Every cold war has its proxies. In a swath of Himalayan mountains wedged between the northeast Indian state of Arunachal Pradesh and China, they can take the shape of things as mundane as the empty beer bottles and cigarette butts left behind by soldiers on patrol. Up in the mountains, the Indian and Chinese armies monitor a boundary whose line the two countries don’t agree on.

In certain parts of that murky borderland, the soldiers on night patrols often leave behind evidence of their presence. When relations between the two countries are good, it’s litter; when the situation is tense, the detritus is marked in the official record as evidence of "aggressive border-patrolling.” Without any direct military confrontation, the tension between Asia’s two aspiring superpowers is ratcheting up.

India and China have never been close, but of late they have become engaged in increasingly sharp rounds of diplomatic thrust and parry. In September, India signaled its approval of a planned visit by the Dalai Lama to the border town of Tawang, the site of a famous Tibetan Buddhist monastery — a move that China interpreted as a provocation.

Beijing then objected to a visit by Manmohan Singh, the Indian Prime Minister, to Arunachal Pradesh, claiming it was part of Tibet, which belongs to China. Outraged that China presumed to tell an Indian leader not to go to territory legally recognized as India’s, New Delhi then objected to a new power plant that China is building in Pakistani-controlled Kashmir, territory that India claims.

Almost no one expects this year’s harsh words to escalate into military action, but the hostility is real. "China is trying to see how far India can be pushed,” says Pushpita Das of the Institute for Defense Studies & Security Analyses in New Delhi

China and India share a border 2,175 miles (3,500 km) long. On the Indian side, it runs from states in the northeast that are plagued by insurgency to the glaciers of Ladakh, on the edge of Kashmir. On the Chinese side, the region is just as troubled, encompassing Tibet and Xinjiang, home of the Uighurs, some of whom clashed violently with Chinese earlier this year.

India and China fought a brief war in 1962, when China captured territory in — for India — a mortifyingly rapid incursion.

They skirmished again in 1967, but since 1993 the two countries have coexisted more or less peacefully along an undemarcated border. What’s at stake now isn’t territory so much as influence and global status. China is an economic powerhouse, but ever since last year’s signing of a civilian nuclear agreement between the U.S. and India, Beijing has become increasingly uneasy with India’s growing clout. "It’s a competition between two systems: chaotic, undergoverned India and orderly, overgoverned China,” says Mohan Guruswamy, an Indian and a co-author of Chasing the Dragon, a new book about the two countries’ economic rivalry.

That competition continues, with the U.S. trying to keep close ties to both sides in a difficult balancing act that may turn out to be the most important geopolitical challenge facing Washington this century.

The tiny Indian hill-station town of Tawang is the unlikely center of the current confrontation. It was there that Chinese troops entered India during the 1962 war, and ever since, Tawang has been the headquarters of an Indian-army brigade.

The soldiers are hard to miss because they are so numerous — 15,000 among a population of 80,000 in Tawang and the surrounding countryside. Chombay Kee, a youth activist in Tawang, says the army is a boon to local businesses. "When they go home on leave,” he says, "they take back gifts from here.”

Most of the time, the troops just busy themselves with field exercises in the local farms and orchards. But every so often, things heat up.

This summer, China pressured the board of the Asian Development Bank to block a $2.9 billion loan to India, arguing that part of the money would go to a flood-control project in Arunachal Pradesh.

The governor of the state, a retired army general named J.J. Singh, then announced that India would deploy 50,000 more troops up there, though he tells TIME the additional troops were planned well before any hint of tension — and they haven’t arrived yet. ("That’s a future plan,” Singh says.)

With or without extra soldiers, India is watching the border. Singh says the Chinese army recently staged a massive training exercise in Tibet, with 50,000 personnel.
The military details obscure a more significant, if less glamorous, theater of conflict: infrastructure.

It’s telling that India has demanded that China cease work on the $2 billion Kohala power plant in Pakistani Kashmir. (The 62-year dispute with Pakistan over Kashmir is as sensitive for India as Tibet is for China.)

The plant is part of a systematic effort by China to assert its presence on the rim of the subcontinent, where India has long been the acknowledged superpower. In both Pakistan and Sri Lanka, the Chinese are funding new ports.

The Chinese Foreign Minister visited Nepal last December to launch construction of a new highway connecting central Nepal to China, and soon after, China announced plans to extend a controversial railway to Tibet as far as the border with Nepal.

India is countering: after Beijing agreed to develop a massive copper field in Afghanistan, New Delhi pledged more than $1 billion in development aid to Kabul.

China’s economy is more than twice the size of India’s, and Indian officials are sensitive about the gap. When the two armies hold twice-yearly meetings on the border in Arunachal, the Indian officers arrive in powerful four-wheel-drive vehicles, which are required for climbing the rough mountain roads on the Indian side of the border.

Their Chinese counterparts cruise up the smooth highways on the other side in luxury sedans — a detail that Indian-army officers privately admit pains them.

In 1962 it was China’s superior roads and bridges that allowed its army to move into India so quickly, and the embarrassment continues to gnaw. Raji Nainwal, a student in 1962 and now a consultant on a hydro project in Uttarakhand — another border state — worries, "Our dams are in the Himalayas. If China [is] able to intrude and blast one of [them], then what would happen?”

Of course, the geopolitical game has changed since 1962. China is now intimately connected to the U.S. economy and the holder of $797 billion in Treasury securities.

President Barack Obama has tried to set a conciliatory tone with the leaders in Beijing, agreeing not to meet the Dalai Lama, whom they detest, before an expected visit to China next month. At the same time, the U.S. is forging much closer military ties to India.

Thanks to a monitoring agreement reached this year, U.S. defense contractors can sell technology freely to India. "India is probably the most important country internationally for us,” says Garrett Mikita, president of defense and space at Honeywell Aerospace, who went to New Delhi recently to court Indian officials.

The company is one of two firms bidding to replace the engines in India’s 300 Jaguar fighter jets, a contract worth as much as $5 billion. The engines are aging and would need to be replaced anyway, but Mikita says the recent tension with China has sped up the lengthy procurement process. "The timing of this has gotten more aggressive,” he says.

Both sides will probably try to cool things down at the coming summit of Southeast Asian nations in Bangkok. Manmohan Singh and Chinese Premier Wen Jiabao are expected to meet on the margins of the meeting, although one conversation is unlikely to sort out their complicated history.

Both countries are still absorbed in a game played in miniature: recently, for example, a Kashmiri student was given a Chinese visa that was stapled rather than pasted into his passport, an implicit questioning of Kashmir’s status as a state of India.

Indian authorities, Guruswamy says, then quietly suggested they might do the same for Tibetans. Sure, this is small stuff. But it could get bigger. And high in the Himalayas, soldiers continue their patrols.

TIME