IPCS report on ‘India-China-Nepal Trilateralism’, a round-table held on 1 June 2017.

China-India-Nepal Trade and Transit Links

Chen Xiaochen

Director General, Department of International Studies, Chongyang Institute for Financial Studies, Renmin University of China

After the Nepal earthquake in 2015, a lot of research in China focused on how the One Belt One Road (OBOR) initiative could be made to work in South Asia, especially in Nepal. Subsequently, the economic corridor between China, India and Nepal was proposed as a part of the OBOR initiative. Multiple milestones mark the evolution of the idea. Indian Prime Minister Narendra Modi’s visit to China in May 2015 is especially significant in this regard - it was during his visit that Chinese President Xi Jinping proposed the idea of a China-Nepal-India economic corridor. The proposal was received very warmly by PM Modi who then suggested setting up an Expert Working Group (EWG) to finalise the modalities of the project. Chinese and Indian assistance to the post-earthquake reconstruction of Nepal also underlined how the three countries could collaborate to work for their mutual development.

Further progress in the OBOR initiative was made when President Xi, during his visit to Pakistan in April 2015, announced the inclusion of the China-Pakistan Economic Corridor (CPEC) under the OBOR framework. In 2015, a EWG on the Bangladesh-China-India-Myanmar (BCIM) corridor was also announced. However, work on the proposed project has stagnated in the last two years because of India’s reluctance to take it forward. The successful conclusion of the Border Road Initiative (BRI) forum on 14-15 May 2017 was another remarkable milestone for the OBOR project.  

South Asia has the maximum number of economic corridors proposed under the OBOR initiative, which reflects the importance of the region. The region however lacks any kind of integration between the proposed corridors. The relationship between China and South Asia suffers from the‘spaghetti bowl effect’, which characterises the general economic cooperation between the countries of the region as well as their economic relations with China. The leadership in China and South Asian countries is therefore important in taking the OBOR initiative forward. The leadership of Chinese President Xi and Indian PM Modi is especially significant in this regard. It can work to provide a guide map to policy-makers to alleviate the ‘spaghetti bowl effect’ in the region by successfully integrating all the economic corridors. 

The first important step in this direction would be a project-level collaboration between India and China in the China-Nepal-India corridor as well as the BCIM corridor. Economic corridors have a major spillover effect on the countries through which they pass and are therefore vital for their development. The infrastructure projects that form a part of the corridors form an economic base and are critical for poverty alleviation. The China-Nepal-India corridor also offers India and China with the opportunity to cooperate in a third market.

The China-Nepal railway is a major infrastructure project that is a part of the initiative. This railway line that connects Lhasa to Kathmandu will be further extended to the Indian border. Although the project will be costly is still feasible. It will have a spillover effect on the economic development of Nepal and will positively affect the trade relations between China and South Asia, acting as a gateway between them. The corridor will also facilitate people-to-people exchanges in religious and cultural domains. The China-Nepal-India corridor can precede the OBOR initiative as well as the various South Asian economic corridors. The Asian Infrastructure Investment Bank (AIIB) can be approached for financing this project.

Only Way to Achieve Prosperity in South Asia: China-India Cooperation

Zhang Shubin

Professor and Director,Nepal Study Centre,Hebei University of Economics and Business

China’s OBOR initiative includes the silk-road economic belt and a 21st century Maritime Silk Road (MSR). It is based on three communities: of responsibility, shared interests, and destiny. The project is based on cooperation priorities such as policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds. Peace and cooperation and mutual learning and benefit are the founding ideals of the project. 

The Nepal rail project is expected to be completed by 2020. In the recently announced budget, a provision of 400 million Nepali Rupees was made by the Nepalese government for the project. This is however an insufficient amount. Connectivity is a foundation of the OBOR project and is vital for the various countries to ultimately benefit from it. It is all the more important for Nepal if it intends to benefit from the OBOR initiative. Therefore, it is essential for the country to pay more attention to its rail and road links connectivity. It came as a surprise to China that the critically important China-Nepal railway project found no mention in the Kathmandu investment summit, held earlier in 2017. 

China and India are the two most important member countries of the AIIB. To facilitate greater cooperation between the two, it is important to develop people-to-people communications. 

The OBOR initiative is a conglomeration of various economic corridors which include the Eurasian land bridge, the China-Mongolia-Russia economic corridor, the Indo-China Peninsula economic corridor, the CPEC, the BCIM and the China-Central Asia-West Asia economic corridor. The China-Nepal-India economic and cultural corridor will add greater significance to the initiative. Buddhism forms an important cultural link between the three countries. There are approximately one hundred million Buddhists in China. Given that some of the most religiously significant sites lie in Nepal and India, an annual visit of Chinese pilgrims to these places will significantly contribute in building people-to-people contact. 

The proposal for China-India-Nepal trilateralism came much before OBOR. Nepal and China signed the transit transport treaty in 2016. The OBOR initiative will be undertaken in three forms in Nepal; through China-Nepal bilateral cooperation, the BCIM project and the China-Nepal-India trilateralism initiative. 

Xi Jinping talked about shared future for mankind and the OBOR initiative is a step in this direction. However for the initiative to successfully take off in South Asia, it is important for the countries to get abandon the zero-sum game mindset. Nepal should not be seen as India’s backyard and efforts should be made in developing it into South Asia’s Brussels. 

