An absolute monarchy from 1960-90, a
Constitutional monarchy until April 2008, Nepal adopted its new Constitution as
a multi-party democracy under a Federal Republic in Sept,2015 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
ballooned 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 and religious bonds and socioeconomic ties
have drawn India and Nepal closer. The Nepal-India
relations started deteriorating after New Delhi eschewed from ushering in
Nepal’s new constitution in September 2015. The ensuing border barricade foisted
by political parties further alienated the bilateral ties, with Kathmandu
inculpating New Delhi for the blockade.

China-Nepal relations go back into the border conflicts that resulted in
Nepal-Tibet-China war (1789-1792) over territorial dispute. Nepal and China
reinstituted diplomatic relations in the mid 1950s. Thereafter,
China has ceaselessly unfurl its 
influence on Nepal 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 cold
interests. Nepal should realise that “it is rather guileless to surmise that this
can come without any conditions or strings being attached to it.” Beijing’s
contemporary promises of support for Nepal will thus also come with a price.
The cases of Myanmar and Sri Lanka since the 2000s bespeak the Chinese strategy
with all its calamitous repercussion, as ostentatious infrastructure projects have
expeditiously turned into liabilities for the host countries, increasing their
debt and, in turn, allowing Beijing to metamorphose its financial leverage in
the region. Nepal is irrefutably
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



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