Photo: China-Nepal border at Rasuagadhi

Note: a different version of this article is posted on Hudson Institute blog

by Dr. Anil Sigdel

Nepal’s perception of the prospects of Chinese proximity has been a combination of hope, harmony, expectations, admiration, hesitation and uncertainty which has marked the character of Nepal-China relations since the Nepal-China Peace Agreement 1792 to Sino-Nepal Peace and Friendship Treaty 1960 to the end of the Shah dynasty in 2006. However, now, at the time of Chinese President Xi’s “new era”, China has demonstrated more clarity on its Nepal policy, i.e. an active engagement with Nepal.  From high-level visits to tourism, China has been critical in developing infrastructure in Nepal such as hydropower stations, telecommunications networks, roads, training centers and airports.  Nepal’s northern neighbor has increased its presence in the country, and has deepened the economic engagement between the two nations.

History of Nepal-China Relations

Unlike the historical, cultural and trade ties between Tibet and Nepal, Nepal and China were two distant and largely unfamiliar worlds. The introduction of Buddhism in China in the first century had opened the window for at least a Nepal-China cultural interaction. In the fifth century, the Chinese Buddhist scholar Fa-hsien visited Nepal and India and, subsequently, the Nepalese Buddhist scholar Buddhabhadra accompanied Fa-hsien to China, among other scholarly visits and exchanges. Similarly, in the thirteenth century, the Nepalese architect Arniko from Kathmandu was invited to China; he is known for building the White Stupa and the Miaoying temple in Beijing. However, by the 18th century, the Nepal-Tibet-China war added a state-to-state political dimension.

The political relation was characterized by a token of amity and politeness, quinquennial missions, and conferment of Chinese titles on Nepalese rulers (but also Rana’s intent to exploit China by covertly supplying opium). While Rana prime ministers apparently kept China close to balance the British in India to safeguard Nepal’s independence and sovereignty, the acceptance of Chinese titles by the Rana rulers evolved into open Chinese claims of suzerainty over Nepal in 1910. In 1913, a proposal came from China to include Nepal in the union of the “Five Affiliated Races” (the Chinese, Manchus, Mongolians, Tibetans and Muslims). The Rana PM Chandra Shamsher immediately protested, as did the British government of India, and the five-yearly mission to China and the receiving of Chinese decoration came to an end. And the Rana regime managed to get the British recognition of Nepal’s sovereignty in 1923.

The rulers’ acceptance of the symbolic Chinese titles was (mis)interpreted as Nepal being a vassal state of China, a China which was very much weakened in that period.  Besides, despite the obligation of the peace agreement of 1792, China’s refusal to come to Nepal’s help during the Anglo-Nepalese war (1814) citing the fact that the war was fought beyond the Tibetan territory had rendered any suzerainty claims baseless. Due to such claims, and Nepal’s repudiation, the bilateral relations went downhill for over four decades.

Nepal and Mao’s PRC

But things changed as a very new order evolved in the aftermath of decolonization. India became independent from the British rule 1947, Mao established the People’s Republic of China in 1949, and Nepal ended the Rana oligarchy in 1950. The post-colonial alliance of the third world countries based on the principles of peaceful coexistence and non-alignment movement gave the opportunity to Nepal and China to seal formal ties. The first meeting of the Nepal’s king Mahendra and the Chinese Premier Zhou-Enlai in the Bandung conference in Indonesia in 1955 –which paved the way for the non-alignment movement – immediately culminated into the establishment of diplomatic ties between the two countries, but Nepal soon lost its hegemony over Tibet. As China took control of Tibet, it started putting pressure on Nepal to abandon Nepal’s rights and privileges over Tibet which it had enjoyed following the 1855/56 Nepal-Tibet war.