India-China-Nepal Trilateralism: Perspectives from Nepal

Pramod Jaiswal

Visiting Research Fellow, Institute of Peace and Conflict Studies (IPCS), New Delhi

A trilateral partnership between India, China and Nepal will be in the interest of the region and will be mutually advantageous to the three countries. Given that Nepal is located at the centre of the trilateral axis, it stands to gain the maximum benefit from this arrangement. The partnership promises to bring economic growth, infrastructural development and investments in the country. It will also help control the migration of Nepalese youth to Gulf countries by providing them with employment opportunities within the country. Nepal is rich in water resources which can be harnessed for the generation of electricity. Similarly, the abundance of its natural beauty provides great potential for supporting tourism and related activities.

These can however be harnessed to the maximum only with the help of India and China who have both the technology and the capital. India also has the market for electricity that can be generated in Nepal. Besides, the development of this trilateral relationship will provide China with greater access to South Asia; and India with much wider access to regions like Tibet, Xinjiang and Central Asia. 

For the Chinese, there are three major drivers to the trilateral relationship. Firs, China’s three major provinces - Yunnan, Xinjiang and Tibet - share a long border with South Asia and any problem in the region will have spillover effects on the other three. Hence, for stability in Tibet and Xinjiang, China will need to befriend the South Asian periphery and build excellent relations with the region. Second, there is relative decline in China’s growth rate and the country is hence looking for fresh markets and opportunities, for which it cannot ignore the 1.6 billion-strong South Asian markets. Finally, China’s access to South Asia will provide it with an alternative to the Malacca Strait for which China intends to develop the Nepal-India-China Economic Corridor, CPEC and BCIM.

Although the idea of a trilateral partnership is mutual beneficial, much will depend on the political and strategic relations between the three countries. China has been asking its neighbouring countries, including Vietnam, Philippines, Japan, India and the US, to put their mutual disputes and differences aside and further their bilateral engagement on the economic front. China has also proposed to pump in investment, build infrastructure and facilitate industrialisation in these countries.

However, the hard reality of international politics is that until strategic issues are settled, a relatively weaker partner cannot fully engage economically and socially with an assertive and more powerful neighbour. Therefore, political issues and strategic issues continue to remain vital to their relationship. 

In order to resolve the political and strategic challenges, therefore, all the stakeholders will need to streamline their domestic political environment. In China, the ruling party will have to control the PLA’s actions because the PLA’s moves have a significant impact on the country’s relations with Nepal and India. Similarly, India will need to resolve the issue of its states impinging on its foreign policy. Although the current government led by Prime Minister NarendraModi has come to power with a strong mandate, the states sharing borders with other countries continue to have significant say in India’s foreign policy matters. West Bengal, for instance, controls its Bangladesh policy; Jammu and Kashmir (J&K), its Pakistan policy; Tamil Nadu, its Sri Lanka policy; and Bihar and Uttar Pradesh, its Nepal policy. Unless these internal complications are not settled, long-term policies towards neighbours like Pakistan, Sri Lanka, Bangladesh, Myanmar, Nepal and China cannot be effectively framed. 

To smoothen out relations, China will also need to resolve the Tibet issue because it continues to give rise to a great deal of trust deficit between India and China. India and China should move fast and sincerely on resolving the border issue. Similarly, China should stop strengthening Pakistan as an anti-India factor and join hands with India on issues related to the global commons. India must address Chinese sensitivities and assure that India’s relations with the US, Japan, Korea, Australia, ASEAN member states and others would not hurt China’s core interests.Finally, there are two other factors that will have implications for the prospects and dynamics of this trilateral relationship. First, if there is a decline in China’s growth rate, China might concentrate its effort on improving relations with bigger trading partners instead. Also, even if the three countries are able to resolve their mutual issues, the nature of the US-China relationship will impact the extent to which this relationship can be developed. 

Concluding Remarks

Amb (Retd) TCA Rangachari

Member, Governing Council, IPCS; former Indian diplomat; and former Director, Academy of International Studies, Jamia Millia Islamia University, New Delhi

India and China are faced with the broader choices of competition or cooperation. Cooperation between the two countries would constructively contribute to peace, stability and the economic betterment of the region. Both the countries are faced with common problems like poverty elimination, ensuring balanced and equitable growth, governance and rule of law, rural-urban migration, unemployment, environment protection and climate change. These issues should encourage cooperation between the two countries. Containment, on the other hand, serves to derail these objectives, aggravate bilateral tensions, and increase hostility. It would also widen the trust deficit between the governments of the two countries.

The trade deficit between India and China exceeds US$50 billion. While Foreign Direct Investment (FDI) from the Chinese side has increased, the amount is still too small to offset the trade deficit. Similarly, China’s actions and policies in the neighborhood and in the Indian Ocean Region (IOR) remain adverse to India’s interests in the region. The CPEC under the OBOR project disregards India’s interests and concerns. China’s position on the issue is surprising given how the country itself is a victim of Pakistan-based terror groups. China has been equally dismissive of India’s position on the CPEC. This comes despite China’s own position on issues of sovereignty and territorial integrity. 

India and China will need to work together to accommodate each other’s interests, however different, competing or even conflicting they may be, in a cooperative arrangement. 

Rapporteured by Niharika Tagotra, Researcher, CRP, IPCS