Published Twice a Month
May 9, 2018 – May 22, 2018

Centre on Asia and Globalisation
Lee Kuan Yew School of Public Policy

Guest Column

Nepal – Master of the Connectivity Game

By Toh Wei Zheng


Forest of Terai along Nepal’s Mahendra Rajmarg (East-West-Highway) just east of Butwal

Sandwiched between its two giant neighbours, China and India, poor and tiny Nepal is apparently caught in the middle of great-power rivalry. Yet Nepal has time and again managed to shrewdly leverage its fortuitous geopolitical position to play one off the other and gain substantial benefit in return.  

The Himalayan nation has been able to get critical transport infrastructure in place with foreign aid from multiple sources. And it appears Nepal will do so again amid the new “great game” of connectivity that is underway. 

Given Nepal’s variegated terrain, the cost of establishing a national transport network is staggeringly high. The mountainous ridges in the north include several peaks, including Mount Everest, while the southern plains are dominated by fields and jungles. Between 1951 and 1983, transport accounted for 40% of actual spending in the country’s development plans, substantially more than originally planned. Nevertheless, increasing connectivity is not only imperative to kick-starting economic growth in Nepal but also its security. 

Nepal has long been tethered to India; apart from historical ties, it is overwhelmingly reliant on India for trade and commerce. Furthermore, Nepal’s land-locked position means that goods to and from third countries overwhelmingly transit through Indian ports and territory. Unsurprisingly, Nepal is cognizant of this vulnerability, and has continuously resisted attempts to draw it even closer to Delhi’s orbit. This has become a recurrent source of tension in relations between Delhi and Kathmandu. 

For instance, the Nepali government cancelled some elements of its defence arrangements with India in 1969 after India insisted on bilateral trade and transit treaties that would have perpetuated the dependency. Occasionally, ties become so frayed that border blockages have resulted, crippling the Nepali economy. Again, deadlock over trade treaties resulted in India cutting off supplies in 1989, while Kathmandu’s alleged discrimination against the ethnic Madhesi groups led to another blockade in 2015 that many suspected Delhi was complicit in. 

Thus, Nepal turning towards China kills two birds with one stone: this not only allows the country to meet its infrastructural needs but, more importantly, regain some footing in its lopsided relationship with India. 

Chinese involvement in Nepali connectivity first began in 1961, when King Mahendra returned after visiting Beijing to get a boundary settlement. At the time, he also allowed China to construct a road between Kathmandu and Lhasa, the first Chinese route that cut through the Himalayas. This route made it possible for the People’s Liberation Army to supply its garrisons in Tibet with food and goods from Nepal.

More significantly, Nepal exploited Beijing’s overtures in return for favourable concessions from India to construct a 1,040 km highway criss-crossing the whole country from east to west. After initially being rebuffed by India, the United States and the Soviet Union, China agreed to fund part of the highway in late 1963, seeing it as an opportunity to place its own personnel near the Indian border in the aftermath of the Sino-Indian war the year before. 

This riled the Indians, who promptly counter-offered not only to build the section promised by the Chinese, but also an additional stretch of the highway. In all, New Delhi promised to construct 650 km of the 1,040 km highway for the Nepalese. Kathmandu subsequently accepted the offer and said China’s resources would be used for other projects instead. The highway was eventually completed with Soviet and British assistance as well.

Fast-forward 50 years, and Nepal remains on top of its game. While the monarchy has been abolished, the current government is no less adept in these tactics and might yet pull off the same trick again. The 2015 blockade made it crystal clear to the Nepalese that it could no longer solely rely on India, and therefore had to seek supply routes from China too. Soon after the blockade ended, Prime Minister K.P. Sharma Oli visited Beijing and signed several ‘historic’ agreements, including one for trade and transit. 

Warm ties with China have since ensued. After the Doklam standoff between China and India last year, Beijing heaped praise on Nepal’s professed neutrality during the incident. This was followed by Premier Li Keqiang’s promise to “provide support within its due capacity to Nepal’s economic and social development,” including a new railway into Tibet, repairing two cross-country highways which were damaged by the 2015 earthquake, as well as establishing cross-border trade zones. Just last month, Foreign Minister Pradeep Gyawali visited Beijing to follow through on bilateral projects. 

