Bhutan vs. China

Following Britain's victory in the 1865 Duar War, Britain and Bhutan signed the Treaty of Sinchulu, under which Bhutan would receive an annual subsidy in exchange for ceding land to British India. Ugyen WANGCHUCK - who had served as the de facto ruler of an increasingly unified Bhutan and had improved relations with the British toward the end of the 19th century - was named king in 1907. Three years later, a treaty was signed whereby the British agreed not to interfere in Bhutanese internal affairs, and Bhutan allowed Britain to direct its foreign affairs. Bhutan negotiated a similar arrangement with independent India in 1949. The Indo-Bhutanese Treaty of Friendship returned to Bhutan a small piece of the territory annexed by the British, formalized the annual subsidies the country received, and defined India's responsibilities in defense and foreign relations. Under a succession of modernizing monarchs beginning in the 1950s, Bhutan joined the UN in 1971 and slowly continued its engagement beyond its borders.

In 2005, King Jigme Singye WANGCHUCK unveiled the draft of Bhutan's first constitution - which introduced major democratic reforms - and held a national referendum for its approval. The King abdicated the throne in 2006 in favor of his son, Jigme Khesar Namgyel WANGCHUCK. In 2007, India and Bhutan renegotiated their treaty, eliminating the clause that stated that Bhutan would be "guided by" India in conducting its foreign policy, although Thimphu continues to coordinate closely with New Delhi. In 2008, Bhutan held its first parliamentary election in accordance with the constitution. Bhutan experienced a peaceful turnover of power following a parliamentary election in 2013, which resulted in the defeat of the incumbent party. In 2018, the incumbent party again lost the parliamentary election. Of the more than 100,000 ethnic Nepali - predominantly Lhotshampa - refugees who fled or were forced out of Bhutan in the 1990s, about 6,500 remain displaced in Nepal.

China's historical civilization dates from at least 1200 B.C.; from the 3rd century B.C. and for the next two millennia, China alternated between periods of unity and disunity under a succession of imperial dynasties. In the 19th and early 20th centuries, the country was beset by civil unrest, major famines, military defeats, and foreign occupation. After World War II, the Chinese Communist Party under MAO Zedong established an autocratic socialist system that, while ensuring China's sovereignty, imposed strict controls over everyday life and cost the lives of tens of millions of people. After 1978, MAO's successor DENG Xiaoping and other leaders focused on market-oriented economic development and by 2000 output had quadrupled. For much of the population, living standards have improved dramatically but political controls remain tight. Since the early 1990s, China has increased its global outreach and participation in international organizations.

frequent typhoons (about five per year along southern and eastern coasts); damaging floods; tsunamis; earthquakes; droughts; land subsidence

volcanism: China contains some historically active volcanoes including Changbaishan (also known as Baitoushan, Baegdu, or P'aektu-san), Hainan Dao, and Kunlun although most have been relatively inactive in recent centuries

23 provinces (sheng, singular and plural), 5 autonomous regions (zizhiqu, singular and plural), and 4 municipalities (shi, singular and plural)

provinces: Anhui, Fujian, Gansu, Guangdong, Guizhou, Hainan, Hebei, Heilongjiang, Henan, Hubei, Hunan, Jiangsu, Jiangxi, Jilin, Liaoning, Qinghai, Shaanxi, Shandong, Shanxi, Sichuan, Yunnan, Zhejiang; (see note on Taiwan)

autonomous regions: Guangxi, Nei Mongol (Inner Mongolia), Ningxia, Xinjiang Uyghur, Xizang (Tibet)

municipalities: Beijing, Chongqing, Shanghai, Tianjin

Bhutan's small economy is based largely on hydropower, agriculture, and forestry, which provide the main livelihood for more than half the population. Because rugged mountains dominate the terrain and make the building of roads and other infrastructure difficult and expensive, industrial production is primarily of the cottage industry type. The economy is closely aligned with India's through strong trade and monetary links and is dependent on India for financial assistance and migrant laborers for development projects, especially for road construction. Bhutan signed a pact in December 2014 to expand duty-free trade with Bangladesh.

