China-India rivalry: Nepal’s Political Shift tips scales in favour of Beijing

China’s influence in Nepal’s economy and defence has grown significantly in recent years, marking a shift in traditional ties between Nepal and India

By
Junaid Kathju

March 24, 2024, 8:24 a.m.

Analysts say Kathmandu must balance its ties with New Delhi and Beijing, and expect India not to be ‘overly bothered’ by the alliance shift

A recent political shift in Nepal with a new party alliance leaning towards China could steer Kathmandu further from India and affect the regional balance of power.

On March 13, Nepal Prime Minister Pushpa Kamal Dahal “Prachanda” won a vote of confidence in parliament. His Communist Party of Nepal (Maoist Centre)’s decision to ally with the Communist Party of Nepal (Unified Marxist-Leninist) – known for its Beijing ties – and move away from the New Delhi-leaning Nepali Congress, marks a significant shift in the country’s politics.

According to Nihar Nayak, research fellow at the Institute for Defence Studies and Analyses (IDSA), this change in alliance could have implications for the China-India rivalry in the region, as it aligns Nepal more closely with Chinese interests.

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Nepal’s Prime Minister Pushpa Kamal Dahal (left) chats with Indian Prime Minister Narendra Modi prior to their meeting at Hyderabad House, in New Delhi, India, on June 1, 2023. Photo: EPA-EFE“China always gloats when India loses its ground in Kathmandu. From global rivalry to regional competition, it always tries to get a major space in the Himalayan region,” Nayak said.

China’s influence in Nepal’s economy and defence has grown significantly in recent years. Beijing has become a major source of foreign direct investment (FDI) in Nepal, particularly through infrastructure projects under the Belt and Road Initiative. This has led to China surpassing India as the largest investor in Nepal, marking a shift in the traditional economic ties between Kathmandu and Delhi.

Nepal is also reportedly close to signing a belt and road implementation agreement with China after four years of negotiations on investment modalities.

Nepal’s Deputy Prime Minister and Foreign Minister Narayan Kaji Shrestha is set to visit China next week for a five-day trip. He will meet Chinese Foreign Minister Wang Yi and other senior officials, with the signing of the agreement expected during the visit.

In January, while serving as minister for home affairs in the previous government, Shrestha had indicated that Nepal and China would soon sign the belt and road plan.

Nepal’s Foreign Secretary Shankar Das Bairagi and China’s Ambassador to Nepal Yu Hong (left) exchange documents during a signing ceremony relating to the Belt One Road initiative in Kathmandu in May 2017. File photo: AFP

Nayak from IDSA says the aim of Shrestha’s China visit is to ensure the Nepalese government rectifies the plan along the lines of the US Millennium Challenge Corporation (MCC) agreement between Nepal and India.

“Chinese are putting pressure on the Nepalese government that they should rectify the Belt and Road Initiative and also at the same time accept the Global Security Initiative and Global Development Initiative which have been recently proposed by the Chinese side to counter the Indo-Pacific strategy in the region,” he said.

Although signed in 2017, the text of the belt and road agreement has not been made public, nor has it been tabled in parliament for discussion. The same question was raised by the ousted Nepalese Congress party in the House of Representatives on Wednesday.

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Nepal’s new Prime Minister Pushpa Kamal Dahal, also known as Prachanda. Photo: Reuters

Nayak said India had strongly opposed the Chinese belt and road project, as it undermined territorial integrity and sovereignty of many neighbouring countries.

“Under MCC all the projects are well-defined, but nobody knows what projects China is going to invest under belt and road, it is elusive,” Nayak said, citing the Pokhara International Airport as an example of a project put under the Belt and Road Initiative by the Chinese government after its completion.

“So, India has to be worried when Nepal is going to finalise the belt and road implementation with China,” Nayak said.

Last September, China and Nepal signed 12 agreements, including seven MoUs, to boost cooperation in trade, road connectivity and information technology.