Yet, despite the long-seated resentment, Nepal still needs India, as both countries are still very much intertwined at this moment. While Chinese trade routes can provide a respite against excessive Indian interference, the economic viability of these routes remain doubtful. Also, during last month, Oli made an official visit to India, and upon his return declared that the bilateral relationship with Delhi was “back on track”. While much has been hyped over the proposed Nepal-China railway link, India has been opposed to plans that would extend this line to Lumbini, close to the Indian frontier. 

In this regard, it is intriguing that Oli signed an agreement to expand railway links between Kathmandu and Raxaul in India during his visit there. While Oli had aspired for Chinese railways to link up with Nepal, it may now end up that India will once again pre-empt the Chinese and be the first to connect Nepal on rail. 

While Nepal has no choice but to engage with the behemoths both north and south, its careful manoeuvres have reaped impressive gains in the past. It will certainly be no surprise if Oli continues with the time-honoured tradition of courting China in order to keep India in check.


Mr. Toh Wei Zheng is a Research Assistant at the Centre on Asia and Globalisation (CAG). His research interests are the international relations of East Asia, global economic governance, international relations theory and the mobility of people across borders.


The views expressed in the article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.

News Reports

Bilateral relations

How Chinese mining in the Himalayas may create a new military flashpoint with India
South China Morning Post, May 20
China has begun large-scale mining operations on its side of the disputed border with India in the Himalayas, where a huge trove of gold, silver and other precious minerals – valued at nearly US$60 billion by Chinese state geologists – has been found. People familiar with the project say the mines are part of an ambitious plan by Beijing to reclaim South Tibet, a sizeable chunk of disputed territory currently under Indian control.

Wuhan summit brought greater comprehension of issues between India-China leaders, says Envoy
Financial Express, May 19
After the Wuhan summit last month, there is greater comprehension about strategic and over-arching issues between the leadership of India and China, Indian Ambassador to China Gautam Bambawale said today. Prime Minister Narendra Modi and President Xi Jinping met in April in an unprecedented two-day ‘heart-to-heart’ summit in the central Chinese city of Wuhan to “solidify” the India-China relationship after the Dokalam standoff last year.

China bans 'wrongly educated' India-trained monks
The Times of India, May 15
China has banned India-trained "wrongly educated" monks from teaching Buddhism, fearing they may be of "separatist" bend. The ban was imposed by a county in China's Southwest province in Sichuan, according to the state-run Global Times. An official said on Monday (May 14) that "monks wrongly educated in India were banned from teaching Buddhism to residents of Litang county".

Indian envoy backs resumption of military ties with China
India Today, May 9
Indian Ambassador to China Gautam Bambawale said on Wednesday that resuming military exchanges between India and China would bring a boost to maintaining peace on the border. Military ties between the two sides were suspended last year, with the annual "hand-in-hand" exercises not taking place amid the 72-day border stand-off in Doklam.

No Tension Between Navies Of India, China In Indian Ocean: Nirmala Sitharaman
NDTV, May 9
Defence Minister Nirmala Sitharaman said on Tuesday that there is no tension between the navies of India and China in the strategic Indian Ocean, which has been witnessing increasing activities by the PLA Navy.


News Reports

China and India in the Regions

With an eye on China, India to hold naval exercise with Vietnam
The Times of India, May 20
India will hold its first naval exercise with Vietnam next week, as part of the overall strategy to steadily build military ties with nations in the Asia Pacific region with an eye firmly on a confrontationist and expansionist China, even as defence minister Nirmala Sitharaman is slated to visit Hanoi next month.

Indonesia likely to give India access to deep seaport in Sabang
The Times of India, May 17
Indonesia might give India access to a deep sea port in Sabang, including to its naval vessels. Addressing a Delhi audience here today, Luhut Pandjaitan, maritime affairs minister in the Jokowi government, said, “India and Indonesia have started naval drills in 2017, but we can explore doing more between our coast guards. This will become even better when the Sabang seaport is established with India. Sabang port has a depth of 40 metres which is good even for submarines.”

China okays $ 1 billion loan for Sri Lanka expressway
The Times of India, May 15
China has approved a $1 billion loan to revive a long-delayed expressway in central Sri Lanka, the island's government said on Monday (May 14). Construction of the first phase of the road linking the capital Colombo with the hill resort of Kandy had been delayed for more than two years due to a lack of foreign funding, according to local media reports.

China Counters Trump by Mending Fences From Japan to India
Bloomberg, May 14
The first visit by a Chinese premier to Japan in seven years earlier this month was the latest step in Beijing’s attempt to shore up fraught ties with other powers to counter escalating tensions with the U.S. It came after an equally congenial visit to Indonesia, and Chinese President Xi Jinping’s unexpected rapprochements with Indian Prime Minister Narendra Modi and North Korea’s Kim Jong Un.

