Nepal-China Relations: A Path to Economic Transformation

Nepal is supposed to be the most prosperous country in South Asia because of its strategic location between the two economically and politically giant powers. The two giant powers offer Nepal with immense market, making us fortunate enough to explore its potential and cash in the country’s competitive and comparative advantages. This is to note that in the late 1970s, the three countries were almost on the same line in terms of several indicators of HDI.

Thanks to the support from China and other friendly nations, Nepal embarked on a path to industrialization. And apparently, the contribution of the industry sector towards the country’s GDP was sizeable.

Moreover, Nepal has historically received adequate FDI and grants from China, India, the USA, Russia, and other countries. This has further streamlined in the recent decade after China rose to prominence and unveiled the flagship Belt and Road Initiative (BRI) in 2013. With the announcement of the BRI, China has announced it as a global good and is willing to build a community of shared future for humanity. On this very foundation, Nepal can benefit from China’s market i.e. welcoming Chinese tourists along with receiving support on connectivity development, technology transfer, Big Data, AI, and several other achievements.

China’s Economic Growth and Making of Nepal’s Development Model

The signing of the Memorandum of Understanding on BRI between Nepal and China in 2017, the subsequent high-level visits from Nepal and China in 2019, and the official signing of the BRI framework during Prime Minister KP Sharma Oli’s China visit in December 2024 paved the way for a higher level of bilateral cooperation in multiple areas. The visits not only deepened the formal relations but also ensured a warm and hospitable climate for traders, educationists, business communities, tourism entrepreneurs, and enthusiasts of Chinese growth including Generation Z.

Such interactions have enhanced bilateral collaboration, particularly under the umbrella of BRI, with an emphasis on infrastructure development in the areas of roads, railways, aviation, and information and communications technology (ICT). The Trans-Himalayan Multi-Dimensional Connectivity Network is one of the key features of this cooperation, intending to transform Nepal from a landlocked to a land-linked country.

China’s growth in infrastructure, green energy, digital technology, and global trade partnerships has revolutionized economic landscapes globally. On the other hand, Nepal has lagged behind and is accustomed to suffering a huge gap in these areas. As China is willing to share its achievements under different modalities, Nepal is likely to benefit immensely from getting the closest neighbour ready to support and fulfil Nepal’s development gaps. To further justify this fact, South East Asian, African, Arab nations, and even some South Asian nations have hugely benefited through their cooperation with China. The countries have created hundreds of thousands of jobs, have built high-quality infrastructure, and have uplifted the living standards of their people by closely working with China in multiple areas.

The fact that Nepal’s politicians have made several visits to China on exchange visits to take stock of the Chinese government’s intervention in uplifting the socio-economic condition of the people there. Our politicians’ interests cover the study of poverty alleviation drive in China, agricultural revolution, innovation, and high-quality infrastructure development including the railways. But we have a sea gap in materializing the lessons learned there and acting accordingly fitting it as per Nepal’s context. This should change.

The politicians and high-ranking officials are required to translate into our context whatever they learned there. That will create a vibrant ‘Nepal’s Development Model’ no matter what political ideology is guiding Nepal. Such a development model will strengthen our development philosophy by charting a clear development pathway. The nation will sustain its own foreign policy, economic policy, and other key issues given that we framed our Development Model by learning from other countries. This will in a true sense give a back to the development with Nepali characteristics in view of Nepal’s demography and public demands meeting their aspirations.

Nepal’s Trade Deficit and Economic Diversification Needs

Nepal is in need of a huge amount of cash to meet Nepal’s financing gaps. In the rapidly changing global context, Nepal should ponder how foreign aid could be reduced and welcome FDI. The world is gearing up for the concept of trade, not aid. Had we received an equal amount of FDI instead of foreign aid since we accepted assistance from foreign countries and agencies, Nepal would have gained significantly over the years. And, our trade deficit would have narrowed and the export of labour to the gulf and other countries would have been reduced. Nepal would have been ranked as a goods-exporting country by creating jobs in the domestic market instead of labour-sending countries for three D jobs—Difficult, Dirty, and Dangerous.

Our polity should have a clear articulation to welcome FDI but the base should be prepared by creating a conducive environment, ensuring law and order, security of the investment, and a trustworthy profit repatriation policy. This context applies in the context of Nepal-China cooperation while dealing with Chinese counterparts. Since we have joined the BRI and the BRI framework is agreed upon, a context has been set to take the Chinese side into confidence.

For example, China has already invested heavily in Nepal’s agriculture sector. The Shanghai Ziyan Food Company has committed to importing over $1 billion worth of buffalo meat from Nepal on a yearly basis by making its own investment. Likewise, Nepal recently exported fresh vegetables to Qatar with support from China. This could be a case to subvert our narrative of a labour-sending country to the goods and veggies exporting Himalayan nation. This has opened new opportunities to export Nepal’s spring water, flowers, herbs, and others at a competitive price and market, ultimately ensuring a sustainable operation of business and production. This shall create a lasting niche market for Nepali goods.

Moreover, China’s offer to establish a chemical fertilizer plant in Nepal has also the potential to reduce Nepal’s reliance on $300 million worth of fertilizer imports annually. Higher cooperation is required to enhance agricultural modernization to enjoy food security and export goods.

Tourism is another key area that Nepal and China should closely work on. As China is the world’s largest source country for tourists, it has equally supported Nepal for our tourism development. That includes recognition of Nepal Visit Year 2025, the organization of Nanhai Buddhist Roundtable Conference, the Dragon Boat Festival Fewa Dialogue, and the Pokhara International Mountain Cross Country Race. All that have ignited Nepal-China tourism collaboration ensuring a great benefit to the government and the business community alike.

In addition, the direct commercial and charter flights from Pokhara and Lumbini to Chinese cities including Lhasa and Chengdu are expected to increase tourist arrival from China. In return, this shall create jobs in Nepal’s tourism and aviation sectors while encouraging tourism entrepreneurs and bringing in FDI in this sector.

Conclusion

Nepal’s economic aspirations should be aimed at uplifting the lives of Nepali citizens by glorifying the national interests and its sovereignty. The BRI could be a strong tool to deepen Nepal-China cooperation to a new height. Likewise, Nepal’s diplomacy should focus on economic diplomacy rather than harbouring conspiracy theories. Likewise, Nepal’s overall economic policy should not be focused only on seeking access to foreign aid but on getting FDIs to create more jobs and substitute imports. In the long run, this effort will dismantle Nepal’s image as a labour-sending country.