Geopolitical Shifts in South Asia: Evaluating the Impact of China's Presence in Nepal

Lok Darjee is a Master of Public Administration graduate from Columbia School of International and Public Affairs, concentrating in International Security Policy. He is also the founder and president of SIPA Debate and Diplomacy, and a current Straus Historical Fellow. His interests are geopolitics in the Global South and geo-economic of emerging markets.

Abstract: In 2008, the dissolution of Nepal's monarchy marked a significant turning point in the longstanding India-Nepal relationship. The ascension of the Maoist party in Nepal and the increasing influence of China within Nepali politics highlight a pronounced waning of India's influence in the region. Despite Western allies consistently advocating for India as the most viable counterbalance to China in regional disputes, the evident decline of India's influence domestically illustrates an asymmetric rivalry. The surge in Chinese foreign investment and the growing allegiance of the Nepali political elite to Beijing underscores the asymmetrical power dynamics favoring China. This shift in Nepal's geopolitical affiliations offers a crucial case study for Washington, shedding light on the complexities of viewing India as a competitor to China and how India might strategically position itself within its immediate geopolitical sphere.

India and Nepal share a dynamic and multi-layered relationship that transcends mere geopolitical interests, deeply ingrained in millennia of shared history and cultural ties. Like India, Nepal is predominantly Hindu, with 81.3 percent of the population practicing the religion. Both countries have maintained an open border policy for centuries, allowing for the free movement of people despite occasional geopolitical tension. In addition, Nepal has long been a buffer state between China and India, with its strategic importance to both nations dating back to the prehistoric era of colonial British India. Hence, Nepal has always strived to maintain a delicate balancing act between the two countries and act as a bridge between them. However, the escalating geopolitical rivalry between these two powers, compounded by Nepal's own unstable internal political landscape and the rising influence of both neighboring countries on its domestic affairs, has turned the country into a geopolitical hotspot, with tensions escalating steadily.

In the context of the United States’ strategic pivot to the Indo-Pacific, aiming to counterbalance China’s rise, Washington has increasingly viewed India as a pivotal ally despite concerns over Prime Minister Narendra Modi’s governance. Modi’s policies toward Muslim citizens, his staunch Hindu nationalism, and his tendency to flirt with authoritarian approaches have paradoxically isolated several of India's strategic partners, leading to a more inward-looking geopolitical stance. Simultaneously, China has broadened its influence across South Asia, not only through aggressive diplomatic and economic tactics, including major investments in Nepal as part of the Belt and Road Initiative but also by intensifying its involvement in Nepal’s internal politics.

The December 2020 clashes between Chinese and Indian troops along the contested Line of Actual Control (LAC) underscore the fraught relations between the two giants and highlight Nepal’s strategic role as a buffer state - its position has historically helped prevent direct military confrontations. Given this context, any disproportionate influence by India or China over Nepal could trigger severe geopolitical disruptions. Consequently, U.S. foreign policy in South Asia should carefully consider Nepal's critical role as a buffer state. Integrating Nepal into a grand strategy aimed at containing China without recognizing its sovereign needs could have devastating consequences for Nepal's national security. To avoid direct conflict, both nations must engage with Nepal respectfully and refrain from meddling in its internal affairs, preserving the status quo. Similarly, it is in Nepal’s best interest to maintain neutrality and avoid becoming trapped by either regional power. This paper examines the intricate dynamics of the Nepal-India relationship, explores Nepal’s evolving ties with China, and assesses foreign policy options available for the US.

Breaking Bonds: The Rise of Maoism and the Erosion of Indian Influence in Nepal

Despite Nepal being sandwiched between India and China, its history is marked by significant political transformations and unstable political and social order. The country’s political system has predominantly been monarchical, characterized by absolute and constitutional monarchies. From 1846 until 1951, the Rana Dynasty exerted autocratic control, effectively making the Shah monarchs figureheads. This period ended when King Tribhuvan Bir Bikram Shah, aided by major political forces like the Nepali Congress, overthrew the Rana regime, ushering in Nepal’s first experiments with democracy.

