The China Factor in Nepal-India Relations

Pramod Jaiswal - Research Director at Nepal Institute for International Cooperation and Engagement.

Nepal and India are two countries bound together in a complex web of linkages and contiguities that span across civilisational, historical, sociocultural, economic, geostrategic, and political terrains. 

The bedrock of the Nepal-India ‘unique’ relationship lies in the 1950 Indo-Nepal Treaty of Peace and Friendship that acknowledges mutual ancient relations and intends to take them to greater heights. India has played an important role in all the major political transitions of Nepal such as overthrowing the Rana regime in 1951, the introduction of democracy in 1959, the reintroduction of democracy in 1990, bringing Maoists to mainstream politics through the Comprehensive Peace Accord in 2007, and others. It is also Nepal’s largest security provider and the country that stands together in times of need. 

Both countries have a longstanding relationship in trade and commerce. India is Nepal’s largest trading partner both in terms of import and export trade, where India accounts for over two-third of Nepal’s merchandise trade, about one-third of trade in services, one-third of foreign direct investments, 100% of petroleum supplies, and a significant share of inward remittances on account of pensioners, professionals and workers working in India. Similarly, the security interests of Nepal and India overlap as they enjoy an open border which allows free movement of people, making it special and exceptional. However, in recent times, China is working to expand its influence in Nepal leading to competition with India.

India-China Competition for Influence in Nepal

With the changing geopolitical landscape of South Asia, Chinese interests and their policies in Nepal have also changed. In the past, Chinese interests in Nepal were limited to safeguarding their own security from issues emanating from Tibet and bringing some economic gains through bilateral trade. However, in recent times, China wants to gradually dilute India’s pre-eminent position in Nepal by increasing its influence. Hence, China has adopted a proactive and interventionist policy in Nepal unlike their ‘pro-establishment’ policy of the past. 

Traditionally, India has been the major country to provide for the development needs of Nepal such as Tribhuvan Airport, Tribhuvan Highway, Tribhuvan University, and several roads, irrigation projects, power and water supply projects, and others. But in recent times, China has also intensified its engagement in Nepal for influence through connectivity and mega development projects. It has constructed convention centres, hospitals, highways and others. It has also conducted the feasibility study to connect Kathmandu, Pokhara and Lumbini of Nepal with its Qinghai Railway, which connects Beijing and Shigatse through Lhasa. This comes at a time when India is working to extend its railway connectivity to six points along the India-Nepal border in Nepal – namely – Raxaul in India with Birgunj in Nepal, Jogbani in India with Biratnagar in Nepal, Jayanagar in India with Bardibas in Nepal, Nautanwa in India with Nepalgunj in Nepal, and New Jalpaiguri in India with Kakarbhitta in Nepal. 

In April 2018, India proposed to connect Raxaul of India and Kathmandu through an electrified rail line with Indian assistance. On the other hand, China is aggressively expanding its air connectivity in Nepal. Nepal is connected to Beijing, Shanghai, Lhasa, Guangzhou, Kunming, Chengdu and Xi’an via air while very few cities of India are connected by air, namely Delhi, Kolkata, Mumbai and occasional flights to Varanasi and Bangalore. With the inauguration of two new international airports at Pokhara and Lumbini, it is believed that more Chinese cities will be connected to Nepal in the coming days.

There have been very strong cultural and people-to-people ties between India and Nepal, which is the strongest aspect of their relations that China can never replace. However, to begin with, China has been conducting many social and cultural activities in Nepal through China-funded NGOs, media outlets and study centres to promote Chinese language and culture to enhance people-to-people ties. Like India, China has also been proactive in engaging with the political parties of Nepal in recent times. Media reports also suggest that China played an active role in bringing the leftist Communist Party of Nepal-Unified Marxist Leninist and Communist Party of Nepal-Maoist Center together and initiating a merger.

In order to accelerate their economic engagement by increasing trade volume, China and Nepal have opened six trade points along the Nepal-China border. In April 2019, Nepal and China signed the protocol on implementing the Agreement on Transit and Transport. It allows Nepal to use four Chinese seaports in Tianjin, Shenzhen, Lianyungang and Zhanjiang, and three land ports in Lanzhou, Lhasa and Shigatse for third-country imports. Although it has ended Nepal’s total reliance on India for trade and transit as Nepal could use six dedicated transit points, the feasibility of Chinese ports can be questioned.

India is Nepal’s largest trade partner while China is its second. India accounted for 62% of Nepal’s total trade in FY 2019/20, while China accounted for 14%. India ranked as Nepal’s third largest bilateral development partner by disbursement in FY 2019/20, after the United States and the United Kingdom; China occupied the fourth place. Similarly, there is competition between China and India in terms of investment as their investment sectors overlap in Nepal. In recent days, most of the construction contracts in Nepal goes to the Chinese companies as they are the lowest bidder.

China and India also compete in the security sector. Strategic ties and military-to-military relations between Nepal and India have been deep-rooted and historic. Nepalese Gurkhas have participated in all the major operations undertaken by the Indian Army since its independence. The Chief of Army Staff (CoAS) of Nepal Army is honorary CoAS of Indian Army and vice-versa. Since 1962, India has been providing weapons to the Nepal Army with 70% of the aid in the form of grants. Following the conclusion of the Comprehensive Peace Process and with the integration of former Maoist combatants into the Nepal Army, Nepal sought $18.33 million worth of military supplies from India. India has also supported the construction of the National Police Academy as well as several other military infrastructure and training systems in Nepal. 

Likewise, a major portion of Chinese assistance is also in the security sector as it wants Nepal to curb ‘pro-Tibetan’ activities in Nepal. Nepal houses the second largest number of Tibetan refugees in the world and China looks at them with concern. Thus, since February 2001, there has been a sharp increase in Chinese assistance in the security sector of Nepal. In October 2018, China increased military support to Nepal by 50% to strengthen the Nepal Army’s disaster management capabilities and to better equip Nepal’s United Nations Peacekeeping Missions.

Furthermore, in response to the regular joint military exercise between India and Nepal, China began the first ever joint military drill ‘Sagarmatha Friendship’, which was a major turning point in bilateral defence cooperation. The second such exercise was conducted in September 2018. In the past, the Nepal Army had held military exercises with India and the US only.

Conclusion

Nepal-India relations are unique and exemplary. India is the first country that comes to Nepal’s rescue at the time of need. However, in recent times, China is increasing its influence in Nepal through its economic and political engagement which has led to competition in Nepal. In spite of that, there is a long way for China to go to match with India as the India-Nepal relations are deep rooted and it goes back centuries.

However, the 2015 ‘unofficial economic blockade’, the recent border row between India and Nepal and new irritants have led to anti-India feelings in Nepal which has worked to China's advantage at times, which India needs to address.

(Exclusive to NatStrat)