Chinese communist ties

China has long-standing connections with Nepal’s communist movement, especially with Prachanda’s Maoist Centre, which waged a decade-long insurgency against the Nepalese state. During this period, China provided ideological, logistical, and military support to the Maoist movement.

After the recent power shift, speculation is rife in Kathmandu’s political and diplomatic circles about whether Beijing played a role in encouraging the K.P Sharma Oli-led CPN-UML and the Maoist Centre to shake hands.

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Leaders from the Nepali Congress and other parties have accused Beijing of actively working to unite the leftist parties, saying this pressure led Prachanda to change his alliance. The new government denied the allegation.

S.D. Muni, a professor emeritus at the School of International Studies, Jawaharlal Nehru University, said although China had been trying to bring Nepal’s communist parties together, it remained to be seen how the new government would function.

“The new government is of the communist parties, but much depends upon how it works. India so far has not openly opposed this [new] government. So, everybody is sort of watching how this government behaves,” said Muni, a former Indian special envoy and ambassador.

India has traditionally found it easier to deal with the Nepali Congress, due to the leadership’s inclination towards reinstating Nepal as a Hindu state.

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A Nepalese activist burns an image of Indian Prime Minister Narendra Modi during a protest in Kathmandu, Nepal. Photo: EPA

Professor of law at Kathmandu University Bipin Adhikari told This Week in Asia there were always geopolitical considerations behind any political move in the country.

“Changes in government are common in Nepal. There are always forces which are active in Nepal that want to have their own government at the centre,” Adhikari said, hinting at Indian and Chinese influence on Nepal’s political parties.

Adhikari stressed the need for Nepal to maintain an equal distance between India and China, prioritising its economic interests without harming either neighbour.

“Though we have a good relationship with India, there is a need to balance such relations with China as well. You have to be objective,” he said.

The shift in Nepal’s foreign policy could deepen concerns in India, which traditionally considers Nepal as part of its sphere of influence. China’s increased influence in Nepal, a country sharing a long border with five Indian states, also raises concerns about potential strategic encirclement for India in South Asia.

Nepal’s Prime Minister Pushpa Kamal Dahal with his Indian counterpart Narendra Modi in New Delhi, India, in June 2023. Photo: EPA-EFE

The road ahead

Ranjit Rae, former Indian ambassador to Nepal, said India had strong equities in Nepal, with a wide-ranging relationship culturally and economically.

“I don’t think you can compare India’s relationship with Nepal to that of any other country. So, India won’t be overly bothered. India has to work with every government in Nepal, as was the case in the past,” he said.

Indian firms are major investors in Nepal, contributing over 30 per cent of the total approved FDI. In January 2024 India and Nepal signed a long-term Power Trade Agreement, aiming to import 10,000MW of electricity from Nepal in the future.

India and Nepal have a 1950 Treaty of Peace and Friendship that outlines reciprocal treatment for Indian and Nepali citizens regarding residence, property, business, and movement in both countries.

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Nepal’s Prime Minister Pushpa Kamal Dahal (right), has formed an alliance with with form PM Sher Bahadur Deuba. Photo: Reuters

India supports Nepal Army’s modernisation with equipment and training. About 32,000 Gurkha soldiers from Nepal serve in the Indian Army.

Rae said China had long been trying to unite all the communist parties, and “the coming together of all the left forces is a direction that the Chinese would obviously be pleased about, there is no doubt about it”.

If the belt and road plan was agreed upon and the projects under the plan started moving forward, “it will have implications for the entire region”, Rae said.

Kamal Dev Bhattarai, a Kathmandu-based journalist and policy commentator, said Beijing seemed upbeat about Nepal’s new government, expecting it to reaffirm the “one China policy”.

However, Bhattarai believed that relations with India were also likely to move ahead smoothly, citing the power-trade agreement as significant progress in bilateral ties.

Junaid Kathju

Junaid Kathju is a freelance journalist based in India whose work has been published in publications including Al Jazeera, Foreign Policy magazine, NBC News, The Quint and more.

Reproduced from South China Morning Post Link