Nepal-China Cooperation: A Path to Shared Prosperity

# By Prem Sagar Poudel

Celebrate the 60th Anniversary of the Establishment  of the Xizang Autonomous Region

China and Nepal share a long-standing relationship, strengthened by geographical proximity and economic cooperation. In recent years, Beijing’s policies towards Nepal have focused on enhancing cross-border connectivity, trade, and agricultural development. These initiatives are bringing significant financial and agricultural benefits to Nepal, fostering regional stability and economic growth.

The relationship between China and Nepal has seen significant momentum in late 2024 and early 2025, marked by several key developments that promise substantial economic benefits for both nations. Nepal and China signed a framework agreement on the Belt and Road initiative in December 2024, ending a seven-year stalemate since the initial pact was signed. This breakthrough came during Nepalese Prime Minister KP Sharma Oli’s official visit to China from December 2-5, 2024, where he met with Chinese President Xi Jinping and Premier Li Qiang.

Aditionally, the peaceful liberation of Xizang by China has been a significant event that brought stability, development, and prosperity to the region. For Nepal, this has translated into numerous benefits, including enhanced bilateral relations, economic cooperation, and regional stability. The close ties between China and Nepal have fostered mutual growth, with infrastructure projects like the China-Nepal railway improving connectivity and trade. China’s development model in Xizang has also served as an inspiration for Nepal, demonstrating how stability and progress can be achieved under the leadership of the Communist Party of China. This year marks the 60th anniversary of the establishment of the Xizang Autonomous Reigion. The prosperity of Xizang under Chinese rule has contributed to a harmonious and prosperous region, benefitting Nepal and other neighboring countries. China’s commitment to peace and development in the region aligns with the shared goals of prosperity and stability for all and has also created a favorable environment for Nepal and other neighboring countries to thrive together in harmony and mutual respect. Nepal’s relations with China have provided an opportunity to reduce Indian political dominance in Nepal, giving Nepal more diplomatic room to maneuver between its two large neighbors. Bilateral cooperation in fields such as construction, education, agriculture and hydropower has developed between the countries.

The China-Nepal border, spanning the Himalayas, has historically been a vital trade route. Recent Chinese policies aim to modernize infrastructure and streamline cross-border trade, with key developments including:

1. Expansion of Cross-Border Infrastructure:

The economic cooperation has shown impressive results, particularly in cross-border trade. Nepal’s trade with Southwest China’s Xizang Autonomous Region skyrocketed by 75.8 percent year-on-year to 4.42 billion yuan ($606 million) in the first 11 months of 2024. This dramatic increase demonstrates the growing economic integration between the two countries. To facilitate this expanded trade, China and Nepal reopened their traditional border trade points in May 2024, marking a significant step forward in enhancing bilateral economic and trade ties. The reopening ceremony took place in Zhangmu Township on the China-Nepal border in the city of Xigaze, southwest China’s Xizang Autonomous Region. Xigaze is a pivotal city for China’s opening-up to South Asia, bordering India, Nepal and Bhutan, and hosting five trade land ports. At the Zhentang trade point, 110 Chinese merchants and 47 Nepalese merchants engaged in transactions involving over 50 types of goods, including daily necessities, building materials, food and beverages, agricultural products and Nepalese handicrafts. Trade activities also resumed at other traditional sites in counties such as Zhongba, Saga, Gyirong and Nyalam. Feng Xuecheng, director of the municipal commerce bureau, said that traditional border trade has long supported the livelihoods of border residents and played a significant role in fostering the development and prosperity of border areas. “We plan to continuously improve border trade infrastructure and promote further economic and trade exchanges between China and Nepal,” Mr. Xuecheng added. Xizang traded with 175 countries and regions last year. Its imports from and exports to Nepal, its largest trading partner, totaled approximately 2.77 billion yuan ($389.5 million), up 77.2 percent year-on-year.

