In early December 2024, Nepali Prime Minister K. P. Sharma Oli paid an official visit to China — his first bilateral visit abroad after becoming prime minister for the fourth time. Oli’s visit to Beijing was keenly watched by political and strategic analysts within the country and abroad, primarily for two reasons. First, Oli broke the long-standing tradition practiced by Nepali prime ministers of visiting New Delhi first, and second, he signed a significant strategic agreement with China to advance the Belt and Road Initiative (BRI).

Oli’s decision to visit China comes in the context of growing cooperation between Beijing and Kathmandu across several sectors — political, economic, and cultural. While India has traditionally been Nepal’s closest developmental partner, China’s footprint in the country has grown rapidly in recent years. Nepal continues to be a battleground for influence between India, China, and to an extent the United States, given its geographical location in South Asia, and stands to gain from all of them. Under these circumstances, Nepal’s government and political parties must approach foreign policy with a clear-eyed and pragmatic view, aimed at using this growing geopolitical competition for Nepal’s own economic and social development.

Cooperation through BRI

During Oli’s visit, the two countries signed a much-touted Framework Agreement on the BRI, which leaders in both countries hailed as a milestone in bilateral cooperation. While Nepal had officially joined the BRI in 2017, this new agreement identifies 10 projects to be implemented under the initiative and outlines modalities of aid financing. In an interview with The Global Times, Chinese Ambassador to Nepal Chen Song said that the agreement aims to promote Nepal’s socioeconomic development with policy and financial support from China and that it will improve Nepal’s trade and investment environment. Similarly, Nepali Ambassador to China Krishna Prasad Oli said that the BRI framework agreement “ushers in a new era of Nepal-China practical cooperation” and that projects under BRI will help Nepal transform itself from a landlocked country to a “landlinked” country.

However, despite this bilateral consensus between China and Nepal, the BRI continues to divide Nepal’s national politics over the issue of debt and viability. In the aftermath of the agreement’s signing, several leaders from the ruling Nepali Congress party (NC) protested against it, arguing that the agreement goes against the party’s policy of not accepting any loans to execute BRI projects. On the other hand, the country’s communist parties supported the BRI framework agreement, arguing that it would provide economic benefits to Nepal.

Political Engagement

Tensions over the BRI are arguably grounded in some ideological differences between Nepal’s political parties on their visions of Nepali foreign policy, and especially their attitudes toward China. Prior to 2008, when Nepal’s long-ruling monarchy was abolished, Beijing saw the monarchy as a reliable institutional partner in addressing its security concerns. In the aftermath of the monarchy’s abolition, Nepal’s political parties took contrasting positions on issues concerning Beijing. In September 2020, for instance, when reports emerged that China had built infrastructure on territory claimed by Nepal, the then communist-led Nepali government promptly issued a statement saying there were no border disputes with China. The following year, however, a new government led by the Nepali Congress leader Sher Bahadur Deuba took a stronger stance on the dispute. These partisan differences have also manifested in how different Nepali political parties have handled the activities of the Tibetan community in Nepal and their positions on the BRI.

Seemingly in response to these ideological positions, China has worked to bring the country’s multiple communist parties together to form a powerful coalition and secure its interests in the country. This effort has included several interactions and visits between the countries’ communist parties to share lessons on issues such as party governance and state administration. Such exchanges appear to have in turn encouraged Nepal’s communist parties to promote closer alignment with China.

Political engagement between the two countries has not been restricted to party-level discourse. There have also been cooperation initiatives between the parliaments and judiciaries of the two countries, including through a Parliamentary Friendship Group to strengthen bilateral exchanges.

Culture and Education

Over the past few years, China has also enhanced cultural ties with Nepal in multiple spheres. In particular, China regards language as a major barrier to the expansion of its influence in Nepal and it is therefore focusing on providing access to Chinese language courses in the country. During Oli’s recent visit to China, the two countries signed a Memorandum of Understanding (MoU) to induct volunteer Mandarin teachers into Nepal’s public school system. According to the Chinese embassy in Nepal, there are more than 900 Mandarin teachers in Nepal who are already teaching the language in various parts of the country. Additionally, China is also promoting its films, arts, and culture in Nepal through various means. For instance, on January 9 this year, Nepal marked its first China Film Day to promote cultural exchange between the Nepali and Chinese film industries. China has also helped organize the South Asia International Book Fair in Kathmandu for a few years.

