Squeezed between two Asian giants – China and India – Nepal is finding creative ways of maximising economic benefits from both and staying out of the region’s geopolitical competition. While India remains a historic partner and the largest investor in Nepal, China is making rapid inroads. With both the ‘dragon’ and the ‘elephant’ providing economic incentives, Nepal now fancies itself as a positive link between the two competing powers.

After an informal reset summit with Prime Minister Narendra Modi in India in early October, President Xi Jinping also visited Nepal, the first by a Chinese head of state in more than two decades. Among the 20 deals signed were the Belt and Road Initiative-related $2.75 billion trans-Himalayan connectivity network and a feasibility study for a rail link to Tibet.

Responding to Nepal’s efforts to change from a ‘land-locked to a land-linked country,’ China has invested in infrastructure projects. It has also helped build hospitals and hydroelectric plants. The newfound bonhomie has assumed a strategic dimension with Nepal gaining access to four Chinese ports, thus reducing its transit reliance on India.

Further, more sectors have come under the collaborative ambit– border management (to stop Tibetans from fleeing to India via Nepal), trade, tourism and education, among others. Plans are also afoot to include military exercises, which could have a far-reaching impact in the region.

India, however, views Nepal as a country under its sphere of influence. It is the biggest trade partner and energy supplier too. To counter the Chinese stimuli, especially after the 2016 trade and transit treaty, India has unleashed a series of projects, including South Asia’s first cross-border energy pipeline and expanded its rail link to Kathmandu.

A constitutional monarchy for decades, Nepal became a federal republic in 2008 and adopted a new secular constitution in 2015. The Nepal Communist Party gained ground thereafter. Though Prime Minister Modi visited Kathmandu thrice between 2014 and 2018, Prime Minister KP Sharma Oli has proactively expanded Nepal’s options by seeking better ties with China.

The pivot to China occurred after the new constitution triggered socio-political protests by the Madhesis – a Nepali tribe with Indian ancestry. This resulted in a trade blockade at the border in 2015 and 2016. Nepal accused India of encouraging the unrest, which the latter rejected. Combined with the aftereffects of a massive earthquake, this caused an economic crisis that stopped just short of a civil war. These developments served as the perfect excuse for Kathmandu to reach out to Beijing.

Despite this shift, India remains the most influential economic player in Nepal.

Following questions about the tango with the big powers, a Nepalese government spokesperson said: “We don’t want to be dependent on any one country…It is wrong to say that closer ties with China would mean weaker ties with India or vice-versa…Nepal is an independent, sovereign nation that will decide its dynamics with each nation based on its own interests.”

The Nepalese government feels that the proposed BRI project would not only link China and Nepal, but also Tibet with north India. The plan then is to push for a formal Nepal-China-India trilateral trade agreement that would yield a win-win-win scenario.

China’s Foreign Minister has echoed Nepal’s sentiments: “Nepal stands as a natural beneficiary for cooperation and development from China and India. I think this is a logical desire that should be supported by both China and India.”

Though India is hesitant to get on board, the recent developments informally translate China’s ‘two plus one’ proposal into reality, wherein both can collaborate with a third country in South Asia. This template could be compared with some of the recent joint proposals made by the Gulf countries, with third countries, in South Asia and Africa.

Overall, it could be argued that Nepal is now learning to balance not just India and China, but also the West, which has been a donor in the past. With the West in some respects making common cause with India against China, Nepal finds itself in the middle of a new global power game. While walking this tightrope successfully could be beneficial, missteps could also dearly cost Nepal.

Though the developments in Nepal offer China and India a platform for a combination of cooperation and competition, worries arise as Nepal is a natural buffer between the two countries, similar to Bhutan. In 2017, Doklam – a China-India-Bhutan tri-junction – was a theatre of a Sino-Indo standoff. Nepal too is home to such tri-junctions and fears the consequences of any military misadventure.

This evolving triangular arrangement is a geopolitical template that provides small Middle Eastern countries strategic autonomy to manoeuvre competition between or among big powers, especially in the Indian Ocean and the Gulf.