China's silent foray into Nepal

Nepal, a tiny, landlocked nation in the Himalayas, has traditionally been dominated by its giant neighbour, India. Defeated by British Indian forces in the Gurkha War, it became an imperial protectorate. Then, following independence in 1947, the new republic of India controlled it as a client state. Nepal was important primarily as a buffer between India and China, which annexed Tibet in 1950.

But now the tables are turning. India’s influence in Nepal is declining, and China’s is on the rise. Beijing’s regional ambitions have encountered resistance in Pakistan, Maldives and elsewhere, but, in Nepal, it is on a roll. And with President Xi just back from a visit to Kathmandu (the first trip by a Chinese president since 1996), Delhi is scrambling to recover some of its lost influence, while plans are afoot in Washington to counter China’s expansion.

When Narendra Modi became prime minister in 2014, Nepal was still firmly within New Delhi’s orbit. The two countries share long-standing cultural and religious links, and operate an open-border policy.

India has long been Nepal’s top trading partner and main source of imports, and Nepali traders depended on India’s ports. Modi’s “neighbourhood first” policy got off to a promising start, with an increase in development aid.

But India has squandered its dominant position thanks to misguided policies that have oscillated between bullying and neglect.

In 2015, for example, New Delhi objected to Nepal’s new constitution for allegedly discriminating against the Madhesi ethnic people who have close ties to India. Rioting broke out and India imposed an unofficial blockade on imports of fuel and essential supplies at a time when Nepal was already reeling from a recent earthquake.

Kathmandu blamed New Delhi for the disruption, and China stepped in with emergency oil supplies.

To make matters worse, Modi’s demonetisation of high-value rupee notes hurt Nepal, as its economy relies heavily on remittances from expatriate workers in India. Many Nepalis suddenly found their money had become worthless, and the Indian government seemed reluctant to address the issue. While the Bhutanese were promptly allowed to exchange their rupees, Nepal was left in the lurch.

Building blocks

In 2016 tensions escalated. Nepal’s president cancelled a trip to India and Kathmandu recalled its ambassador. Worse still, prime minister K P Oli visited Beijing, where he signed agreements on trade and transport. Crucially, China offered Nepal access to some of its ports, challenging India’s importance as its only route to the sea. That deal was finalised in May.

China has also agreed to construct a railway linking Tibet with Kathmandu, which could eventually become part of the Belt and Road Initiative (which Nepal joined in 2017). This hugely ambitious project would involve tunnels running through the world’s highest mountains.

The route may be impossible to build, and it is uncertain who would foot the bill. It might also have a military dimension, facilitating troop deployments towards India.

During Xi’s trip, China and Nepal upgraded their ties to a “strategic partnership of cooperation.” Xi pledged almost $500 million in financial aid and signed 20 deals to boost trade, security ties, and connectivity, including the railway agreement.

A feasibility study has been completed, and a full project report must now be prepared. Chinese trains will not be rolling across the Himalayas any time soon.

Even if the railway does not materialise, connectivity between the two countries is already improving. China, Nepal’s main source of foreign direct investment (with India a distant second), is upgrading highways and bridges. Increased flights are bringing greater numbers of Chinese visitors to Nepal. Indian tourists have traditionally outnumbered those from other countries, but China is catching up.

Delhi responded to the growing Chinese role by increasing Nepal’s access to its ports and announcing its own railway project, which would link Kathmandu to the Indian border. In theory, this line should be much easier to develop, running, as it does, through flat terrain. But Nepal has angered India by insisting it use the standard gauge common in China, jeopardising the project.

China’s influence extends well beyond transport. A fibre-optic link was inaugurated in 2018, and Huawei concluded a deal this year to develop a 4G network. Chinese companies are also involved in hydropower projects. These, however, have been suffering from weak demand.

The problem? India, which has been importing less energy as it boosts domestic fuel supplies. Until recently Delhi blocked Nepali companies from importing electricity.

Growing footprint

Even in the religious domain, where Hindu-majority India enjoys a huge advantage, atheist China is making progress. It has tried to co-opt Tibetan Buddhism in Nepal, part of a broader campaign to marginalise Tibetan separatists led by the Dalai Lama and reinvent the faith as a Chinese religion.

Beijing has poured millions of dollars into Lumbini, birthplace of the Buddha, where it is funding a university, temples and an international airport.

Nepal is more than happy to play ball. A firm backer of the ‘One China’ policy, it banned the country’s 20,000 or so Tibetan Buddhists from celebrating the Dalai Lama’s birthday in Kathmandu this year, and investigated three Nepali journalists who had published an article about the inveterate monk’s health, seemingly at Beijing’s behest. China and Nepal are also expected to sign an extradition treaty allowing for the removal of Tibetan refugees.

While China has in recent decades refrained from exporting its Maoist ideology abroad, preferring a pragmatic and flexible approach to foreign relations, Nepal’s government is communist and appears to be enhancing its ideological ties with the Chinese Communist Party (CCP). For example, a large CCP delegation recently visited Kathmandu for a two-day symposium on “Xi Jinping Thought” with the Nepali prime minister and his party.

China’s rising influence has prompted Washington to push back. In a 2019 report, the Department of Defense named Nepal as a partner in its Indo-Pacific Strategy. There have been various high-level visits, including one by a Pentagon official this year who warned that China’s support should serve Nepal’s interests, clearly alluding to the debt burdens Beijing has allegedly been imposing on poorer nations. China responded with a furious statement.

Nepal is apparently resistant to Washington’s designs. After a trip to the US last year, the foreign minister denied that his country had signed on to the Indo-Pacific Strategy. And, during a recent visit, his Chinese counterpart Wang Yi said that Nepal “disagrees” with the American strategy, prompting an irate US embassy in Kathmandu to seek clarification from Nepal’s government.

The US apparently wishes to beef up defense ties with Nepal, but it will have its work cut out trying to rival China. In 2018 Chinese military aid rose by 50 percent on the previous year, and in 2017 the two militaries conducted their first ever joint drill. Another drill followed in 2018, just days after Nepal had withdrawn from exercises with India. Beijing has also funded a new police academy. India promised to build one, but never delivered.

This is not to say that Nepal will become a Chinese puppet. Prime minister Oli has repeatedly stated that he wishes to balance between Beijing and New Delhi.

Nepal’s relations with India indeed remain strong, despite recent tensions. And it is still early days for the Belt and Road in Nepal, which could well encounter some of the same debt and financing problems that have beset Chinese investments elsewhere.

Since the end of its civil war in 2006, Nepal has shown a growing independence, part of a broader pattern in South Asia whereby small states traditionally within Delhi’s orbit have courted China to hedge against excessive Indian influence and diversify their foreign relations.

China’s role in Nepal has had positive results, forcing India to up its game and deliver more, as the recent completion of an oil pipeline ahead of schedule shows.

India, to its credit, is realising that it can no longer treat Nepal and other states like colonial dependencies. The days of the British Empire are over, although its shadow remains.