Tibet was yet another reminder for Nepal, as a small state lying between the two big and powerful countries, of its fragility. Nepali Congress leader B P Koirala was quite unhappy and confused about the developments. He explained in his autobiography that he was asked by Nepal PM Tanka Prasad Acharya, who was under a lot of pressure from both China and India, for his quick advice on the matter. And when he asked for Indian PM Pandit Nehru’s view on that, to his surprise, Nehru also advised him to abandon Nepal’s rights over Tibet and cooperate with China as a demonstration of good faith, which Nehru said would be helpful for Nepal to have a good relationship with such a big nation like China. Disappointed, he told Nehru: “you gave Tibet to China on silver platter!” Nehru responded: “So what should I do, send troops to put Dalai Lama on his throne?”  Nevertheless, Nepal government decided on its own to cooperate with China.

When Koirala, as the first elected PM of Nepal, met Zhou in Beijing in March 1960, Zhou conceded that China wanted to befriend Nepal and help it financially in its endeavor to develop; however, he insisted that he would give less than what India did.  Subsequently, in his visit to Kathmandu in April 1960, to Koirala’s dismay, Zhou again emphasized the importance of India for Nepal, and gave him the impression that he saw Nepal within India’s sphere of influence. Zhou went on say that “we will not do anything that will cause discomfort in India”, although the India-China relationship was already crumbling. Another issue was the border settlement. During Koirala’s visit in Beijing, both sides agreed to smoothly settle the border on the basis of “existing customary line” through “friendly consultations.” In Beijing, Mao Zedong said to Koirala:  “we do not want a single inch of Nepalese land. Can we sign a border treaty and erect boundary markers?”. Both sides agreed.

However, the shock came to Koirala regarding the “sentimental question” of Sagarmatha /Mt. Everest/Chomolungma when Mao offered a “half for each side.” While Koirala never accepted that Nepal share the peak with China, he conceded China would not need Nepal’s permission to climb the Everest on the Northern face, giving de facto recognition to China’s position. Nevertheless, King Mahendra and China concluded the Nepal-China Boundary Treaty in Beijing giving a “permanent and overall settlement of the problems between the two countries left over by history” with the Mt. Everest lying on the border line. King Mahendra also accepted the Chinese proposal to build the Arniko highway, from Kathmandu to the Tibet/China border Kodari/Khasa/Zhangmu, a hundred-kilometer corridor; a proposal which was rejected by B P Koirala.

Meanwhile, with the Nepal-China economic aid agreement in 1956, the relationship matured into a phase that marks a respect for Nepal’s sovereignty, mutual harmony and Chinese aid. As Nepal pursued a one-China policy, China started major industrial and infrastructure gifts for Nepal’s economic development. Some state-owned industries with Chinese assistance that became household names in Nepal are: Bansbari Leather and Shore Factory Ltd. (1965), Bhrikuti Paper and Pulp Ltd (1985), Hetauda Textile Factory (1976), Butwal Thread Factory, Lumbini Sugar Mills and many more. Similarly, the ring road and trolley bus system in Kathmandu valley and the Kathmandu-Pokhara highway were among the visible Chinese contributions. But by the time the monarchy-led Panchayat system ended in 1990, the Chinese government investment had been in decline. But Chinese firms were increasingly involved in different projects. The post-Panchayat government of the Nepali Congress pursued market liberalization, thus sold those underperforming state-owned factories to private sector. The former Chinese Ambassador Qiu Guohang in 2010 expressed his sadness about the plight of those factories that were given to Nepal as gifts.

Politically China neither had much interest in meddling nor could influence effectively on the ground vis-à-vis domestic politics, India and the extra-regional powers. Therefore, apart from morally siding with the monarchy and providing arms on its request, China could not influence the growing tide to change the regime from Panchayat to parliamentary system. In the same manner, the monarchy ended for good in 2006, and China’s role remained similar. However, from there on not only Chinese goods started to flood Nepalese market as with the whole South Asian region, but also its political and financial engagement with the country saw a sharp rise. So much so that the leftist alliance’s impressive win in the recent federal elections is seen by many national and international observers as the result of China’s active backing of certain left leaders, mainly K P Oli, in the context of a strong anti-India sentiment in the country.