In 1960, however, King Mahendra took a regressive step by abolishing the multiparty system and establishing the Panchayat system, a pseudo-autocratic governance model that centralized power among the monarchy and a select few elites, stifling political dissent and suppressing public governance. This system perpetuated a governance model rife with nepotism and corruption, contributing to widespread poverty and growing public discontent. However, in 1990, the so-called “partyless” Panchayat system of government was abolished and a democratically elected parliament was established.[1]  Given the geographical proximity to China and the transformative impact of its economy after the Mao-led revolution, Nepal has experienced significant ideological influence, notably shaping the doctrine of the Nepali Maoist militants. King Gyanendra's rise and subsequent dismissal of political parties in 2005 only intensified the national discontent. His actions sparked widespread protests across Nepal, illustrating the volatile interplay of internal political dynamics and external ideological influences.[2] These conditions set the stage for the Maoist insurgency in 1996, fueled by rampant unemployment, corruption escalating civil unrest, and a lack of trust among the political elite.[3]

In addition to issues like corruption and unemployment, Nepal’s entrenched caste system has significantly disadvantaged Dalits and other minorities, fueling support for the Maoist revolution. The Dalits, who faced severe social discrimination and economic deprivation, were particularly supportive of the Maoists, as they were the first political group to advocate for their rights.[4] The Maoist rebels, who believed in the ideology of revolution—even if it meant using force—aimed to establish a "people's government."[5] To their credit, the government formed after the insurgency that started in 1996 included an unprecedented number of minority representatives in parliament, including women and different ethnic minorities like Dalits and Madhesis, reflecting a significant shift towards inclusivity in Nepal’s political landscape.

After a decade of struggle and bloody war, on November 21st, 2006, the peace deal was signed by Prime Minister Girija Prasad Koirala and the Maoist rebel leader Puspa Kamal Dahal, also known as Prachanda.[6] In 2008, immediately after his election as Prime Minister of Nepal, Pushpa Kamal Dahal, also known as Prachanda, visited Beijing, bypassing the traditional inaugural visit to New Delhi that his predecessors had made.[7]

Aside from being one of the smallest and most landlocked countries, Nepal has historically been economically dependent on India since its independence from British colonial rule due to its unique geographical position. In 1947, on the eve of India’s independence, Prime Minister Jawaharlal Nehru of India highlighted the unique relationship between the two countries. Speaking to British Field Marshal Lord Montgomery, Nehru described Nepal as “closely allied to India,” indicating that he did not consider Nepal a “foreign country.” [8] This closure has allowed New Delhi to exert considerable influence over Nepal's internal affairs and geopolitical stance, often securing significant political loyalty to New Delhi's causes. On numerous occasions, India has influenced the outcomes of Nepalese elections, cultivating politicians who are loyal to New Delhi.[9]

Nepal’s economic dependence on India has led the latter to treat Nepal as a subordinate entity rather than as a strategic partner, despite its importance as a security ally. For many years, Nepal has ensured the security of the northern border of India by allowing the Indian government to conduct intelligence operations alongside the border with Tibet, enabling the Indian military to assess Chinese military activities.[10] In this strategic context, Nepal has acted as the sole buffer state between India and China, helping to mitigate potential security dilemmas at the Indian border. Furthermore, Nepal has proven to be India's invaluable intelligence ally, particularly in counterterrorism efforts. In 2013, with support from the Nepalese government, India's Intelligence Bureau successfully apprehended Yasin Bhatkal, a top terrorist target. Bhatkal was involved in a devastating bombing that claimed the lives of 17 people.[11] However, as mentioned previously, Nepal has long been overshadowed by New Delhi's economic and military influence.[12]

In such a context, Dahal’s visit to Beijing caused an uproar in New Delhi. It also signaled to New Delhi that Nepal was moving past the traditional role as a neutral state and acting like an independent state that was willing to make geopolitical decisions without India’s help. The rise of the Unified Communist Party of Nepal (Maoist) coalition of the Nepalese government in 2008 cast doubt on New Delhi as its foreign policy sought to move more towards Beijing. This sudden departure of Kathmandu from the long-standing shadows of New Delhi towards Beijing not only challenges the establishment of New Delhi but also makes Washington keenly observe the evolving relationship between China and Nepal.[13]

Expanding Horizons: China's Growing Influence and Soft Power in Nepal:

Although Nepal and China do not share a common language or culture, they share a history of cordial strategic partnership. After the establishment of the People's Republic of China in 1949, the two countries formalized their relationship by establishing diplomatic relations based on the “Five Principles of Peaceful Coexistence” (1955) to promote respect for each other's sovereignty and promote trade and economic cooperation.[14] However, the situation changed when Beijing invaded Tibet in 1959, which borders Nepal. Nepal became a gateway for over 12,000 Tibetan refugees fleeing from the Chinese repression. It had initially granted refugee status along with refugee cards, allowing them to live and work in Nepal, but this stopped after mountaineering pressure from Beijing in late 2000.[15] Tibetan resistance fighters and activists who opposed the Chinese control in Tibet used Nepal as a strategic base to continue the fight against the CCP; China has aggressively pursued a ‘One China’ policy with Nepal, ensuring no ‘free Tibet’ movement along the Chinese border.[16]