Indian Prime Minister Narendra Modi seeks to counter China’s influence during visit to Nepal, inaugurating new hydropower plant
South China Morning Post, May 12
Indian Prime Minister Narendra Modi inaugurated the construction of a mega hydropower plant during a visit to Nepal on Friday (May 11), part of his government’s move to counter Chinese influence in its backyard. Modi and his Nepali counterpart K.P. Sharma Oli laid the foundation stone of the US$1.4 billion India-backed Arun Three hydropower plant, a long-mooted project that could be a game-changer for energy-starved Nepal.


News Reports

Trade and Economy

China's 'debt trap' economics will likely result in it gaining greater access to nations around India: US think-tank
The Economic Times, May 19
An influential US think-tank expert has warned that the increasing Chinese economics of "debt trap" will likely result in Beijing gaining greater access to several key countries around India. Richard D. Fisher, Senior Fellow at the International Assessment and Strategy Centre, told members of the House Select Intelligence Committee that the Chinese economic and 'debt trap' pressures will likely result in China gaining greater access to bases in Sri Lanka, Pakistan, Bangladesh and perhaps the Maldives.

Look to India for Returns, Not China's Belt-and-Road, Funds Say
Bloomberg, May 16
Some of Asia’s biggest infrastructure investors are seeing plenty of opportunities in India. In China’s mammoth Belt-and-Road initiative, however, not so much. India is a key market for Macquarie Group thanks to strong economic growth and state asset sales, said Frank Kwok, co-head of Asia Pacific at Macquarie Infrastructure & Real Assets. Hence its recent purchase of nine toll-roads with charges indexed to inflation.

China's Belt and Road builds trail of stakes in Asian bourses
Nikkei Asian Review, May 15
China's expanding Belt and Road Initiative added its latest investment into a foreign stock exchange Monday as a consortium of the Shanghai and Shenzhen bourses snapped up one-quarter of the shares in Bangladesh's Dhaka Stock Exchange.

China launches first India-dedicated investment fund
The Times of India, May 14
The Industrial and Commercial Bank of China, a top state-run Chinese bank has launched China's first India-dedicated publicly offered investment fund, urging the Chinese to invest heavily stating that the Indian economy is entering the "golden age of economic take-off".

India, China contribute 45% of global growth: IMF
Livemint, May 9
China and India—Asia’s first and third largest economies, respectively—should aim for “growth-friendly” fiscal consolidation to promote sustainable, inclusive growth while enhancing resilience as the two countries together contribute 45% to global growth, the International Monetary Fund (IMF) said on Wednesday (May 9).


News Reports

Energy and Environment

Renewable energy outpaces fossils in India: Reports
The Quint, May 19
Wind and solar energy in India are now outpacing fossil fuels as investment opportunities providing on average 12 per cent higher annual returns, 20 per cent lower annual volatility and 61 per cent higher risk-adjusted returns than coal and natural gas, reports said on Friday (May 18).

China resumes sharing Brahmaputra water flow data with India
The Third Pole, May 17
China resumed providing water flow data on the Siang to India on May 15, according to officials in the Ministry of Water Resources, River Development and Ganga Rejuvenation in New Delhi. The Siang is the main stem of the Brahmaputra, the transboundary river that starts in Tibet and flows through India to Bangladesh before meeting the Ganga.

China, India outsource emissions, risking climate goal – study
Reuters, May 14
A rising tide of industries moving operations from China and India to less-developed Asian countries undermines global targets to reduce climate-changing emissions, researchers said. Many energy-intensive industries, including manufacturing and raw materials processing, are relocating to cheaper countries like Indonesia, Vietnam and Thailand, a study by Britain’s University of East Anglia (UEA) showed on Monday (May 14).



India-China Relations in the Age of Xi Jinping
YaleGlobal Online, May 15
By Shyam Saran - Senior Fellow, Centre for Policy Research

Two leaders of Asia’s largest powers – Xi Jinping and Narendra Modi – emerged on the scene two years apart with similar promises. Different paces of growth, different approaches taken by each, dramatically altered their respective positions, giving China a strong upper hand. Global unpredictability may have encouraged Xi to a conciliatory position, giving India only a brief breathing space.

