Bridge between boulders

  • Nepal should invite both India and China to competitively invest in development and the economy
Bridge between boulders

Jul 24, 2014-

The simmering border dispute between China and India has come to the fore once again. On July 4, Beijing unveiled an official map showing areas disputed with India on both sides of the Line of Actual Control (LAC) in Ladakh and Arunachal Pradesh as Chinese territory. At the same time, the new Indian government under Prime Minister Narendra Modi has vowed to establish dozens of additional outposts and encourage settlement close to the LAC by investing in infrastructure.

These activities shed light on the underlying tension between China and India, with potential implications (risks and opportunities) for India’s closest South Asian neighbour, Nepal. Given Nepal’s strategic location, it is well-placed to act as a balancing influence on Sino-Indian relations. In this regard, it is in Nepal’s national interest to ensure that both China and India are well-served.

Strategic competition

India and China are geographically proximate giants, which makes it impossible for them to ignore each other. A sense of strategic competition can be seen between two of Asia's most populous states, and the border dispute provides a clear avenue for this. China has spent billions of dollars on infrastructure development on its Western front. While China sees this as a socio-economic activity aimed at linking the industrialised East with the rural West, India believes that such road and rail networks close to Indian borders would provide the Chinese military with a strategic capability to easily move troops and weapons should any tension break out. India, for its part, sees its own investment in improving security along the border as a decision long overdue.

China is also building ports in Pakistan, Bangladesh, Sri Lanka and Myanmar, in what is often referred to as the ‘string of pearls,’ which India believes is an attempt to keep Indian influence in check through a strategy of encirclement. Meanwhile, the influx of Tibetan refugees and their activities in India are viewed by China as inimical to its national security interests. China was not impressed to see the head of the Tibetan government-in-exile among Bharatiya Janata Party heavyweights.

Prime Minister Modi also holds Japan in high regard (his first overseas trip as PM after neighbouring Bhutan is to Japan), and is looking to court further investment from China’s historical rival. Globally, the talk of a stronger democratic diamond comprising the US, Japan, India and Australia with an eye on rising China has gained more currency.

Flourishing trade, domestic priorities

Such competition has not, however, impeded economic trade. Trade between China and India is increasing exponentially.

China became India’s largest trading partner in 2012, with trade exceeding $73 billion, according to the Indian Department of Commerce. Despite the figures, the market of both countries and expertise in complementary sectors means the potential for further trade remains huge. While China sees India as a major market for manufactured goods, India views China as a source of investment and a market for services.

Given India’s economic woes in the last few years, PM Modi fought the elections on a platform of development and economic growth. He has promised to revamp ailing infrastructure and increase Foreign Direct Investment to spur economic growth. In this respect, improving economic relations with China would be crucial. Constructive relations with China would not only help the Indian economy but also secure Chinese know-how and investment in infrastructure projects, which can be crucial to overcoming the infrastructure bottleneck in India.

Nepali gains

Strategic competition yet burgeoning trade between India and China puts Nepal in a unique position with potential risks and benefits. A major risk is that Nepal will get caught in the competition between China and India. It is a fact that India looms larger in the Nepali political spheres than any other foreign actor, including China. India sees Nepal within its sphere of influence. Therefore, any sign that Nepal is leaning away from India or seeking third-country support is viewed with suspicion by India.

The good news for Nepal is that Chinese and Indian interests in Nepal are not always competitive. Some interests are common, portending towards cooperation. Given that both countries' interest converge on having stable governance in Nepal and making sure that Nepali territory is not used by any third country against them, Nepal should work with its two neighbours to maximise development activities, with connectivity efforts along the Nepal-China border being one example.

Meanwhile, the 1,000km open border is a big concern for India. At the same time, China is interested in making certain that Tibetan refugees do not create any nuisance from Kathmandu. The success of Nepali diplomacy will depend upon identifying where these interests converge and diverge, and engaging appropriately with both New Delhi and Beijing as the nature of their interest demands.

As former Prime Minister of Nepal Kriti Nidhi Bista wrote on Setopati recently, Nepal was approached by the Nixon government in 60s to act as a bridge between China and the US, who were in talks over normalisation of relations. Due to Nepal’s lack of ingenuity at that time, the US sought Pakistan's help instead. Learning from this event, Nepal should now look forward to use its close relations with both neighbouring giants to help smooth communication between them in issues of strategic importance. It will not only help Nepal gain international prestige and goodwill, but is also important for regional security.

Economic opportunity

So far, most Sino-Indian trade is conducted via the sea, with the journey taking as long as a couple of weeks. However, with China developing rail and road networks close to the border, the possibility of trade between these two economic giants through the Himalayas is just a matter of years. In this, Nepal stands to gain in four primary ways.

First, infrastructure development close to Nepal’s borders will provide Nepal with a vital link to trade with these countries. As a response to Chinese rail networks in the west, India is also revamping its infrastructure on the northern front. Such competition will increase Nepal’s connectivity, if Nepal can develop infrastructure that links it to its neighbours.

Second, Nepal can serve as a transit for goods and services in Sino-Indian trade. In this way, Nepal will be able to benefit indirectly from the spectacular economic growth of its neighbours.

Third, Nepal can serve as an economic competing ground for China and India. China has been steadily increasing investment in Nepal, especially post-Janaandolan II, in hydroelectricity and infrastructure. Chinese newspapers even recently reported that China has become the largest foreign investor in Nepal, surpassing previously dominant India. Given that Nepal has enough projects to absorb investments from both China and India, investment competition between China and India can only benefit Nepal.

Finally, Nepal can take full advantage of the fact that both China and India are competing to increase their area of influence. Chinese and Indian aided projects can provide a much needed boost to developmental efforts in Nepal, providing employment, tourism and electricity, particularly at the impoverished border regions.

Balancing influence

Big opportunities await Nepal. On the one hand, Nepal faces big risks if it chooses to adhere to ‘zero sum’ logic. On the other hand, Nepal has bigger opportunities if it manages the competition between India and China in economic and developmental spheres. It is not about pitting one power against the other. That would be very risky for a small state like Nepal. It is about balancing influence, not power.

This does not mean that Nepal should view India and China in the same light. Historical, cultural, geographical and political realities mean that New Delhi is likely to loom larger in Nepali politics for a long time to come. Yet, in spite of these kinship ties, Nepal should not be prevented from welcoming a larger Chinese presence. Both countries should be given similar opportunities to compete.

This is possible if our leaders just don’t go to New Delhi seeking ministerial portfolios or visit Beijing as a mere exercise to drink wine with Chinese comrades. Unless Nepal has a long-term vision and strong commitment to pursuing that vision, the opportunities that await Nepal will be left wanting.

Sharma Poudel is a PhD candidate and Kam is a Research Associate at the S Rajaratnam School of International Studies, Singapore

Published: 24-07-2014 08:23

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