On the other hand, the so-called acquaintance relationship between China and Nepal grew significantly after Nepal became an independent democratic republic. Once Prime Minister Pushpa Kamal Dahal, a Maoist leader, took office in 2008 and prioritized revitalizing their ideological relation with Communist China, Nepal expanded its ties with China in various areas, from economic investments to security partnerships.[17]  For example, by 2014, China had overtaken India in foreign direct investments. This growth in Chinese investment strategically influenced Nepal and its stand in geopolitics, evidenced by the Nepali government’s refusal to accept aid from Taipei during the 2015 earthquake to maintain a strategic distance from Taiwan, marking a significant shift in Nepal’s foreign policy influence by Beijing.[18]  

In addition, over the past decade, the BRI has extended its reach across Southeast Asia, the Middle East, and Africa, with China committing over $100 billion to projects in South Asia alone, including small countries like Nepal and Sri Lanka.[19] Despite warnings from the US and India about the potential debt implications associated with BRI loans, the government of Nepal found the prospect of immediate financial support too compelling to disregard. Facing pressing economic needs and widespread poverty, Nepal embraced the influx of Chinese investment as a critical resource for national development. After a five-month economic blockade allegedly imposed by New Delhi in 2015, Nepal sought to reduce its dependence on India by turning to Beijing.[20] As part of the BRI, China agreed to invest over $5 billion in the Trans-Himalayan Corridor. This project aims to build a rail line connecting Lhasa and Gyirong in Tibet with Kathmandu, marking a significant shift in Nepal's economic and strategic alignment.

As China increases its economy and investment in Nepal, so does its core interest in its domestic and foreign policy. As mentioned previously, Nepal has firmly committed to the ‘One China Policy’ and has aggressively sought after any anti-Chinese sentiment.[21] In 2021, Nepal aligned closely with China at the United Nations, endorsing Beijing’s contentious policies in Xinjiang, Tibet, and Hong Kong—regions that have drawn international scrutiny over alleged human rights abuses. This stance underscores a strengthening of Nepal’s diplomatic support for China amidst global controversies.[22]Within Nepal, Beijing has strategically utilized soft power tools to shape the narrative surrounding its policies. This includes offering training programs for Nepali journalists through initiatives like the Confucius Institutes and, at times, exerting pressure on media outlets to dismiss critics of China. These efforts are part of a broader strategy to influence public perception and secure a favorable informational environment within Nepal. [23]

Additionally, under the "Sagarmatha Friendship'' initiative named after the tallest Mount Everest, dividing Nepal and China, the Nepal Army and the People’s Liberation Army (PLA) of China conducted joint military exercises in 2017 and 2018. According to officials, joint military exercises aim to fight terrorism, disaster response and management, and high-altitude warfare. These exercises represented a significant shift in regional security dynamics, traditionally dominated by Nepal's security collaboration with New Delhi, and were viewed as a major blow to India’s long-standing influence over Nepal securities. [24]

Washington's Strategy and Regional Dynamics

As Washington races to secure and expand its influence in South Asia, Nepal's geopolitical pivot towards China can be seen as a symptom of the failure of American foreign policy in the region. This shift underscores broader regional dynamics where traditional Western influence is being reassessed in light of growing Chinese involvement. As India surpasses China with its fast-growing population, second-largest military, and fifth-largest economy, Washington has reason to believe India is in a unique position to counterbalance China.[25] Even though India looks promising from an economic perspective, it is sadly losing on the home front in three aspects. It would not be a reliable counterbalance to China in the Indo-Pacific, not at least in a near decade.

