By: Saloni Murarka
In Kathmandu, considerable attention is drawn to the destination chosen for a Nepali Prime Minister's first state visit.
Currently, the focus is on Prime Minister K.P. Sharma Oli’s visit to Beijing, a country often at geopolitical odds with India, Nepal’s southern neighbor.
This decision has ignited debate, as many view it as a significant departure from the tradition of newly appointed Nepali prime ministers prioritizing India for their inaugural foreign visit.
The return of K.P. Sharma Oli as Nepal's Prime Minister has predictably signaled a pivot toward closer economic ties with China, against the backdrop of strained relations with India.
Oli, leader of the Communist Party of Nepal (Unified Marxist-Leninist) (UML), secured a majority in a lower house vote of confidence and officially assumed office in July. This marks his fourth tenure as prime minister, including a previous term as interim leader.
The Prime Minister is currently visiting China (December 2–5) at the invitation of his counterpart, Premier Li Qiang. The visit aims to strengthen bilateral relations and expand cooperation in mutually beneficial sectors.
A key focus is expected to be the review and acceleration of the Belt and Road Initiative (BRI) implementation plan, alongside the launch of new projects under the BRI framework.
According to sources, Oli is likely to push for converting the loan for the Pokhara International Airport into a grant and fast-tracking the implementation of previous agreements between the two countries during his visit.
Oli faces a challenging path ahead as he leads a coalition government alongside the Nepali Congress, a party that strongly opposes signing the BRI implementation plan in its current form, citing high-interest loans that are unfavorable for a nation with a struggling economy. At the same time, Oli is striving to preserve his ties with the Chinese Communist Party.
The Nepali Congress has made it clear that it would only support the agreement if China agrees to convert the loans into grants or extend soft loan terms.
After taking office, Oli reaffirmed Nepal's commitment to the 'One China' policy and assured that no anti-China activities would be permitted in the country. This statement was made during a meeting with a high-level Chinese delegation led by Chen Jining, a member of the Communist Party of China's Central Committee, in October.
Visit Agenda:
Oli, a communist leader and long-time supporter of the BRI, along with the Nepali Congress, formed a task force to develop an alternative BRI implementation plan, focusing on grants rather than loans.
Ahead of the Prime Minister's visit to China, Nepal's Foreign Minister, Arzu Rana Deuba, visited China on November 28 for bilateral discussions with Chinese Foreign Minister Wang Yi.
Attention is now focused on Nepal's newly proposed draft of the BRI Implementation Plan, which prioritizes grants over loans. Upon her return, Deuba expressed confidence in implementing BRI projects and informed China that Nepal is not in a position to take on loans, opting instead to primarily rely on grants.
Prime Minister Oli's visit to China is anticipated to center around the signing of the Implementation Plan. However, the pressing question is whether China will accept the terms outlined by Nepal in the new draft.
Nepal is likely to seek Chinese grants to support various projects, including the Kathmandu-Rasuwagadhi road upgrade, the construction of Madan Bhandari Technical University, a sports stadium in Dadeldhura, the Nepal-China Friendship Park in Damak in Jhapa, the double-lane road between Hilsa and Simikot, the Tokha-Chhahare tunnel, infrastructure development on the Nepali side of the Korola border, a cross-border transmission line connecting Galchhi in Nuwakot and Rasuwagadhi, and a hydropower project.
Additionally, reducing Nepal's trade deficit with China by promoting the export of Nepali goods was highlighted as a critical agenda item.
Many experts believe that Nepal's singular focus on loans or grants is not a prudent approach.
“The focus should be on implementing viable projects that can sustain and benefit the Nepali people, rather than solely on loans or grants. Nepal has prepared a counterproposal for China, emphasizing the exclusion of loan-based projects. Both countries have identified 4-5 potential projects for collaboration, and the two ruling parties have reached a consensus on the approach,” said Shambhu Ram.
On November 22, the CPN-UML, led by Prime Minister Oli, organized a mass gathering in Kathmandu, claiming it aimed to raise public awareness.
During the event, Oli announced his planned visit to China, signaling his intention to sign several projects, potentially even on a loan basis, in collaboration with coalition partners and the largest parliamentary party, the Nepali Congress.
Oli advocated for signing loan agreements with China under the BRI framework, citing examples of successful developmental stories from other nations.