Engagement in the education space has also reached new heights in recent years. Various Chinese universities have signed MoUs with key universities in Nepal such as Tribhuvan University, Sanskrit University, and Lumbini Buddhist University. Similarly, China has also increased government scholarships for Nepali students. Beijing recently awarded a Chinese Ambassador Scholarship for primary and secondary school students in Nepal. In October 2024, the Chinese Embassy in Nepal launched a Youth Pioneer Program to promote leadership development, social progress, and community-based projects, similar to the U.S. Embassy Youth Council Nepal. A cohort of young leaders has already visited China under the program. Such initiatives demonstrate China’s eagerness to engage with youth leaders in Nepal — a new trend in Nepal-China relations.

Agriculture

Traditionally, the United States and Japan have been important players in Nepal’s agricultural sector, but in recent years, China has stepped up engagement with Nepal on this front as well. In September last year, Nepal exported some vegetables to Qatar with support from the China Foundation for Rural Development. Separately, China also offered to help build a chemical fertilizer plant in Nepal under the BRI — a key initiative that has been under discussion in the country for as long as four decades. If successful, this project would help boost Nepal’s economic self-sufficiency significantly since it currently imports almost USD $300 million worth of fertilizers each year.

Earlier this month, a team of Chinese investors visited Nepal to scope out opportunities to invest in the agricultural sector. Such investment would be a huge boost since agriculture remains a mainstay of the Nepali economy, contributing around 24 percent of GDP and employing 61 percent of the workforce. Still, Nepal imports a lot of its food, mainly from India, and food imports continue to be ever-increasing. Over the past few years, climate change has affected the productivity of Nepal’s agriculture sector due to prolonged droughts, floods, and landslides. Chinese investment and technology could help counteract some of these challenges.

Nepal’s Tricky Balancing Act

Given its geographical location, Nepal is now caught amid three major powers vying for influence — China, India, and the United States. Kathmandu should tread cautiously in its bilateral relations with each of these powers since its interests lie in engaging all of them. While Nepal receives assistance and investment from all three, traditionally, India has been the most influential partner. As of mid-July 2023, in terms of total stock of foreign direct investment in Nepal, India holds the top position with holdings amounting to USD $750 million, followed by China with USD $260 million. Similarly, of the USD $1 billion that Nepal owes to bilateral creditors, Japan and India together account for over USD $700 million, with China in third place. The United States has also been supporting Nepal through humanitarian assistance, poverty reduction programs, and initiatives to strengthen democratic governance, advance economic opportunities, and combat climate change. Additionally, the United States has signed a USD $500 million Millennium Challenge Corporation (MCC) Compact with Nepal.

In this context, growing engagement with China is a positive development for Nepal because it not only brings Chinese money, technology, and knowledge but also helps diversify Kathmandu’s partners. Diversification of trade partners had, in fact, been a driver of the transit agreement signed with China in 2016 — one of Oli’s early efforts to reduce dependence on India by pivoting to China.

However, since Nepal’s public debt is increasing rapidly, Nepal should adopt a policy of accepting only grants and not loans while dealing with major powers and other developmental partners — including for big infrastructure projects under the BRI. Instead of loans, Nepal should ask Beijing for grants or investment, as under the MCC Compact with the United States and the Nepal-India cross-border railway line.

Given its growing debt burden, it may also be beneficial for Nepal to focus more on small but smart bilateral projects that create immediate results rather than large infrastructure projects. Under the BRI, China is already urging Nepal to select small projects instead of big ones, and Nepal and China are now working on a five-year plan for small development projects in districts bordering China. These would be similar to the small development projects already being implemented with India.

Nepal can therefore gain tremendously through a balanced relationship with China — one which does not jeopardize its ties with India or the United States. If the Nepali government and the country’s political parties are able to prepare a clear roadmap for engagement with the three major powers, the growing competition among them can be utilized for Nepal’s social and economic development.

Also Read: Nepal in 2024: Has Political Instability Finally Come to an End?

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Image 1: KP Sharma Oli via X

Image 2: Embassy of the People’s Republic of China in Nepal