New Era of Chinese Engagement

Frequent high-powered governmental and business visits and increasing people-to-people connection have marked China’s approach in Nepal in the recent years. Distant and elusive China started becoming ever visible in Nepal by increasing connectivity. China and Nepal revised their Bilateral Air Service Agreement in 2014 which enabled the two countries to increase the flight frequency to roughly 70 per week, and to add more destinations and airlines. Nepali carriers can operate direct flights to Beijing, Kunming, Guangzhou, Shanghai, Chengdu, and Xi’an (also Lhasa and Hongkong). China Southern, China Eastern, Air China and Sichuan Airlines operate regular flights to Kathmandu from different Chinese cities. Kathmandu is the only international destination that has a direct flight connection to Lhasa. Air China runs daily round trip flights – Lhasa-KTM-Lhasa. China’s CAMC Engineering Co. Ltd. and the Northwest Civil Aviation are constructing the Pokhara Regional International Airport and the Lumbini International Airport respectively. China’s Export and Import (Exim) Bank has loaned $ 214.72 million for the Pokhara airport construction. Regarding the expansion of Qinghai-Tibet railway to the border of Nepal, Chinese companies have been conducting feasibility studies, and the Communist Party of Nepal- United Marxist Leninist’s leader K P Oli campaigned on the promise to bring a train from China.

An increasing number of Chinese tourists, second only to Indian visitors, has provided much-needed relief for Nepal’s travel entrepreneurs.  Demand for Mandarin-speaking guides dramatically rose and Chinese language institutes have mushroomed nationwide.   A few existing mandarin speakers have made a fortune as travel guides  in addition to the travel agencies with Chinese clientele. The Chinese citizens, who had begun to enter Nepal in the early 1980s for careers in industrial production or hospitality, are now in restaurant business as well. One street in the old tourist quarter of Thamel in the heart of Kathmandu more closely resembles the Chinatown of Philadelphia.

China is involved in cement factories, telecom companies, hydropower projects, in addition to reconstructing quake-damaged popular heritage sites in Kathmandu. Shanghai Zhongji Investment Holdings Chinese has proposed an infrastructure development bank in Nepal to facilitate many Chinese firms working in different sectors there with an offer of free shares amounting to  $ 195.2 million to the Nepal government. In the recent visit, officials from the Lhasa Economic and Technology Investment Zone have proposed $ 3.25 billion industrial park in the Jhapa district of eastern Nepal (K P Oli’s district) as part of China’s Belt and Road initiative. China has given financial gifts such as military equipment and the construction of training center to the Nepal Armed Police and the Nepal Army respectively, and has built civil service hospitals and educational institutions

China’s Huawei and ZTE have dominated Nepal’s telecom industry as the nation’s giants Nepal Telecom and Ncell operate on their technology.  Huawei has also bagged the Nepal Telecom contract in providing ten million cell phones in the country. They have also tendered Nepal Telecom’s $ 312.32 million project of 4G coverage expansion at a lower price, which has increased their chance of winning the bid on the project. Recently, Nepal Telecom and China Telecom Global have worked together to overcome Nepal’s dependence on India for internet service by building additional fiber optic cable connections.

Additional economic plans include the building of factories and the improvements to infrastructure. Chinese Hongshi and Nepal’s Shivam and already signed a $359.18 million Joint Venture Company (which has also provided jobs for over 1000 Nepalis) with the daily production capacity of 12 thousand tons of cement. The Chinese firm Huaxin plans to build cement factory, and   Shanghai Construction is building an expansion to Kathmandu’s ring road. Over 60 Chinese firms have registered this fiscal year in the Department of Industry pledging up to $ 8 billion in various projects throughout the country.

