Nepal is navigating between India and China, while the United States rediscovers an interest in broader South Asia. Given the tense geostrategic and security environment in the Himalayas, China has viewed the growing role of the United States as a development partner for Nepal in recent years as a potential threat to China’s presence in the region.

As a long-standing buffer state between China and India, Nepal’s strategic location has historically shaped its delicate balancing act. However, recent developments have ruffled feathers, particularly in Beijing. China perceives any external efforts to fortify ties with Nepal as a direct challenge to its regional dominance, raising concerns about potential shifts in the delicate balance of power. The United States, in particular, has presented an alternative vision through initiatives such as the Millennium Challenge Corporation (MCC), which serves as an alternative to China’s multi-billion-dollar Belt and Road Initiative (BRI) projects in Nepal.

Additionally, China is disquieted by deepening bilateral cooperation between the United States and India, including shared Indo-Pacific interests and collaborative efforts to uplift Nepal’s energy sector. The interplay of these factors adds intricate layers to Nepal’s geopolitical landscape. Against this backdrop, this issue paper delves into the complex dynamics and interests of China, India, and the United States in Nepal, unraveling the historical context that shapes their involvement. By dissecting the geopolitical complexities at hand, the paper sheds light on the strategic decisions Nepal faces and the road ahead it needs to navigate.

Since the establishment of the People’s Republic of China (PRC) in 1949, Beijing’s Nepal policy has been driven by two primary sets of objectives — strategic and economic. With the takeover of Tibet by Communist China, Nepal became a critical geostrategic consideration for Beijing as it was used as a gateway for Tibetans in 1959 to escape Chinese brutalities. After the Dalai Lama escaped to India, the Khampa Rebels — Tibetan resistance fighters who opposed Chinese control in Tibet — used Nepal as an escape route and strategic base to continue the fight against the Chinese People’s Liberation Army (PLA). From then on, Chinese sensitivities have multiplied, fearing the building of external support for Tibetan separatism and activism exported to Tibet via Nepal. As a result, China has constantly pushed and pursued the “One China” policy with Nepal, ensuring no “free-Tibet” movements occur there. Also, India's hosting of the Tibetan Government in Exile and its support of the Dalai Lama concerns China that India might use its historical influence in Nepal to support Tibetan activities there, potentially causing unrest in Tibet. Similarly, China worries that the U.S. advocacy for democratic values, human rights, and religious freedom of Tibetans could encourage movements and organizations challenging China’s authoritative political and security structure.

Therefore, China sees the overall influence of India and the United States in Nepal as a challenge to stability in Tibet and to furthering Beijing’s regional power dynamics. In recent years, increased cooperation between India and the United States through Washington, D.C.–led projects like the MCC is seen as counter to China’s BRI in Nepal. Even though the MCC and BRI significantly focus on Nepal’s infrastructure development and economic growth, there is a stark difference in their relative transparency. For instance, the United States has publicly shared MCC’s financial model,¹ but China continues to be discreet about the BRI, creating more doubts and suspicions² about Chinese intents and actions in Nepal. Similarly, the United States aims to help Nepal "maintain road quality, increase the availability and reliability of electricity, and facilitate cross-border electricity trade between Nepal and India — spurring investments, accelerating economic growth, and reducing poverty"³ through the MCC; China's debt-based approach raises concerns about the impact of the BRI on the stability and sovereignty of recipient nations including Nepal.

The United States does not ignore India’s traditional role as a critical partner in Nepal’s development and considers extended cooperation with New Delhi important to Nepal’s overall growth. In contrast, China seems more focused on making unilateral gains, often under the veil of security. The advancements made in U.S.-India ties, such as the MCC, often see panicked rebuttals⁴ in the Chinese state media⁵ simply because the MCC has made tremendous progress within a short span of time, particularly in the energy sector in Nepal, whereas none of the Chinese projects⁶ in Nepal under the BRI have materialized since it was signed in 2017. Even though the BRI generated immense euphoria around so-called Chinese goodwill, the current state of the BRI⁷ is under an immense trust deficit. Overall, China seeks to secure its strategic interests, expand its economic footholds, and maintain a regional balance of power by engaging with Nepal.