"As much as possible, we don't want to take loans from anywhere; we are not in a position to burden ourselves with additional debt. However, we must increase our production. How can we achieve this? It's not something to feel depressed about. Instead, we should remain hopeful and raise awareness within our circles. Smaller countries have overcome challenges to reach where they are now," Oli emphasized.
Debate Surrounds BRI Implementation Plan
Economic cooperation between Nepal and China dates back to the establishment of formal bilateral relations in the 1950s. The first "Agreement on Economic Aid between China and Nepal" was signed in October 1956.
According to the Nepalese government, Chinese assistance to Nepal is classified into three types: grants (aid gratis), interest-free loans, and concessional loans.
Nepal signed the Memorandum of Understanding (MoU) for the Belt and Road Initiative (BRI) in 2017, at a time when many countries had already joined the Chinese-led initiative.
Experts note that while Nepal’s political leadership was aware that BRI investments were structured as loans rather than grants, there was limited discussion or deliberation before signing the agreement. However, as concerns about China’s so-called “debt-trap diplomacy” gained traction, Nepal’s political establishment became increasingly cautious about the financing terms.
Consequently, the Nepali Congress-led government took a clear stance against proceeding with BRI projects involving high-interest loans with short repayment periods.
The Nepali Congress party, a key ally of the current Oli government and led by Sher Bahadur Deuba, remains steadfast in its position that BRI projects should be financed through grants and concessional loans rather than commercial loans, as proposed by China. Several Congress lawmakers who have reviewed the BRI implementation plan have emphasized that Nepal should refrain from signing any agreements with far-reaching strategic or geopolitical implications.
By signing the current draft, Oli risks undermining the stability of his own government.
Former Foreign Minister and CPN-UML leader Pradeep Gyawali emphasizes that the distinction between grants and loans is less significant as long as the funding serves the national interest. However, he asserts that, given Nepal's minimal economic growth, it is currently not pragmatic for the country to take loans for large-scale projects.
During Prime Minister Pushpa Kamal Dahal Prachanda’s official visit to China in September 2023, significant progress on the BRI implementation plan was expected. However, no tangible developments have been made regarding the execution of BRI projects in Nepal.
In June this year, the BRI implementation plan gained momentum when former Prime Minister Prachanda pushed to expedite its signing during the 16th Joint Mechanism meeting, which saw a Chinese delegation led by Vice Minister of Foreign Affairs Sun Weidong visit Kathmandu.
The matter sparked a debate in parliament and faced criticism from the opposition Nepali Congress and smaller political parties.
They insisted that the plan should first be presented in parliament for thorough discussion and public discourse before the country decides whether to proceed with its signing.
The government eventually abandoned the plan.
China had taken the Implementation Plan forward in early 2020, but negotiations saw minimal progress. Subsequently, the draft underwent multiple revisions, with both countries making changes to align with their respective interests, which stalled progress.
Since then, several visits from both sides have focused on discussions surrounding the BRI implementation plan. During his recent visit, former Foreign Minister Narayan Kaji Shrestha, upon returning to Kathmandu, stated that progress had been made.
He confirmed that an understanding had already been reached with China regarding the BRI Implementation Plan and that talks had advanced further during his visit, in line with this understanding.
In 2018, under the KP Oli administration, Nepal proposed a list of 35 projects to be implemented under the BRI initiative. However, at China's insistence, the number was eventually reduced to nine to streamline the selection process.
Despite this adjustment, negotiations on project selection, funding mechanisms, and implementation modalities failed to progress further.
As a country classified as a Least Developed Country (LDC), Nepal benefits from concessional and low-interest loans. However, given its economic constraints, Nepal cannot afford to undertake large-scale infrastructure projects, such as those proposed under the BRI framework, using high-interest commercial loans.
Such financial arrangements would greatly increase the nation's debt load in a weak economy with unwise spending practices. Furthermore, BRI loans usually have far shorter payback durations than loans from other bilateral and multilateral partners, which sometimes have longer repayment periods.
BRI projects are primarily financed through institutions like the Asian Infrastructure Investment Bank (AIIB), the China Development Bank, or the Export-Import (EXIM) Bank of China in the form of loans, grants, or assistance programs.
