May 2022


Advantage India

With Beijing’s once powerful sway over Nepal declining, Sudha Ramachandran assesses how New Delhi may stand to benefit – though China cannot be written off

China’s influence in Nepal, which had grown significantly since 2015, appears to be waning. The visit of Chinese Foreign Minister Wang Yi to Kathmandu on March 25-27 was noteworthy not so much for the agreements that the two sides signed, as for what they failed to finalise.

In the run-up to Wang’s visit, the Nepali media said that settlements relating to at least two Belt and Road Initiative (BRI) projects would be signed. That didn’t happen. Although the two sides signed nine agreements, Wang’s failure to finalise BRI projects was a setback to Chinese interests in the Himalayan country.

Wang’s visit came a month after Sino-Nepali relations received a major jolt, when the Nepali parliament ratified the Millennium Challenge Corporation (MCC) compact, a $500-million US grant for the development of power transmission and road construction projects. Nepal had signed the MCC contract in September 2017 but its ratification proved to be elusive, with the agreement getting caught in domestic politics and infighting within the erstwhile Nepal Communist Party (NCP) government. Additionally, there was considerable Chinese pressure on successive governments to not ratify the MCC agreement.

ENERGY CRISIS: Shortages of bottled gas caused a fuel crisis during India’s 2015 blockade on Nepal

While funding under the MCC will be used to improve Nepal’s infrastructure and thus boost its economy, critics have drawn attention to its possible strategic goals and their implications. Would MCC funding draw Nepal into the US’ Indo-Pacific Strategy (IPS) to contain China? Would Nepal end up hosting a US military presence on its soil?

China’s state-run Global Times carried several articles criticising the MCC. It was described as an American ‘geopolitical tool under the disguise of infrastructure construction’. When the Nepali media reported that American officials had issued Nepal a deadline to ratify the MCC compact, Chinese officials lambasted the US for violating Nepal’s sovereignty.

That the Nepali parliament ratified the MCC compact on February 27, inspite of Chinese pressure and officials working behind the scenes to prevent its ratification, is a clear sign of declining Chinese influence in the Himalayan country. Nepal’s reluctance to finalise BRI projects a month later during Wang’s visit would have confirmed Beijing’s apprehensions over its fading clout in Kathmandu.

Would MCC funding draw Nepal into the US’ Indo-Pacific Strategy to contain China?

Nestling in the Himalayas, Nepal is sandwiched between India and China, and shares a long border with Tibet to its north. Given its strategic location, the country has been a focus of attention for the US, China and India for decades.

However, till ten years ago, it was India that wielded the most influence in Nepal. Its clout in Kathmandu was underpinned by Nepal’s extreme dependence on New Delhi. A landlocked country, Nepal relies on India for access to the sea and consequently, its economy is heavily dependent on its large neighbour.

Historically, China’s role in Nepal has been more limited. It was with Tibet, not China, that Nepal shared a border, and the Himalayas were a formidable barrier to trade and cultural exchange as well. But that has been changing. In the 1960s, the Chinese breached the Himalayan barrier by constructing a highway linking the Nepali capital Kathmandu with Kodari near the Sino-Nepali border.

In 2015, an opportunity opened up for China to play a larger role in Nepal when India imposed a blockade on the country,causing enormous hardship to the Nepali people. In addition to triggering a tidal wave of anti-India sentiment, the blockade prompted the Nepali government to turn to China for economic support. China provided Nepal with fuel to break India’s monopoly over fuel supply to Nepal that year. In the years since, economic co-operation has grown and in February 2017, Nepal joined the BRI.

The NC has avoided criticising India publicly on the territorial dispute

China’s influence over Nepali politics also surged. Having built strong ties with Nepal’s two largest leftist parties, the Communist Party of Nepal-United Marxist Leninist (CPN-UML) and the Communist Party of Nepal-Maoist Centre (CPN-MC), China nudged the two parties to merge to form the Nepal Communist Party (NCP). China influence over the NCP government was considerable.

Under the NCP government, Nepal’s relations with India soured over a territorial dispute in the Limpiyadhura-Lipulekh-Kalapani area. In addition, anti-India riots raged in Nepal, reportedly at China’s instigation.

However, Chinese influence in Nepal began to decline in 2020-2021, when Chinese officials mediating between rival factions of the NCP were unable to prevent a split in the party or the collapse of the government. That decline in influence increased with a Nepali Congress (NC)-led government taking charge in July last year.

Said to have warm relations with New Delhi, the NC has avoided criticising India publicly on the territorial dispute.

While, under the NCP government, Nepal downplayed its territorial problems with China – it dismissed reports of alleged Chinese encroachment into Nepali territory at Humla in September 2021 – the NC government ordered an investigation into Chinese intrusions. The resulting report, which found evidence of such encroachment, was not published by the present government but its findings were leaked.

Chinese Foreign Minister Wang Yi (l) with Nepali PM Sher Bahadur Deuba in Kathmandu in March

Nepal’s ratification of the MCC compact and the lack of progress on BRI projects are the latest setbacks to China’s influence in Nepal.

In previous decades, US presence in its neighbourhood would have irked India. However, warming ties with Washington and their shared hostility to China has changed that.

MCC funding will increase US influence in Nepal. But should this serve to contain Chinese presence in the Himalayan country, India stands to gain. Besides, American funding for development of a power transmission network and road connectivity closer to the Indian border would benefit India’s trade with Nepal.

It looks like‘ Advantage India’ in the geopolitical battle in Nepal.

However, it may be too early for India and the US to celebrate. China has worked hard to build pro-China constituencies among the Nepali political class and the public. It also has the economic resources to invest in Nepal. China’s clout may have declined but it is far from defeated in Nepal.

Dr Sudha Ramachandran is an independent analyst based in Bengaluru, India. She writes on South Asian political and security issues and can be contacted at

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