For a long time, Kathmandu has been advocating for a trilateral corridor between China, Nepal and India to enhance the volume of trade at the regional level. However, this idea gained currency only after Chinese President XI Jinping put forward the idea of Belt and Road Initiative (BRI) in 2013. Since then, both China and Nepal have been actively pushing this idea of trilateral corridor at various regional forums. After Nepal signed a framework agreement with China on the BRI on May 12 and participated in the BRI Forum in Beijing on May 14 and 15 this year, Kathmandu and Beijing could double their efforts to make India a party to the trilateral corridor for their own interests.<1>
Kathmandu put forward the idea of developing Nepal as a land-bridge between Central and South and Southeast Asia at the second South-South Summit in Doha in 2005. Later on, this policy was incorporated in the Nepal’s Annual Budget of 2005. The government of Nepal welcomed China’s efforts to bring its railway to the Nepalese border and extend it further to Kathmandu. Subsequently, a separate wing was opened at Nepal’s Ministry of Transportation in Kathmandu in cooperation with the Asian Development Bank to work on the modality of the trilateral corridor between China, Nepal and India.
After the end of the monarchical institution in Nepal in 2008, the Maoist leader Pushpa Kamal Dahal took the fresh initiative in 2010 to push the idea of trilateral corridor. Since then political forces with extreme right and left leanings have joined this chore.
China took up this idea with India under the broader framework of BRI during the meeting of Chinese Premier Li Keqiang and Indian Prime Minister Narendra Modi in Beijing in May 2015. China’s Foreign Minister Wang Yi also raised this issue with Indian Foreign Minister Sushma Swaraj in Kathmandu the same year, on the sidelines of an international conference on the earthquake reconstruction.
Recently, Di Fangyao, Deputy Director of the Institute of South Asia, Xizang Minzu University of China, in his paper on “Thinking in Building the China-Nepal-India Economic Corridor” said that the corridor could bring about significant changes in South Asia and South East Asia as millions of people in the region might get rid of poverty. Besides, this could also increase the level of tolerance, mutual respect, friendship and above all investment in the region. And, more than that, Kathmandu might even emerge as Brussels of South Asia.<2>
India has not made any official comment about Nepal joining the BRI. However, it is well known that it is critical to the China-Pakistan Economic Corridor (CPEC), a flagship project of the BRI, as it breached its sovereignty, passing through Gilgit-Baltistan in Pakistan-occupied Kashmir.<3> Moreover, India has been apprehensive about the BRI for its lack of transparency.
The issue of lack of transparency was also raised in the BRI Forum by the leaders of Germany, France, England, Greece, Portugal and Estonia. Russian President Vladimir Putin and Kenyan President Uhuru Kenyatta too wanted greater transparency in the implementation process of the BRI.<4>
The regional development arm of the United Nations, the Economic and Social Commission for Asia Pacific (ESCAP), in its report on the BRI, has warned that the controversial CPEC route could even raise geo-political tensions with India and create political instability in the region.<5>
So far as Nepal is concerned, India contributed much more than what is being envisaged by China under the BRI. India did a lot for developing connectivity with this country through roadways and even to some extent through railways and power grid. India’s contribution is exemplary in developing infrastructural facilities in Nepal. It now wants to join the US in developing two major infrastructure projects in South and Southeast Asia that could even counter the BRI. The Donald Trump administration is contemplating on the ‘New Silk Road’ initiative that was first conceived by Hillary Clinton in July 2011 in her speech in Chennai.<6> Also, the possibility is high for India to collaborate with more vigorous Japan’s Partnership for Quality Infrastructure and the American Indo-Pacific Economic Corridor, which could emerge as an alternative to the BRI.<7>
It is often stated that there will be a massive flow of Chinese tourists to Nepal and South Asia once the trilateral corridor is developed between China, Nepal and India. It is also argued that all the countries in the region could benefit from the corridor through the trade.