Globally, Chinese loans carry an average interest rate of 4.2%, with grace periods of less than two years and maturities of under 10 years, according to AidData.
Meanwhile, according to the latest report from the Public Debt Management Office (PDMO), Nepal's total public debt rose to approximately NPR 2.518 trillion by mid-November, up from NPR 2.434 trillion at the start of the fiscal year. This amount represents over 44.14% of the country's GDP.
China's Strategic Interests Behind BRI Implementation in Nepal
Apart from meeting and maintaining relations with Nepal's Communist parties and leaders, Chinese Ambassador to Nepal Chen Song has intensified efforts in Kathmandu, actively lobbying Congress leaders to secure their support for signing the BRI implementation plan.
This urgency reflects China’s growing frustration, as none of the projects under the BRI agreement signed in 2017 have materialized in Nepal, highlighting Beijing’s setbacks compared to other BRI countries.
According to an AidData report, a significant 35% of BRI infrastructure projects have faced major challenges during implementation, including corruption scandals, labor violations, environmental risks, and public protests. In contrast, only 21% of China's non-BRI infrastructure projects have experienced comparable issues.
China’s discontent extends beyond the BRI, encompassing stalled progress in Nepal on political alignment, foreign policy, major economic initiatives, and military cooperation. Its inability to prevent the ratification of the U.S. Millennium Challenge Corporation (MCC) Nepal Compact marked a significant diplomatic defeat for Beijing.
Nepal, a developing country, holds a distinctive geostrategic position, situated between the rising global powers of India and China.
Nepal's geopolitical importance has risen globally, with major powers vying to involve the country in their strategic initiatives. Nepal's strategic location aligns with China's vision for the BRI, offering access to expanded markets across Asia.
China’s extension of the BRI to Nepal is driven by its strategic interests. As an emerging superpower, China seeks to expand its influence in South Asia, a region historically dominated by India. By gaining a foothold in South Asia, China aims to enhance its regional dominance.
Improved connectivity and trade with South Asia will also support China’s economic growth and integrate its underdeveloped western regions with the South Asian market. Nepal, sharing a 1,414 km border with China’s Tibet Autonomous Region, offers a potential land route linking China to South Asia.
In May this year, the joint declaration was made to reopen all fourteen traditional border trading points between Nepal and China.
China proposed the Trans-Himalayan Multi-dimensional Connectivity Network (THMCN) to connect its Tibet Autonomous Region (TAR) with Nepal through roadways and railways, and further extend this link to India and other South Asian regions. Nepal plays a key role in China's BRI as part of this broader connectivity initiative in South Asia.
China's BRI objectives in Nepal are closely linked to the security, trade, and development of Tibet. To close commercial gaps with mainland China and promote Tibet's progress, connectivity routes through Nepal are being developed.
However, China will continue to tightly regulate the area and restrict interpersonal relationships. Chinese concerns are also raised by the presence of Tibetan refugees in Nepal, particularly in light of the "Free Tibet Movement." China's BRI in Nepal will continue to take Tibet into account.
To advance its interests in Nepal, China has utilized its diplomatic channels, lobbying top and second-tier leaders of major political parties for years to bring Nepal on board for BRI. China has also strengthened its ties with Nepal’s leftist parties through increased high-level visits and political engagements.
China took steps such as, in 2019, when around fifty Chinese Communist Party (CCP) leaders trained over two hundred leaders of Nepal's Communist Party on "Xi Jinping Thought."
Chinese-Backed Projects in Nepal
In the past, the Himalayas and the difficult geographic terrain in the northern frontier of Nepal and the southern Tibet Autonomous Region (TAR), along the 1,414 km border, were natural barriers to connectivity links between the two countries.
While this remains a challenge, technological and scientific advancements have opened up possibilities for modern connectivity projects in the Himalayan region.
The BRI and the Trans-Himalayan Multi-dimensional Connectivity Project under the BRI framework were both envisioned to prioritize connectivity. Kathmandu hailed the framework agreement as a watershed moment in Nepal-China relations.
Even while trimming down the number of BRI projects from 35 to 9, government officials said the focus is on energy- and connectivity-related projects.
However, eight years on, it is uncertain whether these proposed projects remain within the framework, given the changes to the draft and Nepal's preference for grants over loans. Let’s assess the progress and current status of the nine BRI projects proposed by Nepal.