1. India's strategic position: India's position in South Asia is challenging, particularly in countering China’s influence. While India is a significant regional power, its ability to form strong alliances in South Asia that could stand firmly with it against China, especially in the absence of Western support, needs to be improved.  Virtually every South Asian country has engaged with China’s BRI, which strengthens China’s strategic ties with these nations.[26] Despite India's historical and, most importantly, cultural ties with its neighbor, India has seen its ups and downs in recent years in some of its closest allies, such as Nepal and Sri Lanka. China's expanding influence in South Asia through the BRI has significantly enhanced its regional soft power. This growth in influence suggests that the options for regional allies may be limited in a direct confrontation between India and China. Many South Asian countries might prefer to maintain their independence in security matters, opting for a neutral stance rather than siding outright with India against China.[27]

2. Non-Alignment: A Double-Edged Sword for India: India has long maintained a non-aligned stance in its foreign policy, which has yielded significant economic and political benefits. However, this approach has also incurred substantial security costs. In contrast to India’s solitary posture, China and Pakistan have strengthened their economic ties and significantly enhanced their military cooperation over the past decade. This includes sophisticated joint military exercises and participation in the Global Security Initiative, bolstering their strategic alignment.[28]

India shares a contentious border with its nuclear-armed rival neighbor, Pakistan, a relationship further complicated by the longstanding strategic nuclear alliance between Pakistan and China that began in the early 1980s. China’s role in developing Pakistan’s nuclear capabilities has been instrumental in reinforcing the military bond between the two countries.[29] Additionally, India’s ties with Russia, which might have offered counterbalance, instead complicate its position due to the burgeoning ‘No Limit’ partnership between Russia and China.[30] In the event of a confrontation with either China or Pakistan, India finds itself isolated, lacking robust regional alliances despite its own nuclear capabilities. This triangular nuclear relationship between India, China, and Pakistan not only complicates the regional security landscape but also diminishes India's strategic leverage in any potential confrontation between China and India. This isolation underscores the complex dynamics, challenging India’s ability to achieve a clear strategic victory.

1. India’s Economic and Defense Challenges: While India is among the fastest-growing economies in the world, it still lags behind China in several key areas. The extensive investments by the Chinese government in infrastructure have proven highly effective, establishing China as the “world's factory” for the past two decades. In contrast, India invests 30 percent of its GDP in manufacturing and infrastructure, whereas China invests 50 percent.[31]Additionally, China boasts some of the highest quality infrastructure outside the Western world, whereas India grapples with significant poverty issues. In terms of investment and infrastructure output, China has significantly outpaced India. 

Although India is the third largest spender on defense, with a price tag of over 73 billion USD, after the US and China, India spends 53 percent of its defense on military personnel and pensions, limiting its scope for procurement and military modernization.  [32] Additionally, over 65 percent of India's military arsenal is imported from Russia, highlighting a substantial dependency on foreign arms and a relatively underdeveloped defense research and development sector.

Conversely, China’s defense budget is over $231 billion, with a significant emphasis on domestic production.[33]Approximately 41 percent of its defense spending is invested in military equipment and maintenance, supported by robust state-owned enterprises and research institutes. This strategic allocation has fostered a technologically advanced military ecosystem, enhancing China’s autonomy in defense capabilities.

China’s substantial investments in economic and military domains have solidified its position as a formidable global power, far surpassing India’s current capabilities. This disparity underscores India’s strategic challenges in bridging the gap with its northern neighbor.

Navigating Future Geopolitics in Nepal

The geopolitical situation in Nepal highlights the complex challenges faced by many South Asian nations, which are caught between aligning with Washington or Beijing. The prevailing ‘zero-sum’ foreign policy approach, which posits that one country's gain is another's loss, adopted by both the United States and China, forces nations like Nepal to choose sides. This challenges the current global order and threatens the autonomy of smaller states.

As India and China compete for regional supremacy, they must acknowledge the vital role of smaller neighbors like Nepal. These buffer states are crucial in mitigating direct tensions along critical borders such as the LAC, where the absence of such buffers has previously led to military confrontations. The stability and prosperity of Nepal are thus in the strategic interest of both nations; instability in Nepal poses a direct security threat to each.

Nepal plays a pivotal role in regional security by managing Tibetan uprisings and securing its border with Tibet, thus alleviating China’s security concerns in its occupied territories. Conversely, India must recognize that instability in Nepal could provide a haven for domestic terrorist groups such as Indian Mujahideen or Pakistani militia groups, directly jeopardizing India's security given its open border policy with Nepal. Furthermore, the presence of ethnic Nepalis in India and ethnic Indians in Nepal, along with thousands of Indian migrants who dominate certain economic sectors in Nepal, adds layers of social and economic interdependence that could be destabilized. India, therefore, should regard Nepal as an equal partner rather than a subordinate, respecting its agency and regional aspirations.

