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Guest Column

Nepal, a landlocked country in South Asia, finds itself at the centre of a contest for influence between two major world economies and dominant powers in the region—India and China. Historically, Nepal has shared deep people-to-people, socio-cultural, religious, political, and economic ties with India, making it a natural strategic partner. Conversely, China considers Nepal’s geography to be of strategic importance, particularly for safeguarding its interests in Tibet, given their shared Himalayan border. Nepal not only helps secure China’s western frontier but also serves as a key gateway for connecting with South Asia, enhancing China’s economic and strategic interests in the region.

While India, Nepal’s oldest and most reliable development partner, has stood the test of time in keeping bilateral ties moving, China has been the biggest beneficiary of the friction between India and Nepal in the past one and a half decades, helping it strengthen its influence in the Himalayan nation. In the past, China’s influence in Nepal had been limited by the mountainous terrain, which hindered overland trade and communication, whereas India’s close relationship with Nepal’s monarchy, which lasted until 2008, ensured New Delhi’s dominance in Nepal’s foreign and economic affairs.

However, despite these geographical and historical advantages, the evolving political landscape in Nepal, particularly the rise of the communist government in 2008, has opened the door for increased Chinese involvement, which has been a challenge to India’s traditional presence in Nepal. The waning of India’s influence in Nepal post-2008 and the rise of China is striking, considering that India was the key facilitator of peace between the monarchy and Maoist guerrillas, which ended the decade-long armed insurgency and established democracy.

This article explores the key factors driving the ongoing contest for influence in Nepal between India and China.

India’s Key Strategic Consideration—Open Border, China and Political Goodwill

For India, ensuring its influence in Nepal has been important for three reasons. First, India shares an open and largely unfenced border with Nepal. The open border has been a gateway for cross-border matrimonial connections and labour migration from Nepal to India with no visa regime in place, and it serves as a lifeline to Nepal’s connection with the countries. At the same time, this has also endangered India’s national security as an open border has often been used by non-state actors, including Pakistani terror groups, to organise terror activities in India. Moreover, the open border has been a prime route for drugs and fake currency being smuggled into India.

Second, in addition to the challenges emanating from the open border, India is concerned about the growing Chinese presence in Nepal. Considering India and China share a tense border—the Line of Actual Control (LAC) in the Himalayas—Delhi fears that Beijing may use it as a gateway to create pressure points via Nepal. Therefore, any developmental activities through Chinese assistance and loans in Nepal are often seen as Beijing’s strategic advancements against Indian interests.

For instance, in 2017, China proposed to build a Trans-Himalayan Multi-Dimensional Connectivity Network (THMCN) under the Belt and Road Initiative (BRI). A vital component of the THMCN is the railway connectivity between Kerung in Tibet and Kathmandu in Nepal. The proposal has not moved an inch since it was signed in 2017 due to Nepal’s concerns over high-interest loans and significant engineering challenges posed by the Himalayan terrain.

If realised, the THMCN would bring China’s infrastructure significantly closer to the Indian border, raising strategic concerns for New Delhi. This connectivity could enhance Beijing’s ability to project power and increase its influence in South Asia, contributing to its broader strategic build-up across the Himalayas and altering the regional balance of power.

Third, ensuring political goodwill in Nepal is critical to ensuring India remains the most influential regional power in Nepal. India maintained close ties with the erstwhile monarchy until its abolition in 2008. Under a new democratic setup, China has been able to improve relations with Nepal. Also, the rise in anti-India protests since 2015, particularly against the backdrop of India’s reported border blockade, which disrupted Nepal’s imports, marked the lowest point in India-Nepal ties, which China has tried to capitalise on to advance its own interests.