Kathmandu-Kerung (Tibet) Railway
The Kathmandu-Kerung Railway is considered the flagship BRI connectivity project. The 170 km railway would link Kerung in southern Tibet with Kathmandu and is intended to extend onward to Pokhara and Lumbini.
The joint statement issued during Prime Minister Oli's 2018 visit to China described the agreement as a landmark in the history of Nepal-China bilateral cooperation, emphasizing that both countries believed it would bring a new dimension to cross-border transport connectivity.
The MoU was signed with the Chinese counterpart for collaboration on the railway project on June 21, 2018, and another MoU was signed on October 13, 2019, for the feasibility study of the proposed project.
This agreement also included the construction of two tunnels that would connect Kathmandu to Kerung via the Himalayas. No significant progress has been made since, due to the COVID-19 crisis and China’s strict anti-COVID measures.
Several Nepalese experts, however, believe that the construction of the trans-Himalayan railway between Kerung and Kathmandu faces significant technical and financial challenges.
The difficult terrain of the Himalayas and the environmental sensitivity of this region pose formidable barriers to realizing this project.
The pre-feasibility study of the project shows that 95 percent of the Nepalese section of the 73 km railway network between Kerung and Kathmandu would require tunneling, which could cost the nation about US$3-3.5 billion, according to reports.
A day after Pushpa Kamal Dahal assumed office as Prime Minister on December 26, 2022, a six-member Chinese technical team arrived in Kathmandu on December 27 to begin the feasibility study for the Kathmandu-Kerung cross-border railway, with an estimated completion timeline of 42 months.
Several Congress leaders have questioned the utility of the railway, pointing out that Nepal has almost nothing to export to China and faces a significant trade deficit with its northern neighbor.
China is an important trading partner of Nepal as it is Nepal’s second-largest import partner after India. However, exports to China have been declining over the years.
For the year 2021-22, exports to China slipped to the 12th position. In fact, Nepal has exported more to distant economies like Italy, France, Canada, and Japan compared to its exports to China, its neighboring country.
Between 2017 and 2022, Nepal's exports to China declined sharply from NPR 2,438 million to NPR 809 million, while imports from China surged from NPR 159,987 million to NPR 264,784 million, resulting in a widening trade imbalance. In the years 2020 and 2021, particularly, exports were negligible.
China's share in Nepal's exports dropped from 3% to 0.4%, while its share in Nepal's imports remained significant, ranging from 12% to 15%. Key imports include petroleum products, iron and steel, machinery and parts, electronics, electrical equipment, pharmaceuticals, and fertilizers.
Nepal's Foreign Ministry highlights that the trade deficit with China has been steadily increasing. Despite China granting zero-tariff entry to over 8,000 Nepali products since 2009, Nepal has been unable to reduce the trade imbalance.
Facing a critical vote of confidence in July, after losing support from key parties, Dahal approved an agreement to connect Nepal and China by rail under the BRI before leaving office.
At a Cabinet meeting, the government endorsed the "Strengthening Development Cooperation in Building the Trans-Himalayan Multidimensional Connectivity Network" agreement, as confirmed by then-Communication Minister Rekha Sharma, the government's spokesperson.
Upgradation of Rasuwagadhi-Kathmandu Road
On October 13, 2019, Nepal and China signed an MoU for China’s assistance in constructing two portions of the road between Rasuwagadhi and Kathmandu after the road was severely damaged in the 2015 earthquake.
The 134-km road from Kathmandu to Syaphru serves as Nepal's sole link to Rasuwagadhi, connecting it to the Chinese border town of Kerung.
In 2019, China’s Tibet Tinalu Company Limited was contracted to upgrade the 16-km Syaphru-Rasuwagadhi section into a two-lane, all-weather highway. Additionally, the 34-km stretch along the Syaubari-Dhunche-Syaphru section, riddled with potholes and significant damage, was also slated for improvement.
As per reports, in order to reduce the distance between Kathmandu and the Chinese border point at Kerung by half, China agreed to build tunnels at two points.
However, the upgrade work was halted due to the COVID-19 pandemic and remains incomplete.
The improvement of the road network has long been a priority for Nepal, consistently highlighted in bilateral discussions and joint press statements. However, despite repeated commitments, tangible progress on upgrading the road remains elusive.
