Nepal’s Relations with Rising China and Prospect of Trilateral Cooperation – Telegraph Nepal

– Pradhumna B. Shah
Former Ambassador to Brazil
And (Dean of the SAARC Group of Ambassadors in Brazil)

Nepal-China Relations:

Although relations between Nepal and China were formalized following the establishment of diplomatic relations in 1955, their friendly relations date back to time immemorial.

China is Nepal’s close friend, trustworthy neighbor and a reliable development partner.

They have been maintaining exemplary friendship without any issues of severe and controversial nature.

Nepal is firm on its ‘One China Policy’ and is committed not to allow any kind of anti-China activities on its soil. Irrespective of size, levels of development and different political systems, Nepal and China have always respected each other’s sovereignty, political independence, territorial integrity and economic development.

The visit of the President of Nepal to China in March 2019 and the official visit of Chinese President Xi Jinping to Nepal later the same year in October are considered significant in the annals of resetting Nepal-China relations as both sides elevated the relations to a “Strategic Partnership” featuring everlasting friendship for development and prosperity.

The Chinese President also pledged to assist Nepal in transforming it from a landlocked country to a land-linked country, which will definitely help Nepal coordinate its economic activities across geographical regions.

These visits were preceded by the visit of Prime Minister of Nepal in June 2018 during which fourteen different agreements/MoUs/LoEs including Memorandum of Understanding on Cooperation in Railway Projects were signed between the two governments.

Nepal’s journey from Silk Road to Belt and Road Initiative (BRI):

Historically, Nepal already allowed the trans-Himalayan routes for trading of wool, salt and many other products between China and South Asian nations.

The routes known as salt trade routes along the trans-Himalayan trails in the northern belt of Nepal are yet popular conduits for trade between Nepal and Tibet.
With the signing of the MOU on Cooperation under Belt and Road Initiative (BRI) in 2017, a new chapter of bilateral cooperation between Nepal and China has begun.

While China’s rise has been spectacular, the BRI will undoubtedly give benefits to many countries in the region and eventually Nepal gets opportunities for mammoth benefits in the areas of investment, connectivity, trade and people-to-people relations.

Given the prospect for the financial integration and policy coordination between the two countries, BRI could be an instrument for Nepal to get access to the global value chain.

Among the nine projects under BRI flagship (4 roads, 2 hydroelectricity plants, 1 cross-border railways, 1 cross border transmission line and 1 technical institution), the Trans-Himalayan railway project carries much attraction for Nepalese because it could be an economic and geopolitical game-changer.

A feasibility study for the electrified train link from Kerung to Kathmandu via Langtang region and Rasuwa (72.25 Km which will cost over 3 billion US$) and onward to Pokhara and Lumbini was completed in 2018.

But not much has happened, mainly because of project’s technical and geological challenging nature (over 95% pass through high terrain with bridges and tunnels) compounded by political indecisiveness in Kathmandu.

However, China has committed for DPR during President Xi’s visit to Nepal and the Chinese side has also announced that roads and railway projects connecting Tibet and Nepal fall under their priorities.

Further, the financing part of the project has become a riddle to be solved. (Nepal may consider to follow the cost benefit model like Laos and Thailand (30:70) did for their just completed and ongoing trans-border railway projects under BRI, if not possible for full Chinese grant assistance).

The Chinese offer to use its three dry ports: Lanzhau, Lhasa and Shigaste and four sea ports: Shenzen, Lianyungang, Zhanjilang and Tianjin for Nepal’s trade also has great significance in the attempt to become a land linked nation.

As Nepal links China with South Asia, China, too, is a gateway for Nepal to diversify its trade relations.

The transit and transportation agreement signed with China has provided Nepal with access to the sea through Tianjin, the largest port (nearest from Nepal 3300Km away) in Northern China and maritime gateway, for its third country trade.

However, viability of using them becomes manifest only in the aftermath of operationalization of major Nepal-China cross border points through connectivity and realization of BRI projects in Nepal.

Rise of China, changing global and regional dynamics and Nepal:

The center of gravity of the global economy has been shifting towards Asia where China has a lead role to play.

China has made unprecedented progress through socio economic transformation in the last seven decades since the founding of People’s Republic of China.

On completion of centenary of the CPC, China has recently introduced a new robust and innovative development design matching to upcoming global challenges.
The challenges posed by China’s rise have led powerful countries to adopt a stringent approach to ensure a rules-based order in the region from the Pacific to the Indian Ocean broadly known as the Indo-Pacific strategy (IPS).

A four nation Quad (India, Japan, Australia and USA) approach wherein India has a central role, is considered an extended hand of the IPS.

Recently, a new security pact has also been announced by UK, US and Australia (AUKUS) aimed to counter the challenge posed by China’s military presence in the Indo-Pacific region.

These developments which have increased the focus of powerful nations in the Indo Pacific maritime domain have evolved the most vulnerable flash point for their rivalry and potential clash.

The Indo-Pacific maritime corridor, through which over sixty percent of global trade passes (more than 5 trillion dollars), also houses ten out of twenty fastest emerging economies of the world.

