The “Great Game” of South Asia—and wider Asia—between India and China serves as the locus of great power competition between the two Asian giants. Both countries, seeking to cast off their former colonial status and assert themselves on the global stage, have been working on enhancing and consolidating their influence in their respective “near-abroads” and beyond. A significant source of ongoing tensions and rivalries comes from New Delhi’s and Beijing’s power plays in Himalayan countries, i.e. Bhutan and Nepal. Both Bhutan and Nepal have faced the critical and difficult decision in aligning their countries with either India or China. While Bhutan has leaned closer towards India, Nepal has been seeking greater ties with China.
Chinese-Nepalese ties, which were officially established in 1955 with the Sino-Nepal Treaty of Peace and Friendship, have recently been on the uptick. In the fiscal year of 2015-2016, China was the largest source of foreign direct investment (FDI), investing 57.47 million dollars. For the first half of fiscal year 2017-2018, China invested 76.39 million dollars. It is estimated that China provides up to two-thirds of Nepal’s foreign direct investment.
In addition, although India is Nepal’s largest trading partner—with China being a far second—such developments as India’s devaluation of its currency, the rupee, in 2018 caused great alarm for Nepal. With an estimated 1-2 million Nepali migrant workers in India, the value of the rupee is vital for the remittances they send back home. Thus, in order to diversify its economic ties, Nepal has been seeking other trading and investment partners, particularly China. In 2017, Nepal officially signed onto China’s signature infrastructure and investment project, the Belt and Road Initiative (BRI). Despite Indian pressure to stay out of the project, for Nepal the BRI represents an opportunity to further open up its markets to the rest of the world, reduce its reliance on Indian ports for access to maritime trade routes, and provide much-needed modernization of its telecommunications and transport networks.
Beyond economic ties, Nepal has been seeking stronger relations in the military domain with China. In June, Nepal’s Army chief General Purna Chandra Thapa traveled to Beijing to meet China’s Defense Minister General Wei Fenghe for a week-long official tour of the country. General Wei appreciated Nepal’s commitment to uphold the “One-China” policy, particularly with respect to Tibet and Taiwan. Meanwhile, General Thapa expressed appreciation for China’s assistance and affirmed Kathmandu’s commitment to greater cooperation between the two countries’ armed forces.
Returning back to economic ties, the most visible manifestation of such ties is the planned construction of railway lines. As early as 2006-2007 talks were in the works about a possible railway line linking Tibet to Nepal. However, momentum for carrying out the plan was frustrated due to complications and differing opinions between Beijing and Kathmandu. In 2008, it was announced that the Qinghai-Tibet railway line would be extended to Keyrung, along the border with Nepal. The Nepalese government wondered why the line would not be extended all the way to the Nepalese capital. China responded by saying that the project could work, with a feasibility study costing 35 billion Nepali rupees ($314 million). China wanted Nepal to foot the bill, while Nepal wanted China to do it for free.
In general, while Nepal seeks to finance railway construction through Chinese grants, Beijing has been more reticent and is only open to providing loans. Beijing would prefer to place greater financial responsibility on the host country. This aspect of the BRI is comparable to what international observers call a “debt trap.” It has been widely reported that the financial costs of infrastructure projects on BRI countries, particularly those in South Asia, have caused massive debt to China. This has been most visible in the Maldives and Sri Lanka.
In any case, both India and China have been eyeing infrastructure projects, such as railway lines, as critical means to extend their influence in such countries as Nepal. India wants to promote its “broad gauge” railway system, while China has been seeking to promote its “standard gauge.” While Nepal seeks to leverage its power by employing both systems, it has expressed its preference for standard gauge due to its relative cost efficiency and (by virtue of its name) its nearly universal use by the rest of the world.
Ultimately, however, such projects remain on the drawing board. Although government officials and Nepali citizens have expressed enthusiasm for railway lines, with their vast economic potential, such dreams and aspirations are unlikely to be fulfilled anytime soon. Despite expectations of a more activist foreign policy under the recently-reelected Prime Minister Modi, Biswas Baral, writing for The Diplomat, believes that India’s inability to complete infrastructure projects on time will stifle India’s railway line initiatives. At the same time, China doesn’t appear to be in much of a rush to build railway lines in Nepal. Already facing international criticism for its projects elsewhere and managing both slower growth rates and an ongoing trade war with the United States, China would likely place its financial resources elsewhere, to meet more immediate needs.
How the “Great Game” in Nepal will play out only time can tell. With both India and China focused on issues, both domestic and international, the main driver of future infrastructure development in Nepal will be Nepal itself. Recognizing both its needs and national interests, Kathmandu is likely to use its strategic location and economic potential as key assets in its dealings with its larger and more powerful neighbors. If Nepal can successfully navigate through its complex web of interactions with India and China and secure strategic gains vis-à-vis these two countries, the Himalayan country could transform its diplomatic and economic standing. Furthermore, due to historical ties, Kathmandu can operate as an anchor of cooperation between India and China.
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