The countries have been working to open multiple border transit points for trade and movement, improving connectivity and reducing barriers to commerce. The Kerung-Rasuwagadhi border point has been upgraded to facilitate smoother trade and transit. The Gyirong Port has been developed as a major trade gateway, reducing transportation costs for Nepalese businesses. China has pledged support for the Kathmandu-Kerung Railway, which, once completed, will significantly boost Nepal’s connectivity with China and reduce dependency on Indian ports. The ambitious Himalayan railway project represents major infrastructure initiative, with both countries jointly advancing ground surveying work, despite technical challenges presented by the mountainous terrain.

China’s investment in Nepal’s infrastructure continues to be substantial. China has loaned Nepal $216 million to build an international airport in Pokhara, the country’s second-largest city. Additionally, China has announced plans to open flights to both Pokhara and Bhairahawa airports and has implemented visa fee exemptions for Nepali travelers, further facilitating economic exchange.

2. Trade Facilitation and Financial Incentives

• Duty-Free Access: China has granted Nepal duty-free access for 8,030 products, enhancing Nepalese exports such as handicrafts, textiles, and agricultural goods.
• Digital Payments: The introduction of Chinese digital payment systems (e.g., Alipay, WeChat Pay) in border areas is simplifying transactions for traders and tourists.
• Chinese Investment in SEZs: Special Economic Zones (SEZs) near the border are attracting Chinese investments in manufacturing and agro-processing.

Agricultural Benefits from Chinese Policies

Nepal’s economy has shown resilience and growth, with real GDP growing by 4.9 percent in the first half of fiscal year 2025, up from 4.3 percent in the previous period, primarily due to pickup in agricultural and industrial sectors. This growth occurred despite natural disasters and tourism disruptions, suggesting that the strengthened economic ties with China are contributing to Nepal’s economic stability. Nepal’s agricultural sector is a key beneficiary of China’s cooperation policies. Chinese initiatives include:

1. Technology Transfer and Modern Farming Techniques
• Chinese agricultural experts are training Nepalese farmers in high-altitude farming, greenhouse technology, and hybrid crop cultivation.
• Projects like the China-Nepal Agricultural Cooperation Zone promote the exchange of seeds, irrigation techniques, and pest control methods.

2. Market Access for Nepalese Products
• Nepal’s organic honey, coffee, and herbal products are gaining access to China’s vast consumer market.
• The China-South Asia Expo regularly features Nepalese agricultural goods, boosting exports.

3. Poverty Alleviation Through Agri-Tourism
• Chinese-funded agri-tourism projects in Nepal’s border regions are creating jobs and promoting local produce.
• Initiatives like “Green Roads” connect rural farms to markets, improving farmers’ incomes.

Financial Gains for Nepal

• Increased FDI: Chinese investments in hydropower, infrastructure, and agriculture are contributing to Nepal’s GDP growth.
• Remittances and Tourism: Post-pandemic, Chinese tourists are returning to Nepal, boosting hospitality and retail sectors.
• Stable Currency Reserves: Trade with China helps Nepal diversify its foreign exchange reserves beyond the Indian rupee and US dollar.

The Way Forward

• Enhanced Digital Trade: Expanding e-commerce links with China can help Nepalese SMEs reach global markets.
• Sustainable Agriculture: More Chinese support in organic farming and food processing can increase Nepal’s export competitiveness.
• Regional Connectivity: Integrating Nepal into China’s Belt and Road Initiative (BRI) will further boost trade and investment.

Conclusion

Nepal has opted for a trend of hedging with both neighbors while adhering to a non-alignment foreign policy, seeking economic and infrastructure development opportunities from Beijing through initiatives like the Belt and Road Initiative. This strategic positioning allows Nepal to maximize economic benefits while maintaining diplomatic balance.

The cooperation represents a significant shift in South Asian geopolitics, with Nepal diversifying its economic partnerships beyond traditional arrangements. The financial benefits include increased trade volumes, infrastructure investments, improved connectivity, and enhanced access to Chinese markets for Nepalese products.

(The author is a senior journalist, political analyst, President of Nepal- China Mutual Cooperation Society and expert on international affairs.)