However, it is feared if China will that easily open Tibet for tourists from Nepal, India and other parts of the world through the trilateral corridor. Recent experience shows that China did not even allow the Nepalese business persons and truck drivers, other than those from Nepal’s northern regions, to enter into the Chinese territory from across the Rasuwagadhi sector when they wanted to collect 46 containers of goods in Tibet during the time the Madheshis in Terai region had imposed economic blockade at the Nepal-India border in 2015-16.
In 2015-16, Nepal imported goods worth $1.07 billion from China, whereas its exports to that country were mere $15 million. Exports to China were only 1.4 percent of Nepal’s total imports from that country.<8> Similarly, India’s trade deficit with China exceeded 53 billion in 2015-16.<9> Since the exportable items from Nepal and India to China are mainly primary goods and the importable items are manufactured goods, it is likely that the deficit in their balance of trade with China will further aggravate.
India and China are having border dispute for a long time with no solution in sight till now. They even had a war in 1962. Border intrusions still continue. Against this backdrop, the Rasuwagadhi-Kerung route through which China is interested in entering Nepal and further to India through the railways and roadways is strategically most sensitive. This will be the shortest route for China to reach Indian border, even bypassing Kathmandu. In view of the proximity and porous border between Nepal and India, India might not feel comfortable when the security personnel and other people from China start working in the trilateral corridor and other such projects under the BRI. This could also lead to India’s reduced influence in South Asia.<10> Nepal, however, regards the trilateral corridor purely as an economic and socio-cultural phenomenon rather than the strategic one.<11>
There is a growing perception that the BRI projects merely serve China’s strategic maritime and overland passages at the costs of the partner countries. China is having excess production of steel and cement, which it has to dump outside the country to keep the domestic industries running.<12> This is more so necessary for China at a time the country is struggling with slower growth and higher dependence on heavy and manufacturing industries.
But in certain quarters, the BRI is considered like erstwhile British East India Company, which had an imperialist design. Therefore, some of those countries which initially were trapped under the BRI have started receding from their stand. In Sri Lanka, people have started raising voice against the 15,000-acre industrial zone. Also, many people have opposed China-built Hambantota port, which is running in huge loss.<13> In its effort to vent its anger, Sri Lanka even refused to entertain Chinese submarine when it tried to dock at the Colombo terminal.
The non-performing loans at the state-owned banks in China pose threat to the growth of the economy. Its foreign exchange reserves that had touched a record high of $ 4 trillion in 2014 has declined by a quarter in 2017.<14> Such a development could limit its capacity to make investment abroad.
Most of the BRI projects are concentrated in politically unstable countries, which face larger risk in implementation. Besides, the lack transparency and the indifference towards social and environmental issues in the BRI projects is also a problem.
Social unrest and the increase in the ageing population could have an adverse effect on the growth of China. 1.8 million workers in the steel and coal industries have been laid off. The year 2016 marked the lowest growth rate of 6.9 percent in China in the last 25 years. Chinese Premier Li Keqiang acknowledged the seriousness of the situation when he stated, “China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle.”
China shows its interest in connectivity with India through Nepal, which is third country. But it is not so interested in developing direct connectivity with India, though the Indian market is so huge.<15> Nathula Pass is the only operational trade route between India and China over their 4,500-kilometer long border. This route, which was closed after the 1962 War between the two countries, was reopened only in 2006.<16> However, the volume of trade between the two countries through this route is still limited.
A direct economic corridor between China and India would demand delineation of the border at the Line of Actual Control (LAC) between the two countries in some sectors. For this, it will be necessary to set up custom offices and develop certain infrastructure to facilitate trade through the border. But China is least enthusiastic on such an arrangement. It does not want to enter the Indian market directly through their common border, but only through the third country like the China-Pakistan Economic Corridor (CPEC), the Bangladesh-China-India-Myanmar Economic Corridor (BCIM) and the proposed China-Nepal-India Economic Corridor (CNIEC). China intends to make entry into the Indian market without resolving border issues with India at the LAC.<17>
Through the trilateral corridor, China wants to use Nepal merely as a gateway to dump its goods in India. Other than importing goods, there is very little for Nepal and India to take benefits from the Chinese market. But Kathmandu overlooks this truth and supports the BRI.
