Bhutan has had many rounds of talks regarding border dispute, but never a high level interaction with the Chinese government. The recent meetings between Prime Minister Jigme Thinley of Bhutan and Premier Wen Jiabao of China in Rio de Janeiro in 2012 came as a surprise to many especially to India, which sees Bhutan as its closest ally.
Will this sour the ties between India and Bhutan? How is Bhutan balancing both these powers which are also its immediate neighbours? Bhutan today cannot afford to support one and antagonize another because of its geo-strategic compulsions.

Souring Relations with India?
The first official diplomatic relation Bhutan established was with India, which was concretized with the signing of Indo-Bhutan friendship treaty in 1949. After Article (2) of the Treaty that read, “Bhutan agrees to be guided by the advice of the government of India in regard to its external relations” was finally deleted in 2007, Bhutan opened its door for other countries especially its neighbour, China.

But many fear that if these two countries become friendly, it will have tremendous effect on Bhutan’s hitherto historic friendship with India. But such is not the scenario at least for the time being, because Bhutan’s economy is not only highly dependent on India, but many of its ventures, especially power projects, are being funded by India. Even the prime focus of the recent visit to India, by Prime Minister Jigme Thinley was to seek help for Bhutan’s 10th Plan and other pending hydel projects.

China, from on its side, has not formally committed to any kind of assistance to Bhutan. The impending border dispute and no formal acceptance of diplomatic mission of China by Bhutan reiterates the fact that India is the key player in the country.

Bhutan's Balancing Act
Bhutan, squeezed as it is between its two giant neighbours, has tried its best to balance both by making clear its foreign policy intent.

1) Bhutan projects itself as a “peaceful country” where Gross National Happiness (GNH) is more important than Gross Domestic Products (GDP), which simply means that it would be neutral towards both the neighbours.
2) As part of its projection of being peaceful country, the military is not an important pillar of its foreign policy. In fact, it has reduced the number of its regular standing army to a few thousand. This signals zero tolerance towards Bhutan being used by its two neighbours as the base for its military expediency.
3) It wants to express its independence and sovereignty, by engaging and establishing diplomatic ties with many of the member countries of the UN without being intimidated or influenced by either of its two neighbours.

The success of the balancing act is only possible if Bhutan has a stable government with a quick and responsive diplomacy at its behest.

China is a Reality for Bhutan
That even after the 19th round of Bhutan-China boundary talks, the two countries have not been able to conclude the boundary demarcations, speaks volumes regarding the unsteady relations between them. But nevertheless, China has recently been projecting its image as a peaceful and responsible superpower and neighbour.
On the subject of expanding diplomatic ties with Bhutan, China has to some extent, agreed to keep aside the issue of the boundary dispute. Bhutan has always maintained its acceptance for the One China Policy. This has led to restrictions of any kind of political activities of Tibetan refugees living in Bhutan. 

On its part, India has encouraged Bhutan to take independent decisions on foreign policy. In fact, following the recent visit of the Indian Foreign Secretary to Bhutan, Ranjan Mathai categorically said that how Bhutan establishes ties with other countries is an internal decision for the country,  and that India has no right to interfere in its internal decision making policy.

But this is easier said than done. Bhutan is facing unique challenges today, not only across its borders but also internally. The gradual shift of power from the Palace to the Parliament will see a paradigm shift in its foreign policy making. How would a new democratic Bhutan see China as opposed to the perceptions of the traditional absolute Monarchy? With many stakeholders involved, will democratic Bhutan be able to balance both powerful neighbours? And if so, will it favour one against another? Who would it trust the most, vis-a-vis its own stability?

These are a few questions that could determine how the relations between China and Bhutan develop in the near future.