Also, in the last decade, Nepal’s Left parties have channeled their ultra-nationalistic impulses into a strong anti-India posture. The current Prime Minister and Chairman of the CPN-UML—KP Sharma Oli—has been among the popular voices against India. While India continues to have better ties with traditional political parties like the Nepali Congress, dealing with the political Left has been challenging for Delhi. For India, political goodwill with Kathmandu is crucial for its security, particularly its worries over cross-border terrorism, smuggling, and illegal migration. Close ties with Kathmandu have enabled India to collaborate with Nepal on various security initiatives, such as joint border management and intelligence sharing, and often in conveying its displeasure over Nepal’s agreements with China that may seem threatening to India’s strategic interests and security. However, India’s goodwill has waned due to unresolved issues like the Kalapani territorial dispute with Nepal. Also, Kathmandu has been asking Delhi to revise the 1950 Treaty of Peace and Friendship—a treaty that serves as the foundation of the bilateral ties with India—as it sees the treaty serving Indian interests more.

The trade deficit is another looming challenge in bilateral ties. For example, in 2022, Nepal's exports to India amounted to USD 935 million, while its imports from India reached USD 8.53 billion, highlighting a significant imbalance that strains economic relations and fosters a sense of dependency. Although India’s “Neighbourhood First” policy has led to positive developments, such as importing electricity from Nepal, which could help address the trade imbalance, perceptions of India’s “big brother” attitude continue to pose challenges. This lingering trust deficit has allowed China to gain influence in Nepal.

China’s Key Strategic Quests: Tibet, India, the US and BRI

Tibet has been central to China’s Nepal policy since the 1950s, a priority that remains unchanged even after seven decades. Following the Communist takeover of Tibet, fearing political persecution, thousands of Tibetans fled to India. According to the Government of India, in 2009, approximately 110,095 Tibetan refugees were residing in 45 settlements across India. However, in its annual report for 2022-23, India’s Ministry of Home Affairs, referencing data from the Central Tibetan Relief Committee, revised this number to 73,404. The reduction reflects the migration of many refugees to third countries over the years.

Between 1950 and 1990, many of these refugees crossed through Nepal on their way to join the Tibetan Government-in-Exile in India. However, several thousand chose to remain in Nepal, drawn by deep cultural and religious ties to the region. Meanwhile, in 1990, the government of Nepal, under diplomatic pressure from Beijing, stopped issuing refugee cards to any new arrivals. While many of the refugees have migrated to third countries, including the United States, Canada and Australia, at least 12,000 Tibetans still reside in Nepal.

How did a refugee community become a challenge to China? The challenge primarily emanates from the Tibetan community in Nepal, which is vocal about Tibet’s autonomy and freedom. On many occasions, the Tibetan community in Nepal, in solidarity with the Tibetans across the world, carried out “Free Tibet” demonstrations. One such occasion was the “Tibetan National Uprising Day” in 2008—marking the anniversary of the 1959 Tibetan rebellion against the Communist takeover in Tibet. As demonstrations within Tibet made the headlines, Tibetan refugees gathered across Nepal in solidarity with their motherland.

The international media present in Beijing to cover the 2008 Olympics extensively reported on the state-led crackdown on the protestors, putting China in a difficult spot. What made the situation even worse was the solidarity demonstrations in Nepal. Still, because there was a new Left party-led dispensation in Nepal, they quickly responded to the Chinese pressure and police actions were reported against the Tibetan demonstrators across Nepal. Since then, China has consistently ensured that all official communiqués with Nepal are reaffirmed from the Nepali side on Tibet.

In October 2019, Chinese President Xi Jinping took a historic trip to Nepal—becoming the first Chinese president to visit in two decades. In the joint statement released, the Nepali side reiterated that “Tibet affairs are China’s internal affairs” and that it would not allow “any anti-China activities on its soil.” Despite Nepal’s commitment to addressing Chinese concerns over Tibet, Beijing remains apprehensive about the potential influence of Tibetans living in Nepal on those in Lhasa.

Interestingly, China has been wanting Nepal to sign an Extradition Treaty, primarily targeting the unregistered Tibetan refugees in Nepal. Kathmandu had reportedly agreed to sign the agreement during President Xi’s visit in 2019, but withdrew at the last-minute following criticism from media and human rights organisations. If signed, the treaty would jeopardise the future of non-refugee cardholders, as Nepal would be legally obliged to deport them. Meanwhile, China still expects an early conclusion to the treaty.