Multilateral development organizations administer most educational, social, and environment programs, and take into account the government's desire to protect the country's environment and cultural traditions. For example, the government is cautious in its expansion of the tourist sector, restricing visits to environmentally conscientious tourists. Complicated controls and uncertain policies in areas such as industrial licensing, trade, labor, and finance continue to hamper foreign investment.

Bhutan's largest export - hydropower to India - could spur sustainable growth in the coming years if Bhutan resolves chronic delays in construction. Bhutan's hydropower exports comprise 40% of total exports and 25% of the government's total revenue. Bhutan currently taps only 6.5% of its 24,000-megawatt hydropower potential and is behind schedule in building 12 new hydropower dams with a combined capacity of 10,000 megawatts by 2020 in accordance with a deal signed in 2008 with India. The high volume of imported materials to build hydropower plants has expanded Bhutan's trade and current account deficits. Bhutan also signed a memorandum of understanding with Bangladesh and India in July 2017 to jointly construct a new hydropower plant for exporting electricity to Bangladesh.

Since the late 1970s, China has moved from a closed, centrally planned system to a more market-oriented one that plays a major global role. China has implemented reforms in a gradualist fashion, resulting in efficiency gains that have contributed to a more than tenfold increase in GDP since 1978. Reforms began with the phaseout of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, growth of the private sector, development of stock markets and a modern banking system, and opening to foreign trade and investment. China continues to pursue an industrial policy, state support of key sectors, and a restrictive investment regime. From 2013 to 2017, China had one of the fastest growing economies in the world, averaging slightly more than 7% real growth per year. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2017 stood as the largest economy in the world, surpassing the US in 2014 for the first time in modern history. China became the world's largest exporter in 2010, and the largest trading nation in 2013. Still, China's per capita income is below the world average.

In July 2005 moved to an exchange rate system that references a basket of currencies. From mid-2005 to late 2008, the renminbi (RMB) appreciated more than 20% against the US dollar, but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010, when Beijing announced it would resume a gradual appreciation. From 2013 until early 2015, the renminbi held steady against the dollar, but it depreciated 13% from mid-2015 until end-2016 amid strong capital outflows; in 2017 the RMB resumed appreciating against the dollar - roughly 7% from end-of-2016 to end-of-2017. In 2015, the People's Bank of China announced it would continue to carefully push for full convertibility of the renminbi, after the currency was accepted as part of the IMF's special drawing rights basket. However, since late 2015 the Chinese Government has strengthened capital controls and oversight of overseas investments to better manage the exchange rate and maintain financial stability.

The Chinese Government faces numerous economic challenges including: (a) reducing its high domestic savings rate and correspondingly low domestic household consumption; (b) managing its high corporate debt burden to maintain financial stability; (c) controlling off-balance sheet local government debt used to finance infrastructure stimulus; (d) facilitating higher-wage job opportunities for the aspiring middle class, including rural migrants and college graduates, while maintaining competitiveness; (e) dampening speculative investment in the real estate sector without sharply slowing the economy; (f) reducing industrial overcapacity; and (g) raising productivity growth rates through the more efficient allocation of capital and state-support for innovation. Economic development has progressed further in coastal provinces than in the interior, and by 2016 more than 169.3 million migrant workers and their dependents had relocated to urban areas to find work. One consequence of China's population control policy known as the "one-child policy" - which was relaxed in 2016 to permit all families to have two children - is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the North - is another long-term problem. China continues to lose arable land because of erosion and urbanization. The Chinese Government is seeking to add energy production capacity from sources other than coal and oil, focusing on natural gas, nuclear, and clean energy development. In 2016, China ratified the Paris Agreement, a multilateral agreement to combat climate change, and committed to peak its carbon dioxide emissions between 2025 and 2030.