Galchhi-Kerung Transmission Line
In 2018, during Oli’s visit to China, a Memorandum of Understanding on the feasibility study of the Kerung-Rasuwagadhi-Galchhi-Ratmate 400 kV transmission line was signed between the Nepal Electricity Authority and the State Grid Corporation of China in order to develop the first-ever cross-border transmission line.
As per the NEA, the Nepali segment of the power line will extend from Galchhi in Dhading district to Rasuwagadhi at the Chinese border.
Spanning 70 kilometers within Nepal, the project includes the installation of 208 towers and is projected to cost approximately NPR 10 billion, according to reports.
Concerns have been raised about a segment of the line passing through Langtang National Park. Reports suggest that if permission to route the line through the park is denied, the project's costs could escalate significantly due to the need for easement rights over privately-owned lands outside the park and challenges posed by the rugged terrain.
Later, during Prime Minister Pushpa Kamal Dahal ‘Prachanda’s visit to China in 2023, both countries agreed to build the Jilong/Kerung-Rasuwagadhi-Chilime 220 kV transmission line. Nepali officials say there is no clarity on the funding modality or any additional Detailed Project Report (DPR) despite the agreement between the two countries.
Kimathanka-Hile Road
The Kimathanka-Hile Road, proposed by Nepal, is a vital infrastructure project connecting Kimathanka in Sankhuwasabha district, near the Chinese border, to Hile in Dhankuta district.
Strategically important, this road links Nepal to China via the Kimathanka border, with the potential to enhance trade and strengthen bilateral relations.
It is envisioned as part of a broader highway network connecting Tibet to Nepal’s southern plains bordering India, fostering trilateral trade between Nepal, China, and India.
In September 2024, Nepal and China reaffirmed their commitment to advancing key infrastructure projects under the Trans-Himalayan Multi-Dimensional Connectivity Network (THMDCN), including the Kimathanka-Hile Road.
However, the construction of this road has not yet started, making it a key item on the Prime Minister's agenda for his visit to China.
Tokha-Bidur Road
The Tokha-Bidur Road is a key infrastructure project in Nepal, linking Tokha, a town in the Kathmandu Valley, to Bidur in Nuwakot District. However, the feasibility study for this road has yet to be initiated.
Bidur is still in the early stages of urbanization, with its urban spaces scattered across the area.
Located in a valley near Langtang National Park, bordering the Qomolangma National Nature Preserve in the Tibet Autonomous Region of China, Bidur is known for its abundant ecological resources, biodiversity, and hydroelectric potential.
The development of a renewed cross-border channel will unlock Bidur's potential as a gateway between China and Nepal.
Furthermore, the expanding urban complex within the Kathmandu Valley is expected to drive regional cooperation, benefiting areas like Bidur by improving infrastructure, connectivity, and economic integration.
During this visit, Prime Minister Oli is expected to urge China to accelerate the process.
Dipayal to the South of China
The proposed road network aims to link western Nepal with the TAR of China. The development of infrastructure in this area could enhance regional trade and promote closer economic ties between Nepal and China, benefiting both countries.
The Detailed Project Report for the road project from Dipayal to a Chinese port is yet to be prepared.
Tamor Hydropower Project
In January 2020, the Investment Board Nepal (IBN) signed an agreement with a joint venture comprising the Nepalese Hydroelectricity Investment and Development Company Ltd (HIDCL) and the state-owned Power Construction Corporation of China (Power China) to conduct a detailed feasibility study for the proposed reservoir hydropower project and begin its development within two years.
The Tamor Hydropower Project was planned with a 46:54 shareholding structure, where the Nepali company would contribute 46% and Power China would invest 54% of the project cost, as outlined in a project development plan jointly submitted by HIDCL and Power China to the IBN.
However, despite the MoU being signed four years ago, the project has seen no progress. In June 2023, the IBN issued a letter to the Chinese contractor requesting an explanation for the lack of progress, signaling its intention to cancel the contract.
Meanwhile, the Indian state-owned company Satlej Jal Vidhyut Nigam (SJVN) has shown interest in the Tamor Reservoir Hydropower Project and has sought permission from the Nepali government to develop it.
Madan Bhandari Science and Technology University
This ambitious project is part of the BRI; however, China has been reluctant to assist Nepal with logistics and construction.