China’s play for military bases in the eastern Indian Ocean
The Interpreter, May 15
By David Brewster - Senior Research Fellow with the National Security College; Distinguished Research Fellow with the Australia India Institute, University of Melbourne

China is moving to establish a network of naval and air bases in the Indian Ocean to support its growing strategic imperatives in the region. This likely includes plans to build bases in the eastern Indian Ocean, in waters much closer to Australia. Australia cannot afford to play onlooker to these developments.

India needs a better PLAN in the Indian Ocean
East Asia Forum, May 12
By Abhijit Singh - Senior Fellow and Head of the Maritime Policy Initiative, Observer Research Foundation

At a recent press conference in New Delhi, India’s Defence Minister Nirmala Sitharaman surprised reporters by stating that she saw ‘no tension between the navies of India and China in the Indian Ocean’. In response to a question about a perceived ‘tussle’ for supremacy in the Indian Ocean, Sitharaman downplayed the Chinese People’s Liberation Army Navy (PLAN) threat in India’s near-seas, choosing curiously not to elaborate on the matter.

India’s Thinking Global. It Should Act Regional First
Global Public Policy Institute, May 11
By Aryaman Bhatnagar and Joel Sandhu   

Aryaman Bhatnagar is an alumnus of the Global Governance Futures – Robert Bosch Foundation Multilateral Dialogues program (GGF). Joel Sandhu is a project manager with GPPi and heads the Global Governance Futures – Robert Bosch Foundation Multilateral Dialogues (GGF) program.

India’s global ambitions are intricately linked to its influence as a regional actor. While Indian Prime Minister Narendra Modi has been busy deepening political and economic ties with world leaders, his country has lost influence in its immediate neighborhood. Meanwhile, an increasingly ambitious and assertive China has been making political, economic, and security related advances in the same region.

The India–China summit in Wuhan was no reset
The Interpreter, May 10
By Dhruva Jaishankar - Fellow in Foreign Policy Studies, Brookings India in New Delhi and the Brookings Institution in Washington DC.

The “informal summit” in Wuhan, China, between India’s Prime Minister Narendra Modi and China’s President Xi Jinping last month generated a wave of commentary in India, China, and further afield. The Chinese media played it up, heralding a major breakthrough in which India had “chosen” China. The Indian media was more circumspect, and often critical.

Why it makes sense for India and China to cooperate on Iran’s Chabahar project
The Hindu, May 9
By Harsh V. Pant & Paras Ratna

Harsh V. Pant is Professor of International Relations, King’s College London and Distinguished Fellow at the Observer Research Foundation. Paras Ratna is a Postgraduate student with the Development Studies, TISS, Mumbai.

After U.S. President Donald Trump decided to withdraw from the Iran nuclear deal, Iranian President Hassan Rouhani has indicated that his government remains committed to that pact and that he would be negotiating with the deal’s remaining signatories — the European countries, Russia and China — to salvage the deal if possible.


Books and Journals

The Conflicted Superpower: America’s Collaboration with China and India in Global Innovation
Columbia University Press, May 2018

By Andrew B. Kennedy

Andrew B. Kennedy is senior lecturer in the Crawford School of Public Policy at the Australian National University.

For decades, leadership in technological innovation has sustained U.S. power worldwide. Today, however, processes that undergird innovation increasingly transcend national borders. Cross-border flows of brainpower have reached unprecedented heights, while multinationals invest more and more in high-tech facilities abroad. In this new world, U.S. technological leadership increasingly involves collaboration with other countries. China and India have emerged as particularly prominent partners, most notably as suppliers of intellectual talent to the United States. In The Conflicted Superpower, Andrew Kennedy explores how the world’s most powerful country approaches its growing collaboration with these two rising powers.

Whereas China and India have embraced global innovation, policy in the United States is conflicted. Kennedy explains why, through in-depth case studies of U.S. policies toward skilled immigration, foreign students, and offshoring. These make clear that U.S. policy is more erratic than strategic, the outcome of domestic battles between competing interests. Pressing for openness is the “high-tech community”—the technology firms and research universities that embody U.S. technological leadership. Yet these pro-globalization forces can face resistance from a range of other interests, including labor and anti-immigration groups, and the nature of this resistance powerfully shapes just how open national policy is. Kennedy concludes by asking whether U.S. policies are accelerating or slowing American decline, and considering the prospects for U.S. policy making in years to come.


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the Lee Kuan Yew School of Public Policy, National University of Singapore