Nepal historically did not share a direct border with China. Only after the Chinese annexation of Tibet in 1950-51 did Nepal come into direct contact with the PRC. All the while, Tibet remained considerably weaker than Nepal, which was led by a large Gorkhali Army,⁸ with which Lhasa maintained deep sociocultural, religious, and trade ties. Nepal’s sense of insecurity regarding Chinese intentions and aggression in the Himalayas was heightened due to China's proximity as its next-door neighbor. In the 1950s, the then-king of Nepal, Tribhuvan Narayan Shah, was concerned about a potential Chinese annexation effort in Nepal in light of China’s takeover of Tibet. Therefore, the king deepened ties with India and did not initiate diplomatic relations with China, fearing threats to Nepal’s sovereignty. After King Tribhuvan’s demise, the new king, Mahendra, initiated diplomatic relations with China in 1955, seeking to establish a balance with Beijing. Nepal signed the Boundary Treaty between the People's Republic of China and the Kingdom of Nepal⁹ on October 5, 1961 — marking an understanding of the international border.

For more than seven decades, Nepal has been a gateway for Tibetan refugees to escape and lodge with the Central Tibetan Administration (the Tibetan Government in Exile) in Dharamshala, India. Between the 1950s and the 1990s, Nepal served as a passageway for thousands of Tibetan refugees escaping the PRC to enter India. Many Tibetan refugees chose to remain in Nepal due to cultural and religious affinities, forming a large refugee population in the country. An estimated 20,000 Tibetan refugees still live in Nepal and remain under close surveillance by the Nepalese security forces due to perceived anti-China activities.¹⁰

Over a period of time, China has heavily secured all potential breakpoints for Tibetans to escape into Nepal and built diplomatic pressure¹¹ to suppress the Tibetan voices in exile. In 1990, Nepal stopped issuing refugee cards to Tibetans escaping from China into Nepal, a practice that continues to cause misery in the daily lives of thousands of Tibetan refugees. However, the United Nations High Commissioner for Refugees (UNHCR) has provided some relief by establishing mechanisms to support the Tibetan refugees in Nepal and facilitate their transit to India.

With the political transition in Nepal in 2006, China found friendship with the Maoists and other Left parties in Nepal to its benefit due to their ideological affinities. These were the same Maoists in Nepal whom China had criticized¹² for misusing their leader’s name — Mao — in waging a decade-long war against the Nepalese monarchy and the state, which finally culminated in the establishment of democracy in 2006. It took a little while for Beijing to trust the Maoists, but too soon after the political transition in 2006, Beijing understood traditional political parties like the Nepali Congress — sharing close ties with India — would not be easy to influence compared to the Maoists. With the guerrilla Maoists joining mainstream politics and winning the first-ever democratic elections in 2008, they found China a willing partner. The Maoists had, as noted, led a decade-long war against the State of Nepal closely evolving around their anti-India narrative, which was clearly reflected in their 40-point demand¹³ from the government in 1996.    

With Maoists in power, China managed to strategically pressure the new government to pay attention to Beijing’s insecurities and concerns about the Tibet border and Tibetan refugees in Nepal. As a result, tight surveillance of Tibetan refugees began in Nepal in line with Chinese demands. During the 2008 Tibet uprising, which saw strong support from Tibetan refugees in Nepal, the newly formed Maoist-led democratic government enacted stringent plans to curtail¹⁴ the free movement of Tibetan refugees, and hundreds were jailed.¹⁵ Although Nepal was criticized¹⁶ globally for its brutal and inhumane police actions against the Tibetan refugees, China rewarded the then–Prime Minister Pushpa Kamal Dahal ‘Prachanda’ with a red carpet welcome¹⁷ in Beijing.

To date, Nepal continues to support a One China policy regarding Tibet, which acknowledges Beijing as the sole legitimate government representing all of China’s people, including those in Tibet and acknowledges Tibet as a vital part of China. While almost all countries have a One China policy, Nepal’s unique historical, geographical, sociocultural, and people-to-people ties with Tibet and its participation in the BRI magnify the importance of Nepal in Beijing’s calculations in ensuring stability in Tibet. Undoubtedly, China’s quest for establishing Tibet-centric stability, navigating regional power dynamics, and strengthening its economic potential in the region amplifies China’s concerns about the specifics of Nepal’s One China policy.

Despite Nepal’s unwavering support for the One China policy, China remains deeply apprehensive about the Tibet issue due to the presence and influence of India and the United States in Nepal. Both India and the United States have been vocal in their criticism of China’s human rights violations in Tibet, exacerbating Beijing’s concerns. India has provided sanctuary to the Tibetan Government in Exile for more than six decades and hosts the revered Dalai Lama, solidifying its role as a stronghold of support for Tibetans and their distinct identity.