Initially, China agreed to extend support for the establishment of the Madan Bhandari Science and Technology University in Chitlang, Makwanpur.
The project, which is expected to cost Rs 43 billion, will host over 4,000 students pursuing degrees in science and technology, humanities, social science, management, and law.
Currently, the university relies on government funding as its primary source of financial support. However, despite the government's strong commitment, the university acknowledges that this funding alone is insufficient to achieve its goal of becoming a world-class institution.
President Bidya Devi Bhandari authenticated the Madan Bhandari Science and Technology University bill on August 3, 2022. The university is currently in its developmental phase and was inaugurated in August 2023.
Prime Minister Oli is expected to seek China's assistance.
Phukot-Karnali Hydropower Project
The Phukot-Karnali Hydropower Project, originally listed as one of the nine projects under the BRI, was later handed over to India. The project is expected to generate 480 MW of electricity.
The estimated cost of the project, as projected by Vidyut Utpadan Company Limited (VUCL), a government-owned entity in Nepal, is around USD 1 billion.
There was limited interest from the Chinese side in constructing the project, which led to a prolonged period of uncertainty regarding the source of funding.
However, in June 2023, an MoU was signed between NHPC, an Indian government enterprise, and VUCL to move forward with the development of the project.
The Phukot-Karnali Hydropower Project will feature an installed capacity of 480 MW, with an average annual generation of about 2,448 GWh. The project will include a 109-meter-high RCC dam and an underground powerhouse housing six turbines of 79 MW each.
Nepal and China have agreed on several infrastructure and development initiatives, including upgrading the 8.2-kilometer Kalanki-Maharajgunj section of the Ring Road, constructing an Integrated Check Post (ICP) and an Inland Container Depot (ICD) at Korala in Mustang, and conducting a feasibility study for repairs and maintenance of the Araniko Highway.
These projects have been proposed under the BRI, but Nepal has yet to confirm their inclusion within the framework.
The Budhi Gandaki Hydropower Project, initially awarded to the Chinese company China Gezhouba Group Corporation (CGGC) in 2017, faced significant controversy over irregularities in the tender process. Questions arose due to CGGC's status as a World Bank blacklisted company, following its approval under the cabinet of then Prime Minister Pushpa Kamal Dahal ‘Prachanda'.
Later, under the government led by Nepali Congress leader Sher Bahadur Deuba, the license granted to the Chinese company was revoked.
China has also introduced the "Silk Roadster" platform under the BRI, focusing on smaller-scale initiatives in Nepal, such as technical training programs, overseas study opportunities, cultural exchanges, and fostering collaboration between enterprises.
Two projects under China’s Global Development Initiative (GDI) have been launched in Nepal: The Smiling Children Project and another project to support schools and communities in remote areas for pandemic prevention and green recovery.
China remains the largest source of Foreign Direct Investment (FDI) in Nepal, contributing to major projects such as Hongshi Shivam Cement, the Upper Trishuli Hydropower Project, as well as the Pokhara International Airport and Gautam Buddha International Airport.
China announced the exemption of visa fees for Nepalese citizens starting May 1, 2024, reflecting efforts to enhance bilateral ties and people-to-people exchanges. Additionally, the Chinese Embassy launched its Youth Pioneer Program in Kathmandu in November.
Engagements between Nepal and China have grown significantly, particularly over the past year.
During former Prime Minister Pushpa Kamal Dahal’s 10-day visit to China in September 2022, the two nations signed 12 agreements, including seven MoUs.
These covered areas such as cooperation between Nepal's National Planning Commission and China’s National Development and Reform Commission, digital economy collaboration, green and low-carbon development, and partnerships in agriculture, livestock, and fisheries.
In 2022, former Foreign Minister Narayan Khadka also visited China, overseeing the signing of nine agreements. These included a Technical Assistance Scheme for the China-Nepal Cross-Border Railway Project, a Cooperation Agreement on Nepal-China Power Grid Interconnection, and a grant agreement under which China committed RMB 600 million for mutually agreed projects.
In 2019, Chinese President Xi Jinping visited Kathmandu, resulting in several agreements and MoUs, such as one promoting investment and cooperation on key projects and another on the feasibility study of the China-Nepal Cross-Border Railway.