The strategic importance of Nepal situated between the rising global power China and regional power India has become a matter of greater global concern.

This has, in tandem, offered myriad challenges as well as opportunities for Nepal.

To augment benefit out of the situation in favor of national interest is the great challenge for Nepal and showing its favor to neither neighbor demands a high degree of diplomatic maneuvering taking into account the sensitivities of both neighbors.

Nepal needs to rethink seriously not only to develop clarity but also to build reliability in its meaningful relations with China for its prosperity and secure future.

There is no need to make any fundamental change in Nepal’s basic priorities and dynamics with regard to relations with China, except timely tuning in its relations addressing the sensitivities and developments taking place in rising China.

The smooth partnership between Nepal and China has so far crossed more than six and a half decades.

China has become the largest source of foreign investment, second largest trade partner, second largest source of inbound tourists and a major development partner of Nepal.

While rejoicing in China’s achievements and successes we wish to get spillover benefit to make Nepal prosperous.

Pursuit of our cooperation with China should focus primarily on connectivity, production and technology.
Concerns of global powers while engaging with China:

As the economic growth of China is sustained, the rise of China is globally professed as a significant transformation in the global economic, political and military balance of the 21st century.

The Indo-Pacific strategy (IPS) has emerged as a reaction to China’s strategic build up in the South China Sea and its Belt and Road Initiative (BRI), which is a massive design to create a cross-continental geo-economic and geo-strategic space, both on land and sea, through infrastructure, investments and connectivity.

If any question of redefining IPS or MCC and BRI arises, answers would depend on exploring ways to disassociate it from security obligations of the projects and accepting economic assistance from all friendly nations without undermining the paramount interest of the nation at all.

As Nepal is marching ahead towards graduating from LDC to a developing nation’s status, our developmental pursuit should orient itself to self reliance as against over dependency on grant assistance with loaded conditionalities.

We should also carefully refrain from accepting projects under foreign loans which may lead us to a debt-trap.

Nepal as a sovereign, independent and non-aligned nation needs, and should maintain, cooperative friendly relations with China and India as well as with other powers but not at the cost of one and the other.

Nepal, at the same time, also needs to formulate a clear neighborhood policy focused on addressing issue based engagement.

Difference on an issue should not affect the very bedrock of friendly relations existing between and among friendly countries.

While Sino-U.S and Sino-Indian relations are at their lowest point in decades, Nepal needs to adopt a policy strategy by meticulously sidestepping from their likely implications on its foreign policy.

Nepal’s prospects for bridging the two most populous Asian markets:

In view of the tendency of shifting power and development pivot to Asia and in the context of Nepal being situated between India and China, this country occupies an extremely strategic and advantageous location, which is beneficial to investors, manufacturers and businessmen in setting up their business in Nepal with access to huge markets close to one third global population.

The location of vast BEMs of over two and half billion populations on the north and south sides from Nepal provides greater prospects of luring multinational conglomerates to this country as the factors of production i.e. land and labor are comparatively cheaper in Nepal.

(In the context of current shifting trend of American and Japanese companies to Vietnam, Thailand, Bangladesh, India etc. from China).

Despite competition and adversarial relations on many counts, India and China have collaborative and cooperative relations on many issues.

This becomes clear when we look at a record of trade between India and China that reached $114 billion this year, despite Sino-Indian border tussles and corona pandemic.

Even Bangladesh’s trade with China has crossed $13 billion. India’s export to China has also considerably increased in 2021 narrowing its balance of payment with China compared to earlier years.

If we look at the nearest past, there was noticeable progress in resetting India China relations when PM Modi and President Xi had multiple rounds of Wuhan and Chennai informal meetings in April 2018 and October 2019 respectively.

Based on the Wuhan spirit of cooperation, it was agreed to steer and map out a long term strategic perspective and work to realize the great rejuvenation of two great civilizations.

Nevertheless, the Doklam and Galwan Valley (Ladakh) border standoff between China and India of recent past had considerably eroded their relations with room for chances of improvement as both the top leaders so far have not made any scathing comment on their border skirmishes.

Moreover, they have various forums to meet and reconcile the differences like SCO, BRICS and G-20 among others, where both India and China meet frequently in the sidelines.

Chinese and Indian defense ministers met in Moscow in 2020 Sept in the margin of SCO which paved the way to defusing the possible clash in the Sino-Indian borders.

Further Russian President Putin has planned to convene soon an India, Russia and China (IRC) summit aimed to improve Sino-India relations.

Being close and populous markets for their supplies of raw and finished products, both countries are under compulsion to work together to achieve developmental thrust by creating conducive conditions to improve their bilateral ties and promote pragmatic cooperation.

India is fully aware that it is eager to join Nuclear Supply Group (NSG) and aspires to get UN Security Council membership for which Chinese support is imperative. Besides, they share many common positions with regard to trade, climate change and multilateralism.

Nepal has the potential to serve as a bridge between South Asia and China leading eventually to Central Asia through transit and connectivity.

