left a negative mark on Nepal – India relations.  China, however, came forward to help Nepal and supplied essentials via the Kerung (Rasuwa) border and urged India to remove blockade as it was a sign of a hegemony against Nepal. Many international medias also highlighted this issue at that time. 

A previously ongoing dispute between Nepal and India came forward because of the border issues at  Kalapani-Limpiyadhura. According to the Sughauli treaty that Nepal signed with British East India Company in 1815 Nepal claims the territory to be its own. Former Prime Minister, KP Sharma Oli released a new map during the midst of the pandemic including the disputed area of Kalapani. India, however, has accused Nepal that it is acting in this way under the influence of China despite not mentioning China directly. The officials of China has not yet released a statement following this matter but it has taken this into consideration.  Despite all the disagreements with India, it still has a very good relations with Nepal and it will remain a “bhai bhai” in the future. There are bilateral talks happening to strengthen the relation with India in all aspects.

China in Nepali Politics

The bilateral diplomatic relations between Nepal and China were officially established in 1955. China was the fifth country that Nepal established diplomatic relations with as a sovereign multiparty democratic nation. The establishment of the diplomatic relation between Nepal and China was one of the major historical events of Nepal. After the establishment of Nepal – China diplomatic relationship, many treaties and agreements were signed between the two nations. There have been many high-level visits as well between the two countries that have helped to strengthen the relationship between Nepal and China.

China has shown its interest in Nepali politics for a long time and it has been a major development partner of Nepal for decades. The Communist Party of China (CPC) has also started its official relation with different political parties of Nepal. Even though the Nepal Communist Party (NCP) was groomed with the help of Communist party of India (CPI), NCP had no direct support or material support from Communist Party of China (CPC). However, the leaders of NCP were inspired by the revolutionary work of Mao and followed his path and morals to form a communist party in Nepa. Later the NCP was divided into other parties but they still followed the theories of Mao and the other faction of NCP was formed as Nepal Communist Party (Unified Marxist Leninist) in 1990 which later became oneof the major ruling parties of Nepal.

On the other hand, late B. P. Koirala was elected as the first prime minister of Nepal after being established as a democratic country in 1950. He visited China when he was still in power and established an official bilateral relation of his party Nepali Congress (NC) with the Communist Party of China (CPC) after meeting the Chairman of CPC Mao Zedong.  NC was the first non-communist party from Nepal to establish a bilateral relation with CPC. 

Recently when there was a dispute going on between the two factions {KP Sharma Oli and Madhav Kumar Nepal} of NCP, a high-level delegation from Communist Party of China (CPC) visited Nepal to help maintain the relation between two parties. Later it became a controversial topic in Nepal by the opposition parties on why is China interfering in the internal matters of Nepal. This shows us how much China is interested in political stability and overall phenomenon in Nepalese politics. 

Despite not having to release the official statement, China does not want Nepal to accept the counterpart of BRI in Nepal, the Millennium Challenge Corporation (MCC). MCC is an American foreign aid agency that provides aid to the developing nations to invest in infrastructures. Some believe that MCC is just another part of Indo Pacific strategy. China is definitely not in the favor of Indo Pacific Strategy because it is viewed as a strategy of USA to mitigate the rise of China as superpower and to minimize its dominance in the global economy. If MCC is passed in Nepal by the government there is no doubt that China is not going to be happy with the decision. However, there is this debate going on in Nepal whether to pass the MCC or not in the parliament of Nepal. Some politicians believe that MCC is just a grant to boost the energy sector in Nepal and nothing more while others believe that MCC will hamper the sovereignty of Nepal as US might deploy its military and create chaos in Nepal. The current Prime Minister, Deuba is known to be more tilted towards India and the USA rather than China from his political background and he is in favor of MCC while some of the leaders from the opposition parties like CPN (UML) are not in the favor of MCC. 

Potential of China-Nepal and Nepal-India ties

Nepal still has a huge amount of trade deficit with both India and China. If Nepal will be able do business in an efficient way with these giant economies there is no doubt that Nepal will head towards prosperity in no time. However, the environment for new startups and businesses are still not favorable in Nepal because of the lack quality education and proper training and more importantly the government policies are not entrepreneurial friendly which requires reforms from the policy level if we want to give capitalism a chance to thrive in Nepal. According to the doing business report of  The World Bank, Nepal falls in the bottom of the list among all the countries in the world which means that the environment is not quite friendly for new businesses to thrive in Nepal. Mother nature has gifted Nepal with so many wonders . The tourism sector of Nepal has a huge potential to attract tourists from all around the globe but it has not been able to do so because of lack of infrastructures and proper services facilities to the tourists. It requires funding from the foreign investors and there are many big investors in China and India willing to invest in Nepal if we can give them the proper environment  to make capital gains by reforming policies and by making it more investment friendly. Foreign Direct Investment (FDI) in Nepal is still very low because of inappropriate policies of the government, high taxes on dividend and things like chronic energy crisis. These things must be reformed in order to attract FDI in Nepal. The total revenue  of Nepal is not enough to make like tourism and energy sectors to thrive without FDIs and grants from big economies like China, India and the USA.

China has been a major development partner of Nepal for a long time; there are many projects that were built using Chinese assistance . Some of the major projects that was made possible from the assistance of China in Nepal are – ‘Ring road’ of Kathmandu, Narayanghat – Mugling highway, hydropower projects like Sunkoshi and Upper trishuli, BP Koirala memorial cancer hospital and so on. There are many other projects going on from the assistance of  China under the BRI in different sectors of Nepal. Some Chinese investors hesitate to invest in Nepal because of its political instability, strikes, high customs duty, and overall lack of investment friendly environment and government policies. However, Nepal is becoming more politically stable after going through many political revolutions and changes throughout the years and the government of Nepal is working on making better policies for foreign investments in Nepal.  There are around 1200 Chinese firms that has invested in Nepal in different sectors mostly in infrastructure and manufacturing sectors.

After India, China is the biggest trade partner of Nepal. However, the trade deficit with both India and China is increasing at an alarming rate since the exports from Nepal to these countries are very low and imports is massive. Different institutions like Federation of Nepal Chamber of Commerce and Industries (FNCCI), Nepal China Chamber of Commerce of Commerce and Industries (NCCCI) and  Nepal India Chamber of Commerce and Industries (NICCI) are working to promote the export from Nepal to China and India to minimize the trade deficit. Likewise, Nepal heavily relies on India for its imports because of the easy transportation routes and India has been a major trading partner for Nepal from centuries. The trade route of Nepal and China, however, is much more complicated than that of India because of its geography as there lies Himalayas in the north and it is very hard to build roads for transportation. There are projects going on in Nepal China border to promote the trade via the Kerung border.

Nepal has enormous opportunities because of its geographical and geopolitical significance. The center of economic gravity is shifting more and more towards the east and economists predict that it will lie somewhere between India and China in few decades and Nepal must prepare well and make significant changes if it wants to reap the benefits from the massive growth of its two giant and powerful neighbours.

Samrat Shrestha is currently working as a secretary and a researcher at Institute for International Relations Nepal (IIRN). He is an undergraduate student at China Three Georges University (CTGU) with a major in International Relations. His interest span across fields of Politics, Economics, International Relations, Foreign Policy and Entrepreneurship.

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