Earlier, in 2018, Nepal and China signed 14 agreements during PM Oli’s visit, including an MoU on railway connectivity and railway construction projects linked to the 2016 Transit Transport Agreement. Private sector investors also inked MoUs for eight different projects. The focus on railway cooperation marked a significant milestone in bilateral relations.
Challenges in Nepal-China Relations
The Pokhara International Airport remains a significant point of contention between the two countries. Even before its inauguration, the project was shrouded in controversy.
China promised to launch commercial flights from China to Pokhara and Bhairahwa International Airports of Nepal. As it is well known, the Pokhara International Airport was constructed through Chinese funding worth US$216 million and opened on January 1, 2023.
Similarly, the Gautam Buddha International Airport in Bhairahwa was built by Chinese contractors with a loan amounting to US$76.1 million. However, both airports have failed to attract international flights.
On December 31, 2022, one day before the inauguration of the Pokhara International Airport (PIA), the Chinese Embassy in Nepal claimed that the airport was a flagship project under the BRI, which was later dismissed by Nepal’s Foreign Minister, stating that the PIA, although constructed with a loan from China’s Export-Import Bank, was not a BRI project.
Later, Ambassador Chen Song on the social media platform ‘X’ called the new payment agreement between WeChat and a Nepali bank, allowing Chinese tourists to pay in Nepal via WeChat, a part of the BRI initiative.
Several Nepali officials note that negotiating with the Chinese can be challenging due to their lengthy procedural requirements, often causing delays in implementing promised projects.
In order to encourage international connectivity through Gautam Buddha International Airport and Pokhara International Airport, the Civil Aviation Authority of Nepal has decided to allow a maximum of one connecting flight from each international airline to Tribhuvan International Airport, subject to its first landing at either of the airports.
It has been observed that while Nepal has consistently raised its concerns with India, particularly regarding border disputes, it has failed to do so with China. Nepal has reiterated its stance on the border dispute with India multiple times, including this year when it decided to feature its new map, which includes the disputed territories of Kalapani, Limpiyadhura, and Lipulekh, on its Rs 100 currency notes.
In contrast, Nepal has not firmly addressed its issues with China, despite conducting an on-ground field report highlighting serious concerns along the Nepal-China border. Although the report has not been made public, it indicates instances of Chinese encroachment into Nepali territory. This raises the question: why has Nepal been unable to assert its position with China?
However, during former FM Narayan Khadka's visit to China, both sides agreed to carry out a joint inspection of the Nepal-China boundary through mutual consultation.
Many experts believe Nepal was inadequately prepared to engage in negotiations with China regarding the BRI from the beginning. The country lacked the fundamental groundwork needed to comprehensively assess the potential opportunities and consequences of joining an initiative of this scale.
Nepal and China's bilateral relations and negotiations are not solely focused on infrastructure development and improved connectivity within Nepal and its surroundings. They also involve geopolitical considerations, with Nepal needing to account for the concerns of other nations while engaging with China.
Nepal has steadfastly maintained its position of rejecting high-interest loans from China, underscoring its cautious approach to financial engagements. For the first time, Kathmandu has witnessed in-depth deliberations aimed at charting a path forward for BRI projects ahead of PM Oli's visit while carefully balancing its diplomatic and strategic ties with its neighbor.
Nepal-China Military Ties
During the initial decades, military connections between China and Nepal were minimal. A lingering hesitation persists in their bilateral military interactions due to Nepal's enduring special military ties with India.
Now, Beijing is seeking to build closer military ties with South Asian countries in a push to counter its rival India for influence. In March, a Chinese military delegation visited the Maldives, Sri Lanka, and Nepal to discuss further military cooperation.
“They exchanged views on military-to-military relations and regional security issues of common concern, with a focus on promoting bilateral defense cooperation, and reached a series of consensuses. The visits further enriched the contents of defense cooperation between China and the relevant countries,” the Chinese Ministry of Defense had said.
In September, the Chinese and Nepali militaries conducted their fourth joint training in Chongqing, China, focusing on urban counter-terrorism operations. The drills included small arms shooting, squad tactics, drone operations, emergency rescue, and comprehensive counter-terrorism exercises.
In March 2024, Major General Zhang Baoqun, deputy director of the Office for International Military Cooperation of the Chinese People’s Liberation Army, visited Nepal and called on Nepal Army Chief Prabhu Ram Sharma at NA headquarters.