The idea of trilateral corridor is politically motivated as only Kathmandu and Beijing seems to be interested in it. Possibilities are higher for many of the industries in Nepal and India to get further skewed through such corridor. Therefore, India has apprehensions to join trilateral corridor and its response on this issue is lukewarm.
Moreover, the lack of transparency in the terms and conditions of the BRI is itself a great bottleneck in its acceptability. In the existing situation, India will not be part of the BRI that is intended to enhance China’s economic and strategic clout at the regional or global level. It is unlikely that India will ever be prepared to accept the role of playing second fiddle in China’s global ambition through the BRI. Therefore, the best approach for Nepal will be to focus on bilateral relations with dragon and elephant rather than to get involved in regional level geo-political game under the garb of the BRI.
<1> Parashar, Sachin, “Hitting Xi’s road won’t change India ties: Nepal will Carefully Weigh Terms for Utilisation of Funds From China, Says Envoy,” The Times of India, May 25, 2017 in http://timesofindia.indiatimes.com/world/south-asia/nepal-will-carefully-weigh-use-of-funds-from-china-nepal-envoy/articleshow/58830864.cms
<2> Nepal Foreign Affairs, “China-Nepal Think Tank Conference concludes,” Kathmandu, January 19, 2017.
<3> PTI, “What kind of dialogue India wants on OBOR, asks China,” The Economic Times, May 16, 2017 in http://economictimes.indiatimes.com/news/politics-and-nation/what-kind-of-dialogue-india-wants-on-obor-asks-china/articleshow/58697771.cms
<4> Chaudhury, Dipanjan Roy, “India, Other Nations’ Stand in OBOR Summit Prevents China from Full-proof Plan Rollout,” The Economic Times, May 19, 2017.
<5> Laskar, Rezaul H, “CPEC route through Kashmir could create tension with India: UN report,” Hindustan Times, May 25, 2017 in http://www.hindustantimes.com/world-news/cpec-route-through-kashmir-could-create-tension-with-india-un-report/story-05fDgjtdFmATT6K13ZJffN.html
<6> PTI, “To Counter China’s OBOR, US Revives Two Infrastructure Projects in Asia,” The Wire, May 24, 2017 in https://thewire.in/139714/obor-china-us-india/
<8> Xinhua, “Nepal’s import from China rise, export dive,” XINHUANET.COM in August 31, 2016 in http://news.xinhuanet.com/english/2016-08/31/c_135648591.htm
<9> PTI, “India’s trade deficit with China jumps to $53 billion in 2015-16,” The Economic Times, August 1, 2016 in http://economictimes.indiatimes.com/news/economy/foreign-trade/indias-trade-deficit-with-china-jumps-to-53-billion-in-2015-16/articleshow/53492853.cms
<10> South Asia Centre, “Is India-Nepal-China trilateral Cooperation possible?” Institute for Defense Studies and Analysis, New Delhi, May 15, 2013 in http://www.idsa.in/event/IsIndiaNepalChinatrilateralCooperationpossible
<11> Bhattarai, Gaurav, “Bridge to where?” My Republica, January 26, 2017 in http://www.myrepublica.com/news/13736/
<12> Baral, Biswas, “What China wants,” My Republica, May 29, 2017.
<13>Chellaney, Brahma, “OBOR overreach,’ My Republica, May 29, 2017
<15>Pulipaka, Sanjay, “India must capitalize on transnational economic corridors,” Financial Express, February 13, 2016 in http://www.financialexpress.com/opinion/india-must-capitalise-on-transnational-economic-corridors/211024/
<16> Spotlight, Vol. 09, No 1, June 1, 2015.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Hari Bansh Jha is a Visiting Fellow at ORF. Formerly a professor of economics at Nepal's Tribhuvan University, Hari Bansh’s areas of interest include, Nepal-China-India strategic ...Read More +