Nepal must navigate these pressures carefully to maintain its sovereignty without succumbing to the disproportionate influence of either neighboring giant. China and India's interference in Nepal’s security and foreign policies pose potential threats not just to Nepal but to the broader stability of the region. Moreover, China's strategy of extending "unconditional" loans to economically weaker nations could backfire, potentially compromising its own security interests if it fails to respect the sovereignty of its neighbors.[34]

The United States Role in Promoting Stability and Autonomy in South Asia

The United States should adopt a balanced approach in South Asia, fostering stability by encouraging India, China, and Nepal to uphold the status quo while supporting Nepal’s pursuit of economic stability and political sovereignty. As India and China vie for influence over smaller nations like Nepal, the US must tread carefully and promote liberal democratic values through increased engagement in the region rather than coercing India to counterbalance China.[35]

Rather than merely positioning India as a counterweight to China, the US should assist India in leveraging its rich cultural, entertainment, and democratic attributes to distinguish itself from other regional powers. This support could include helping India develop an infrastructure initiative analogous to China’s BRI but with enhanced transparency as governance standards. Populist leaders like Narendra Modi, who have shifted India’s diverse democracy toward a more singular ethno-Hindu state, challenge India’s aspiration to exert its soft power in South Asia.[36] If the US desires India to counteract Chinese influence effectively, it must address these internal dynamics that threaten broader aspirations for stability.

Nepal’s strategic location and ecological importance are pivotal for regional security and global environmental health.[37]Supporting Nepal’s development and safeguarding its autonomy is critical to preventing the region from becoming a flashpoint in wider geopolitical conflicts that could threaten international stability. Despite its modest economic size, Nepal has a history as a beacon of peace—exemplified by Buddha, born in Lumbini. International actors need to allow Nepal to play this role, facilitating peace and stability as it historically has within Asia.

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ENDNOTES

[1] U.S. Department of State, 'Background Note: Nepal,' last modified 2017, https://2009-2017.state.gov/outofdate/bgn/nepal/59268.htm#:~:text=The%20former%20%22partyless%22%20panchayat%20system,National%20Assembly%20(upper%20house).

[2] Lancaster, John. "King Claims Absolute Authority in Nepal." The Washington Post. February 2, 2005.https://www.washingtonpost.com/archive/politics/2005/02/02/king-claims-absolute-authority-in-nepal/12f5dc6c-8ae2-4252-9c58-f256a8d6f76f/.

[3] P. A. Smith, "Maoist Insurgency in Nepal: Examining Socio-Economic Grievances and Political Implications," Columbia International Affairs Online, January 2002, https://ciaotest.cc.columbia.edu/olj/sa/sa_jan02pas01.html.

[4] ReliefWeb, 'Nepal: Former Rebels Favoured by Marginalised Communities,' last modified [publication date], https://reliefweb.int/report/nepal/nepal-former-rebels-favoured-marginalised-communities

[5] Ashraf, Fahmida. “MAOIST UPRISING IN NEPAL.” Strategic Studies 22, no. 2 (2002): 62–80. http://www.jstor.org/stable/45242608.

[6] Randeep Ramesh, "Nepal: Former Rebels Favored by Marginalised Communities," The Guardian, November 23, 2006,https://www.theguardian.com/world/2006/nov/23/nepal.

[7] Darshana M. Baruah, "Nepal Joined the Belt and Road: What Does That Mean for India?" The Diplomat, May 2017, https://thediplomat.com/2017/05/nepal-joined-the-belt-and-road-what-does-that-mean-for-india/

[8] Gokhale, Vijay. “India’s Fog of Misunderstanding Surrounding Nepal–China Relations.” Carnegie India, October 4, 2021. https://carnegieindia.org/2021/10/04/india-s-fog-of-misunderstanding-surrounding-nepal-china-relations-pub-85416

[9] Arora, Vishal. “R.I.P., India’s Influence in Nepal.” The Diplomat, November 27, 2015. https://thediplomat.com/2015/11/r-i-p-indias-influence-in-nepal/.

[10] Padmaja Murthy, "South Asia: The Year 1999," Columbia International Affairs Online, 1999, https://ciaotest.cc.columbia.edu/olj/sa/sa_99mup01.html.

[11] Aman Sharma, "Yasin Bhatkal, Face of Indian Mujahideen, Arrested in an Operation from Nepal," The Economic Times, August 29, 2013,https://economictimes.indiatimes.com/news/politics-and-nation/yasin-bhatkal-face-of-indian-mujahideen-arrested-in-an-operation-from-nepal/articleshow/22152983.cms?from=mdr

[12] Charu Lata Hogg, "China, India and Nepal: Intrigue at the Top of the World," Chatham House, June 2010, https://www.chathamhouse.org/2010/06/china-india-and-nepal-intrigue-top-world.

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