The government's 13th Five-Year Plan, unveiled in March 2016, emphasizes the need to increase innovation and boost domestic consumption to make the economy less dependent on government investment, exports, and heavy industry. However, China has made more progress on subsidizing innovation than rebalancing the economy. Beijing has committed to giving the market a more decisive role in allocating resources, but the Chinese Government's policies continue to favor state-owned enterprises and emphasize stability. Chinese leaders in 2010 pledged to double China's GDP by 2020, and the 13th Five Year Plan includes annual economic growth targets of at least 6.5% through 2020 to achieve that goal. In recent years, China has renewed its support for state-owned enterprises in sectors considered important to "economic security," explicitly looking to foster globally competitive industries. Chinese leaders also have undermined some market-oriented reforms by reaffirming the "dominant" role of the state in the economy, a stance that threatens to discourage private initiative and make the economy less efficient over time. The slight acceleration in economic growth in 2017-the first such uptick since 2010-gives Beijing more latitude to pursue its economic reforms, focusing on financial sector deleveraging and its Supply-Side Structural Reform agenda, first announced in late 2015.

Bhutan's telecom market is dominated by the mobile sector for voice and data connections due to poor fixed-line infrastructure and topographic issues; investment is focused on mobile infrastructure and an emergency telecom network for natural disasters; extended LTE to 60% of all mobile Internet users; regulator developing 5G plan; international communication through landline and microwave relay; nascent satellite service; importer of broadcast equipment from India (2021)

lacking any treaty describing the boundary, Bhutan and China continue negotiations to establish a common boundary alignment to resolve territorial disputes arising from substantial cartographic discrepancies, the most contentious of which lie in Bhutan's west along China's Chumbi salient

China and India continue their security and foreign policy dialogue started in 2005 related to a number of boundary disputes across the 2,000 mile shared border; India does not recognize Pakistan's 1964 ceding to China of the Aksai Chin, a territory designated as part of the princely state of Kashmir by the British Survey of India in 1865; China claims most of the Indian state Arunachal Pradesh to the base of the Himalayas, but the US recognizes the state of Arunachal Pradesh as Indian territory; Bhutan and China continue negotiations to establish a common boundary alignment to resolve territorial disputes arising from substantial cartographic discrepancies, the most contentious of which lie in Bhutan's west along China's Chumbi salient; Chinese maps show an international boundary symbol (the so-called "nine-dash line") off the coasts of the littoral states of the South China Sea, where China has interrupted Vietnamese hydrocarbon exploration; China asserts sovereignty over Scarborough Reef along with the Philippines and Taiwan, and over the Spratly Islands together with Malaysia, the Philippines, Taiwan, Vietnam, and Brunei; the 2002 Declaration on the Conduct of Parties in the South China Sea eased tensions in the Spratlys, and in 2017 China and ASEAN began confidential negotiations for an updated Code of Conduct for the South China Sea designed not to settle territorial disputes but establish rules and norms in the region; this still is not the legally binding code of conduct sought by some parties; Vietnam and China continue to expand construction of facilities in the Spratlys and in early 2018 China began deploying advanced military systems to disputed Spratly outposts; China occupies some of the Paracel Islands also claimed by Vietnam and Taiwan; the Japanese-administered Senkaku Islands are also claimed by China and Taiwan; certain islands in the Yalu and Tumen Rivers are in dispute with North Korea; North Korea and China seek to stem illegal migration to China by North Koreans, fleeing privation and oppression; China and Russia have demarcated the once disputed islands at the Amur and Ussuri confluence and in the Argun River in accordance with their 2004 Agreement; China and Tajikistan have begun demarcating the revised boundary agreed to in the delimitation of 2002; the decade-long demarcation of the China-Vietnam land boundary was completed in 2009; citing environmental, cultural, and social concerns, China has reconsidered construction of 13 dams on the Salween River, but energy-starved Burma, with backing from Thailand, continues to consider building five hydro-electric dams downstream despite regional and international protests

Tier 2 Watch List - Bhutan does not fully meet the minimum standards for the elimination of trafficking but is making significant efforts to do so; among its accomplishments, Bhutan convicted one trafficker, appealed the dismissal of trafficking charges in a second case, finalized and disseminated standard operating procedures for victim identification and referral, and initiated an investigation into reports of labor exploitation; the government also continued to work with an international organization on anti-trafficking training and public awareness events; however, Bhutanese courts continued to dismiss and refile on lesser charges human trafficking cases due to inconsistencies between Bhutanese law and the international definition of trafficking; additionally, authorities did not identify any trafficking victims during the reporting period and did not provide protective services to Bhutanese victims of forced labor abroad (2020)