During the visit, China aimed to bolster military cooperation by advancing an armored personnel carrier (APC) procurement contract, proposing the installation of an ammunition plant, inviting more NA officers for training in Chinese military institutions, and increasing overall military cooperation.
In April 2022, President Xi announced the Global Security Initiative (GSI). The GSI promotes a set of distinct security concepts and principles — many of which reflect Beijing’s longstanding international normative preferences, such as an emphasis on territorial sovereignty and noninterference.
China has repeatedly called on Nepal to endorse its new security initiative and even went to lengths to claim that Nepal supports the China-led GSI, but the Kathmandu administration is firm in not joining any strategic, security, or military alliances, given its policy of non-alignment.
On the global stage, China seeks to position the GSI as a framework for world peace, in contrast with the current U.S.-led security order.
Chen Xiaodong, China’s Vice Minister of Foreign Affairs, highlighted the "Global Security Initiative" (GSI) during the Global Security Initiative session at the 2024 Boao Forum for Asia Annual Conference.
He emphasized that the GSI is grounded in six key commitments: promoting a vision of common, comprehensive, cooperative, and sustainable security; respecting the sovereignty and territorial integrity of all nations; adhering to the purposes and principles of the U.N. Charter; addressing the legitimate security concerns of all countries; resolving differences and disputes through dialogue and consultation; and ensuring security in both traditional and nontraditional spheres.
According to China, the GSI represents its framework for fostering global consensus and addressing pressing security challenges.
Nepal hasn’t joined China’s GSI and Global Civilisation Initiative (GCI).
Geopolitical Dynamics
Following Nepal's signing of the BRI MoU with China, the country entered a $500 million infrastructure grant agreement with the U.S. government's MCC in September 2017.
China has previously breached diplomatic protocols by lobbying Nepali leaders against ratifying the MCC compact in parliament, reflecting its readiness to overstep boundaries to protect its interests.
During a regular press briefing, a Chinese Foreign Ministry official criticized the MCC Nepal compact, opposing what it termed "coercive diplomacy," as the U.S. pressed Nepal to approve the agreement within a set deadline.
Several Chinese research papers argue that the U.S.'s promotion of the MCC in Nepal, coupled with its alleged baseless criticism of China, reveals the compact's underlying geopolitical aim of countering Chinese influence.
The Chinese Ambassador has been questioned on multiple occasions for this undiplomatic comment. At an event in Kathmandu, he commented on Nepal’s southern neighbor India, arguing that Nepal is unfortunate to have India as its neighbor, following which he received political backlash in Kathmandu.
Nepal's recent decision to feature a new map with disputed territories on ₹100 notes and award the printing tender to a Chinese company has sparked backlash, with critics accusing the Oli-led government of provoking India. Like the U.S., India too views the BRI from a geopolitical lens.
India has strongly expressed concerns over the inclusion of the ‘China-Pakistan Economic Corridor’ (CPEC) in the BRI, as it impacts India's sovereignty. India believes the CPEC passes through Jammu and Kashmir and Ladakh, areas under illegal Pakistani occupation. India has urged China to cease activities in these disputed regions.
In a significant blow to China’s BRI, Brazil has recently decided not to join the multi-billion-dollar project, becoming the second BRICS nation after India to withhold endorsement of the initiative.
India and the United States remain cautious about China's growing influence in Nepal, a nation of strategic importance to both countries.
India, in particular, is highly sensitive to the involvement of major global powers in its immediate neighborhood. In recent years, India's emergence as a rising power has been marked by strained relations with its neighboring countries.
Nepal has conducted a comprehensive analysis of the BRI framework and, hopefully, identified projects that align with its economic and developmental priorities. Prime Minister Oli's upcoming visit to China presents a pivotal opportunity to harness the transformative potential of the BRI to advance Nepal's prosperity.
This visit holds significant importance for Nepal-China relations. Regardless of whether a formal agreement on the BRI is reached, it will set the tone for the future trajectory of bilateral ties.
Should Nepal formally embrace the BRI, the global spotlight will shift toward the reactions of the United States and India, as well as the implementation of the initiative. Amid these developments, Nepal must prioritize its security concerns to ensure that its national interests remain safeguarded.
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