China has also been building additional infrastructure projects that allow Nepal to tap domestic renewable energy sources.  Many hydro power projects contracts have gone to Chinese firms. Several of them such as the Power China Resources Ltd., Three Gorges, China Gezhouba Group Corporation (CGGC), Sinohydro are working in many hyrdro projects from 14 MW to 456 MW capacity.  Chinese firms have also received the contract for civil, hydro-mechanical and hydro-electrical works for the projects with investment other than Chinese. In this way, Chinese firms have bagged projects such as Kulekhani -3 14MW (civil), Nyadi 30 MW (civil, hydro-mechanical-electrical), Chameliya 30 MW (civil structure), Sanjen, Bhotekosi, Tamakosi 456 MW (civil) and Rasuagadhi. The Power China Resources Ltd. recently completed the 50 MW Upper Marsyangdi Hydropower Project. The Human Allonward supplies equipment to Nepal. Many other joint hydro projects between China and Nepal are being considered as well.

 Concluding Remarks

As discussed above, China’s engagement with Nepal has raised in the recent years in Nepal especially because of China’s new found economic might. The post-conflict Nepal also created a condition that would increasingly draw China in to enable Nepal’s independent personality particularly against India. Moreover, China with its “new era” of internationalism has taken a policy that not only brings the projects Chinese firms are carrying out in the world under the umbrella of Belt and Road initiative, but also offers partner countries the possibility to carry out massive infrastructure investments. China’s growing engagement in Nepal is not unique to China-Nepal relations but a part of China’s larger policy of going global. But what is really unique is China’s Tibet sensitivity in Nepal. Especially after the wide pro-Tibetan protests ahead of the 2008 Beijing Olympic, Nepal’s importance grew further for China. Beijing therefore elevated its level of engagement with Nepal, especially with the security agencies in the country. However, the questions still hang in the air: to what extent is China willing to go in terms of influencing Nepal’s politics? To what extent Nepalese stakeholders can rely on China or is it a good idea in the first place? In what ways, if at all, Chinese inroads into Nepal help Nepal’s productivity, create job market for the working age population and reduce trade deficits with both India and China?

Moreover, despite Nepal’s good faith towards China, during the Indian PM Modi’s visit to China, the two countries negotiated some trade promotion deals through the Lipu-lekh pass, which, according to border experts in Nepal, is undoubtedly Nepal’s territory, without any consultation with Nepal. This incident was yet another painful reminder for Nepal of its fragility between the two giant neighbors. In conducting its neighborhood relations, Nepal only has hard strategic choices. Nepal’s situation does resemble to some extent that of Cambodia, Laos and Myanmar since they all share borders with China and have deep economic relations with China. However, Nepal also has deep relations with India who is China’s rival. As Nikkei Asian Review’s editor commentator Hiroyuki Akita tells this author: “By conducting a smart strategy Nepal can have a favorable relationship with both by letting them compete over Nepal. However, this strategy also contains huge risk because that alienates both India and China.“

Plane_KTM

References

Ganesh Raj Sharma .  An Autobiography of B P Koirala.  Jagadamba Press:Kathmandu, April 14,  1998

Hiranya Lal Shrestha 2016. Sixty Years of Dynamic Partneship – Nepal China Relationship , Nepal-China Society: Kathmandu

V K Manandhar 1999.  Cultural and Political Aspects of Nepal-China Relations  Adroit Publishers: Delhi

Vernacular news websites:

Gopal Khanal,  Mahendra, BP and China Card: Comparative Analysis of  Mahendra’s and B P’s Foreign Policy , Onlinekhabar.com, September 25, 2016. https://www.onlinekhabar.com/2016/09/482821

Ramesh Kumar, Expansion of Chinese Influences, Himalkhabar.com, January 25, 2018. http://himalkhabar.com/news/6560

The sixty years of Nepal China Relations, August 15, 2001.

http://kathmandutoday.com/2015/08/122592.html