China-Nepal Bilateral Relationship: A Case Study

Background of Sino- Nepalese Bilateral Relationship

China and Nepal signed the first bilateral agreement on economic aid in 1956. However, after Nepal replaced the monarchical system in 2008, China has made a focused approach to enhance its influence with Nepal. As part of strengthening the bilateral relationship, China elevated its relationship with Nepal as a strategic partnership during Xi Jinping’s state visit to Nepal in 2019. China-Nepal relationship has seen an upward trend under the current Maoist-Communist government with an aim to undermine India’s traditional influence and economic reliance over Nepal . To promote bilateral trade and entice a landlocked Nepal away from Indian influence, access to dedicated border transit points was assured at Rasuwagadhi, Kodari, Yari, Kimathanka, Olangchungola, and Nechung including access to seaports in Tianjin, Shenzhen, Lianyungang, and Zhanjiang and to land ports in Lanzhou, Lhasa and Shigatse .

Train that links Haidong in Qinghai province, Shagatse in Tibet, and Kathmandu,

Overview of Chinese Investment in Nepal

China overtook India as Nepal’s largest FDI partner in 2014 and soon after in 2016, Nepal and China signed the Trade and Transit Agreement (TTA). However, despite close Sino-Nepal relations, so far, there have only been two big private investments worth mention; the Hongshi Cement and Huaxin Cement apart from minor investments in micro enterprises and tourism sector.

A deep study of the “Balance of Trade (BOT)” parameters between Nepal and China highlights that Nepal’s trade with China has suffered rough patch since the Covid-19 outbreak in 2019. The Chinese imports to Nepal except for a few occasions had remained disrupted in spite of several requests from Nepal and multiple dialogues to this effect. Recently, it was revealed that Beijing permitted Nepal’s exports to pass into China in end December through the Kerung-Rasuwagadhi border. This border had remained shut for three years. However, soon after opening the border gate, it was closed till 03 February 23 citing Chinese New Year celebrations. Rasuwagadhi Customs Office Chief Narayan Prasad Bhandari mentioned the Chinese side has closed the border unilaterally.

Also Read, Why China is Interested In Nepal?

Kerung-Rasuwagadhi border

Based on information sourced through various Nepalese news, since the resumption of trade in the area, Nepal has exported only 39 containers of goods, whereas China exported 14 goods containers every day to Nepal. The huge gap in export data points to the selective interests of China and was highlighted during various bilateral meetings by Nepal Government.  According to the Nepal Department of Customs, imports from China in fiscal 2020-21 rose 28.58 percent year-on-year to Rs 233.92 Billion, an increase of Rs 104.05 Billion in the last 5 years indicating that Nepal continues to suffer a huge deficit in its trade with China since its exports were valued at a mere Rs  One Billion; resulting in a net trade deficit of Rs 232.90 billion.

The recent instance in the case of closure of Rasuwagadhi border trading point and slow progress of Chinese investments and connectivity only indicates that Chinese policy of engagement is more than what meets the eye and not just aimed at enhancing the capacity of the Nepalese state and bringing prosperity to the Nepalese people as is being narrated to the population at large as planned influence operations narrative. Whilst the present Nepal Government has continuously emphasized importance of China as a formidable ally for economic wellbeing of the country, China in turn continues to use the Sino-Nepalese bilateral relations as a leverage against India’s preeminence in Nepal.

Whilst the paper delved primarily on BOT data, what came to fore is the exploitation of trade deal in utilisation of selective trade routes favourable to Chinese, resulting in astronomical gap in Balance of Trade and alarming Chinese hegemony in the present Nepal government ranks, often seen as a deliberate attempt to intervene deeply in Nepal’s internal affairs. Whereas some of the Nepal think tank believe that the aid is bringing prosperity to the country, on the ground situation points out that the Chinese financial aid is in fact more beneficial for China than for Nepal. It has proved immensely helpful for China to enhance its influence in Nepal and the region at large.

As an economic giant of Asia, China tactfully uses its soft power or economic diplomacy (debt and resource diplomacy) in all south and central Asian countries. In this context, Nepal is a good example of how China plays with its economic diplomacy. The analysis of Chinese investment in Nepal for economic prosperity reveals that the Sino-Nepal relationship from China’s perspective is largely aimed to perpetuate a master-client relationship and widely feared amongst the think tanks that Nepal could be sucked into the trap of China’s debt-diplomacy similar to Sri Lanka in absence of growing gap in BOT and may lose its strategic autonomy which it has enjoyed even in British days. The country’s political instability is homegrown, no doubt, but China’s diplomatic realignment in the region and bid to start a geopolitical tussle with India has only led to further instability in Nepal.



The Editorial Team At DefenceXP Network Consists Of Professional Writers, Defence Enthusiast And Defence Aspirants.

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