Trade between India and China via Nepal would be reduced to 2/3 of their transit cost compared to maritime route currently being used by them.

(Distance from Kunming to New Delhi via HK sea is 10437, through land via Nepal it is 2911 KM and from Kunming to Chennai via sea it is 7004 via land Nepal 3564KM).

Thus, using the corridor of Nepal would not only save time and cost to both China and India for their merchandise but also help divert the maritime congestion of the Indo pacific waters and save fossil fuel burning in the cargo ships.

The two major electric railways projects are in pipeline in Nepal after the signing of agreements with China from Kerong to Kathmandu and with India form Raxaul to Kathmandu.

It gives a clear indication that both India and China are keen to execute their ever growing trade via Nepal.

In view of these developments, it is justifiable for Nepal to pronounce the proposition of making Nepal a vibrant economic bridge between China and South Asia.

And, this would be the most opportune time and cost effective route for trading with all stakeholder nations in the region, which is expected to create a win-win situation beneficial to all.

For this, Nepal should opt for equal partnership unlike 2+1 concept floated during second Chennai informal meeting held between Indian and Chinese leaders.

Additionally, this route will also help bring together the peoples of two great Asian/ ancient civilizations as well.
What further endeavors do Nepal need to strengthen and diversify its relations with China:

Today, while China’s global influence has increased manifold and its growing global engagements have generated a sense of an emerging new world order, how Nepal could reap benefits from the rise of China should be an important concern for Nepal.


In the process of resetting Nepal’s relations with rising China some points to be considered are given below:

-Replace the Nepal-China Peace and Friendship Treaty of 1960 in line with the term strategic cooperative partnership for development and prosperity and a land linked nation as stated during Chinese President’s visit to Nepal in October 2019. (Peace and Friendship Treaty (1960); Boundary Treaty (1961); Cultural Agreement (1999): Treaty of Trade and Other Related Matters (2002); Transit and Transport Agreement (2016), MoU on Jointly Developing Belt and Road Initiative (2017); MoU on Cross Border Power Transmission Line (2018); MoU on Railway Cooperation Projects and Mutual Legal Assistance both signed in (2019). (Three separate draft extradition treaties from China, India and Pakistan are pending in the court of Nepal).

-Enhance the level and number of connectivity opening more north-south corridors closer to the northern border points and facilitate the transport of goods and people. Out of 43 cross border entries along Nepal-China borders, six are currently feasible and three of them are strategic whereas only Rasuwa/Khasa are operational. —-Develop road, railway links, pipelines and transmission lines connecting Nepal and China in all feasible border areas so that Nepal can benefit from the proximity to China.

-Lobby for the execution of the railway project connecting Kerung with Kathmandu, under the Chinese grants, rather than soft loans. It is perceived that China will eventually benefit after the realization of proposed Kerung and Raxaul Kathmandu railways with access to South Asian market and India, too, will get easy access up to Central Asia.

-Chart out a future course of China-Nepal relations in the twenty-first century and adopt a vision roadmap for mutual cooperation to promote enduring friendship.

-Develop conducive environment for exports from Nepal to China by developing more production hubs (Agriculture/herbs/assembling/mining exploration etc.) closer to the border aimed at giving export cargo load to the returnee wagons of proposed trans-Himalayan railways.

-Lure innovation based technologies from China and enhance transmission grid connectivity along the borders for future export of hydro energy from Nepal. We need to conclude power trade agreement with China as well.

-Address concern and sensitivities of China and explore Nepalese worker’s involvement in the massive development undertaking in Tibet as the working population there is very small. (Tibetan refugees residing in Nepal appears to be a hurdle for opening sensitive border points and also for jobs to Nepalese workers in Tibet despite their dearth of workers due to aging and controlled child policy).
-Completion of a new trade agreement with removal of all unnecessary trade barriers for easing the export trade from Nepal to China and prepare a blueprint/ viability for use of three dry ports and four sea ports agreed upon for use of import/export to China and beyond from Nepal.

-Historically Nepal-China relations flourished on the bedrock of cultural connections. We need to capitalize on cultural and civilizational connections as strong soft power for mutual benefit by establishing monuments of legendary figures like Shakyamuni, Fa Xian, Bhrikuti and Araniko in Nepal and China symbolizing their historic contributions, thereby help promote pilgrimage tourism.
-Resolving border differences, if any, and opt to set zero pillar in both tri-junction areas of Nepal-India and China borders. A proposal to develop a trilateral SEZS with land of all three nations in tri-junction (near Darchula and Taplejung of Nepal) for development of the people of that area could be a lofty idea, if agreed upon by the trio nations, as move to resolve tri-junction border dispute.

End Text.
-About the author: Former residential Ambassador of Nepal to Brazil and accredited to Argentina, Paraguay and Chile, during which he become the first dean of the SAARC Group of Ambassadors in Brazil.

# Text courtesy: Association of Former Career Ambassadors of Nepal(AFCAN). Volume 2, 2021.
Thanks the AFCAN and the distinguished author Mr. Shah: Ed. N. P. Upadhyaya.
Our contact email address is: editor.telegraphnepal

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