China's concerns about external influence in Nepal stem from historical incidents. For instance, in 1961, the United States Central Intelligence Agency (CIA) armed Tibetan resistance groups in Nepal and supported their resistance against Communist rule in Tibet. Similarly, India has been hosting the Dalai Lama and the Tibetan Government-in-Exile since 1959, which China sees as a direct challenge to its sovereignty and a source of continued unrest in the Tibet Autonomous Region.

In June 2024, a US delegation led by House Foreign Affairs Committee Chairman Michael McCaul and former House Speaker Nancy Pelosi met the Dalai Lama at McLeod Ganj in the Indian State of Himachal Pradesh, following the passing of the “Resolve Tibet Act” by the US Congress—a bipartisan legislation enhancing Washington’s support for Tibet, a move China “firmly” opposed. The support from the US and India for the Tibetan cause amplifies Chinese concerns and fears that Nepal could be used as a platform to export solidarity with Tibet, which would pose significant risks to its control over the region and could cost it dearly in terms of stability and influence in its southwestern frontier.

To tackle external influence and generate goodwill, China has been constantly pushing new policies to strengthen engagement with Nepal. For instance, China encouraged Nepal to participate in the BRI, which the latter accepted in 2017 despite resistance from India. For Nepal, the BRI was seen as an opportunity to diversify its development cooperation away from India. Also, China saw it as a strategic tool to reduce India’s influence and dominance in Nepal’s development sector. However, despite Beijing’s best efforts, looming fears of high-interest Chinese loans have kept Nepal worried about the BRI, which has failed to provide the desired results as not a single infrastructure project has been identified as being part of the initiative since it was signed.

On the other hand, the US-led Millenium Challenge Corporation (MCC), which offered a USD 500 million grant to Nepal to increase the “availability and reliability of electricity, improve roads, and facilitate power trade across South Asia,” has made substantial progress since it was approved by the Nepali Parliament in 2022. The prospect of a cross-border electricity transmission line between Nepal and India being built under the MCC grant would also see the first-ever bilateral cooperation between the US and India on an infrastructure project in Nepal.

China has opposed the MCC, calling it a tool of “coercive diplomacy.” This opposition primarily emanates from the perception that the MCC undermines Beijing’s influence, especially given its struggles to push the BRI forward. Ironically, Beijing’s own failure to make any progress on the BRI with Nepal likely made Kathmandu more amenable towards the MCC. The MCC’s successful approval highlights Nepal’s growing ties with the US, which China views as a strategic setback.

China’s security initiatives with Nepal, including the Sagarmatha Friendship joint-military exercises (2017-2018) alternatively held in Nepal and China, have also stalled for six years. Additionally, Nepal has reportedly refused to be part of President Xi Jinping’s Global Security Initiative (GSI), which aims to achieve “Lasting Peace and Security of the World.” Such decisions reflect Kathmandu’s growing cautiousness about deepening military ties with Beijing and signal its intent to maintain a delicate balance in its relations with China, India, and the US.

In summary, China’s influence in Nepal has had ups and downs due to Nepal’s cautious stance and ongoing political instability, but it continues to make strategic advances. The 2019 elevation of their relationship to a Strategic Partnership of Cooperation Featuring Ever-lasting Friendship for Development and Prosperity, along with additional agreements, signals China’s enduring intentions and strategic interests in Nepal, sending a strong message across the region.

Rishi Gupta, PhD, is the Assistant Director of the Asia Society Policy Institute in Delhi and is currently the 2024 Taiwan MoFA Fellow at National Chengchi University in Taipei. His research and writing primarily explore Asian geopolitics, with a particular focus on the Strategic Himalayas, China, and the Indo-Pacific region. He can be reached at rgupta@asiasociety.org and rishigupta200708@gmail.com and on X (formerly Twitter) @rishigupta_jnu.

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The views expressed in the article are solely those of the author(s) and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.

Image Credit: Flickr/MEAphotography

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