A new chapter in age-old Nepal-China ties opened in 1955 when Nepal established diplomatic relations with the People’s Republic of China and recognised Tibet as being part of it. Three important developments have further deepened and widened these bonds. The first is the recent economic blockade imposed by India. The second is the One Belt One Road (OBOR) Initiative undertaken by China. The third is China’s rise as the second most important economic, military and political power.

A turning point

The Indian embargo lasted from September 2015 to February 2016 and caused tremendous hardship to the common Nepalis as cooking gas, fuel and other essential supplies became scarce. This led to an immediate understanding between Kathmandu and Beijing that Nepal should not depend completely on India; this understanding gained wide political and public support. In March 2016, Nepal and China signed 10 agreements and memorandums of understanding on, among other things, using China’s sea ports, building a regional international airport in Pokhara, exploring the possibility of signing a bilateral free trade agreement and prospecting for oil and gas reserves in Nepal. While a lot of work is yet to be done to operationalise these pacts, this was a turning point in Nepal-China relations.

Two other points are worth stressing in the context of a paradigm shift in China-Nepal ties. One, China used to follow a hands-off policy regarding Nepal’s internal political issues. This changed in July 2016 when it unsuccessfully tried to save the KP Oli administration, seen as being more pro-China, from being replaced by Pushpa Kamal Dahal, who is seen as being more pro-India. Two, the Chinese People’s Liberation Army (PLA) and the Nepalese Army held a joint military drill for 10 days in Kathmandu last April. The exercise had been planned to last longer, but it was scaled down due to Indian lobbying. Nevertheless, the message it gave to the southern neighbour and the West was clear.

China has also been deepening its engagement in Nepal in the social and economic sectors. Nepali politicians, professionals, military leaders, business persons, journalists and youths are increasingly being invited to China for seminars, consultation and pleasure visits. A similar flow of Chinese visitors to Nepal has visibly increased. More and more Nepalis are learning Mandarin and going to China for higher studies. China is Nepal’s second largest tourist source market after India. China seems to be determined to deploy its ‘hard’ and ‘soft’ power to strengthen its influence in Nepal.

Naturally, a section of the Indian establishment and media resent Nepal’s widening ties with China. They believe that Nepal has gone a bit too far and too fast in enhancing relations with its northern neighbour. Interestingly, Nepali political leaders have been increasingly and more consistently supporting the change in Nepal-China relations.

The OBOR agreement signed by Nepal and China on May 11 encompasses five broad areas: 1. Policy coordination on issues related to economic development, 2. Facility connectivity in areas of roads and railways, 3. Trade connectivity (economic zone, industrial park and dry port development in border areas) to strengthen trade and transit, 4. Financial integration (opening of Chinese bank branches and priority to payment in Chinese and Nepali currencies) and 5. People-to-people contact (increasing media relations, visits by parliamentarians and officials and private sector collaboration). This represents another landmark in China-Nepal relations.

Balanced relations

India has strong reservations over OBOR, and it skipped the Beijing Belt and Road Forum (BRF) held from May 14-15 expressing concerns over the China-Pakistan Economic Corridor (CPEC). Without referring to India’s objections, Chinese President Xi Jinping said at the BRF, “All countries should respect each other’s sovereignty, dignity and territorial integrity, each other’s development paths and social systems, and each other’s core interests and major concerns.” Talking to the Times of India, Nepal’s envoy to India Deep Kumar Upadhyaya defended Nepal’s decision to join by saying, “We are aware of India’s reservations about CPEC, and are not taking any position on the issue by joining OBOR.” He added, “But it cannot remain indifferent to a big economic power like China as it seeks more foreign investment and development.”

Nepal-China relations have been long and friendly. China’s engagement in Nepal’s internal politics, greater interaction with security forces and the OBOR agreement point to a paradigm shift in recent times. The five-month-long Indian blockade in 2015 brought Nepal and China much closer as Nepal sought alternative supply sources to avoid overdependence on its southern neighbour. Also, it gave China an opportunity to further expand its role in Nepal. However, any realist understands that it will not be possible to fully replace India. The southern neighbour will continue to be a more cost and time effective source of supplies and trade for Nepal.

While OBOR offers opportunities for Nepal to attract Chinese investment in infrastructure, the benefits may not be as great and achieved as fast as our politicians and media would have us believe, unless proper planning and implementation of OBOR-funded projects is undertaken wisely. Also, Nepal falls at the periphery of the OBOR Initiative. India’s objection to OBOR is likely to affect Nepal’s benefits and engagement. Funding for projects under OBOR will be loans, not grants. Unless the infrastructure developed with loans generate enough income through productive economic activities, it might turn out to be a liability as loan repayment and interest payment may unduly burden our economy.

However, this does not mean that Nepal should not be part of OBOR. It should devise projects and institutions to extract the maximum benefit and further strengthen relations with China. It would be difficult for Nepal to fully ignore the concerns of India in many economic, security and strategic areas. Consequently, it is in Nepal’s best interest to have realistically balanced relations with both India and China, including matters related to trade, investment, geo-politics and OBOR.

Pudasaini has served as a UNFPA representative in Sri Lanka and Yemen and country director in the Maldives