Nepal imports swelled three times” between the

Nepal
was an absolute monarchy from 1960-90, a Constitutional monarchy until April
2008. In Sept 2015, Nepal adopted its new Constitution as a multi-party
democracy under a Federal Republic, for the first time since its founding in
1768. 
Nepal occupies a strategic
location along the Himalayan foothills dividing China and India. Out of the two neighbors, India provides it with the more
convenient trade route geographically. The terrain between Nepal and India comprises
of 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 average
height of 6100 meters, which face the arid Tibetan plateau. Most of the passes
between Nepal and China are snowbound throughout the year. Hence, travel and
transport through the Indian plains is the easier option. With travel to the
Indian plains easier and with less daunting terrain, the 1751 km long
India-Nepal border is a porous one.

India has been
Nepal’s largest trade partner, accounting for nearly two-thirds of Nepal’s
foreign 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 exports increased
fourfold while its share of imports swelled three times” between the 1990s 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’s
infrastructure building, especially in the construction of roads, bridges,
airports and hydropower projects as well as in the development of its human
resources. Bilateral defense relations have also been robust with India being
Nepal’s largest supplier of military equipment. Also, the two militaries
cooperate through joint exercises, training and educational exchanges. Cultural, religious and socioeconomic ties have drawn
India and Nepal closer. The Nepal-India relations
started deteriorating after India refrained from welcoming Nepal’s new
constitution in September 2015. The subsequent border blockade imposed by
political parties further soured the bilateral ties, with Kathmandu blaming New
Delhi for the blockade.

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While
China-Nepal relations go back into the border conflicts that resulted in
Nepal-Tibet-China war (1789-1792) over territorial dispute. Nepal and China
resumed diplomatic relations in the mid 1950s. Thereafter,
China has constantly spread its 
influence on the Himalayan Kingdom by expanding greater economic
linkages and extending substantial military assistance to Nepal. As India is the largest
economy of south Asia and has been emerging as a leader of South Asian
countries, China wants to contain India’s growing power and status which may
become 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 Nepal
and China amounted to USD 1.2 billion. To enhance these ties, China has offered
zero-tariff treatment to 60 per cent products of Nepal. When there was blockade
of 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 promise
of following up after a commercial arrangement was signed between companies on
the two sides.  In 2014, China overtook India as the biggest source
of Nepal’s foreign investment. Nepalese see Chinese aid as positive because of
its focus on infrastructure development, an area in which Chinese seem to have been
excelling. China’s open diplomatic policy in Nepal remains to exploit the
resources of Nepal and take advantage of Indian market. Hence, it has completed
22km road in central Nepal connecting its southern plains with Kyirong, county
of Tibet, making the shortest motorable overland route between China and India. China
also has deeper motives than just business cooperation. The Tibetan community
in Nepal is a serious concern for the Chinese authorities. In particular, the
clandestine operations that have its roots in Nepal pose greater challenges for
the unity of China’s southern periphery. In April 2008, China could use its
influence on Nepalese administration to crackdown on Tibetan activities. Hence,
it is not wrong to state that China’s business ties are redefining the power
equations with that of Nepal. Beijing’s
Belt and Road Initiative (BRI) is a possible alternative gateway for
Nepalese access to China, Central Asia, and Eastern Europe.  The
BRI, which is exclusively focused on bridging the infrastructure gap, can
help fill the financial and material void of the Himalayan nation, remarkable
opportunities for tourism and export for Nepal. China in
2014 proposed the Trans-Himalayan Economic
Corridor to connect with Nepal which will reduce
Nepal’s dependence on India for transit as an economic corridor. China and
Nepal are also discussing a rail link.
China has also completed a highway linking Kathmandu to Kodari near
Nepal’s border with China. Several other roads followed such as the
Kathmandu-Bhaktapur highway and the Kathmandu-Pokhara highway. China is also
investing in hydropower projects,
cement, real estate and tourism in Nepal. Chinese FDI in Nepal has surged
in recent years, in fiscal year 2012-13, it touched $19.39 billion (30.89
percent of Nepal’s total FDI) to topple India as Nepal’s top investor (Global Times,
August 21, 2013).

 

Nepal will also have to realise that like free market economics, there
are 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 come
without any conditions attached to it.”         
 Beijing’s current promises of
support for Nepal will thus also come with a price. The cases of Myanmar and
Sri Lanka since the 2000s reflect the Chinese stratergy with all its
devastating consequences, as grand infrastructure projects have quickly turned
into liabilities for the host countries, increasing their debt and, in turn,
allowing Beijing to convert its financial clout in the region. Nepal is certainly
next in line and the sooner it prepares for China’s financial juggernaut, the
better. Besides such long-term consequences of Chinese economic assistance,
Kathmandu would also do well to remind itself of the risks of banking on
Beijing to bail it out of Indian pressure. While a more powerful China is now
willing to hold Nepal’s hand much longer in such situations, as during the 2015
blockade, when it offered Nepal alternative fuel supplies. It will continue to
let go as soon as the costs of jeopardising relations with India outweigh the
benefits of supporting Nepal. Past crises, whether in the late 1980s or mid 2000s
show that when Delhi and Kathmandu are on a collision course, China will
eventually back off, leaving Nepal out in the cold. However, inspite of the new
found bonhomie with China in terms of infrastructure development, trade ties
etc, Nepal should be vary of China considering the way she treats Tibet
Autonomous 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 expansionist
designs.