Nepalese Prime Minister Pushpa Kamal Dahal (left) at the Great Hall of the People in Beijing, China, on March 27. Photo: Reuters / Lintao Zhang

Having previously been almost entirely dependent on India for its trade, Nepal is slowly, but surely, coming out of decades of economic isolation. Like other regional countries, it is reaching out to China, another immediate neighbour, to strengthen economic relations, and is keen to tap into the latter’s New Silk Road initiative.

Nepal’s Prime Minister, Pushpa Kamal Dahal, who just attended the Boao Forum for Asia’s annual conference in China, is reported to have expressed his country’s full support for Beijing’s ‘One China’ policy and eagerness to receive Chinese investment under ‘One Belt, One Road.’

While no new agreements were signed during the visit, Nepal’s foreign minister did apprise the media of the PM’s intention to convey to China’s Xi Jinping Nepal’s desire to be involved with OBOR.

China has been involved in building important infrastructure in Nepal, notably to establish a new trade route from Tibet to Kathmandu, via Mustang, for some time.
Its presence in the region has been seen by other countries, particularly India, as a move towards undermining support for the Tibetans: Nepal houses numerous Tibetan refugees and it is from there, China believes, that separatists continue to operate and receive succour.

One of the projects, signed in 2016, envisages the construction of a 450-kilometer railroad connecting the town of Xigaze, in the Tibet Autonomous Region, to the town of Gyirong, near the Sino-Nepalese border by 2020.

This project, when completed, would not only enable Nepal to send its goods to Chinese ports – and from there connect with the outside world – but also allow it to reduce its dependence on the Indian port of Calcutta, which it has been using in accordance with the Nepal-India transit treaty.

For Nepal, therefore, China offers an opportunity to build an alternative geography of trade, with the Silk Road representing a means to widen its exports and imports.

For China, Nepal’s relations with India will have an impact on the trajectory of its own bi-lateral relations with the former

From China’s perspective, there has to be more. It hopes to neutralize the “Tibetan threat” on its way to dominating South Asia. Bi-lateral co-operation, therefore, has to go beyond mere economic relations and Nepal’s participation in OBOR. Co-operation in military matters is crucial and, so far, it has not been up to the point where China can use Nepal to effectively deal with the issues it faces in Tibet.

Military co-operation is still being discussed. It would certainly irk India, which surrounds Nepal on three sides. The challenge for Nepal, therefore, is to walk a cautious path between China and India and try use its geographical location to its advantage.

The gravity of the situation is evident from the fact that Indian Army chief General Bipin Rawat arrived on a four-day official visit to Nepal on March 28. His visit comes just after the country hosted China’s Defence Minister, Chang Wanquan – the first such visit in 16 years – and is preparing to participate in a joint military exercise with the PLA later this year.

For China, Nepal’s relations with India will have an impact on the trajectory of its own bi-lateral relations with the former.

This was pretty evident from the way China reacted to the Nepali PM’s visit to India in September 2016. Global Times, a newspaper under the auspices of the Chinese state-run People’s Daily, ran a provocative story warning Nepal over its growing ties with India and describing Nepal-China relations as “fragile and sensitive.”

The Nepali PM’s visit to China, in this context, seems to have been greatly colored by a desire to of re-gain China’s confidence, or what Xi has called the imperative of building “political trust” and enhancing co-operation “on issues concerning core interests and major concerns.”

The message to Nepal is clear. Meanwhile, the emphasis the country has put on joining OBOR signifies its willingness to re-align itself in the India-China power equation.

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