With its long-standing support on the human rights front, the United States has come a long way in supporting Tibet and Tibetan people worldwide. Among several policies and initiatives on Tibet, with the latest Tibetan Policy and Support Act of 2019,¹⁸ passed by the U.S. Congress, the United States has extended strong support to the Tibetan community worldwide. There is clear policy alignment between India and the United States on Tibet. Their active presence in Nepal serves as a counter to Chinese efforts to control the activities of Tibetan refugees, including organizing the Free Tibet Movement and recognizing the Dalai Lama as their spiritual leader — all of which irritate Beijing.

China’s aggressive military activities in Tibet have also grown in recent years. China’s advances in the Himalayas align with its overall strategy to enhance its presence in South Asia and the Indian Ocean Region. Over the past three years, China has opted for a more offense-based military posture, including enhancing its military setup, engaging in direct fist fights such as the June 2020 and December 2022 faceoffs with the Indian Army,¹⁹ and developing advanced infrastructure in the border regions²⁰ across its Himalayan underbelly, particularly near India, Nepal, and Bhutan. Because India has border disputes/tensions with all its South Asian neighbors, China has adopted the strategy of salami slicing.²¹ Its reflection can be seen in the Chinese attempts at territorial encroachments that have been effective against India, Nepal, and Bhutan. For instance, China continues to accuse²² India of encroachment²³ on Nepalese territory, which India has categorically refuted²⁴ on all occasions.

Additionally, ongoing India-U.S. defense cooperation has raised concerns in Beijing. For instance, the U.S.-India special forces joint exercises in August 2022 in the Indian State of Himachal Pradesh and the October 2022 Yuddh Abhyas joint military exercise in the Indian State of Uttarakhand, close to the Line of Actual Control (LAC), did not go unnoticed in Beijing. In fact, China’s state-run Global Times stated that “New Delhi is no longer shy about its intention to use the U.S. to suppress China.”²⁵ China's inconsistent approach toward India's infrastructure development activities in the border region raises questions about different standards being applied to the same activities. Interestingly, while China asserts its sovereignty to disrupt the status quo at the LAC with India, it expresses concern about India-U.S. interactions on Indian soil. Still, Beijing refutes²⁶ any allegations²⁷ of border encroachment in Nepal. The border communities at the Nepal-China border complaining of Chinese expansionism have been called “pro-Western and pro-Indian”²⁸ forces.

The Millennium Challenge Corporation (MCC)

The MCC, a U.S. foreign assistance agency working toward global poverty reduction, economic development, and connectivity received ratification for a grant worth USD 500 million from the Nepalese parliament in February 2022. The Chinese state media was quick in launching attacks accusing the United States of plundering Nepal under the guise of democracy. While the MCC grant aims to “maintain road quality, increase the availability and reliability of electricity, and facilitate cross-border electricity trade between Nepal and India — helping to spur investments, accelerate economic growth, and reduce poverty,”²⁹ China finds the MCC deeply rooted in the U.S.-led Indo-Pacific Strategy aimed at containing China. Nepal's Left political parties, aligned with China's anti-MCC narrative, have obstructed the parliamentary ratification of the MCC since its signing in 2017. The Maoist Centre Party went against its political alliance with the then-government to oppose the MCC.

Though the Maoist Centre Party protested the MCC, opinions differed within the party. For instance, the chief whip of the Maoist Centre Party, Dev Gurung, had reportedly told the Kathmandu Post that the “MCC is a long-term strategic issue associated with American strategic tools, [and] we will keep on debating it” — implying a more philosophical Marxist theory of “Dialectical Materialism,” which involves the analysis of societal contradictions and conflicts arising from material contradictions.

Away from the theoretical Marxist underpinnings, Prime Minister Sher Bahadur Deuba and his coalition government, which included the Maoist Centre Party, successfully ratified the MCC grant on February 27, 2022,³⁰ with a 12-point Interpretive Declaration, explicitly stating, “Nepal shall not be a part of any strategic, military or security alliance including the Indo-Pacific Strategy.” The inclusion of the 12-point declaration convinced the Maoist Centre Party to support the MCC ratification. However, by the time all coalition partners agreed to support ratification in the parliament, substantial damage had been done to public properties during mass protests against the MCC. These public protests fueled skepticism and ignited debates about whether the leading democratic Nepali Congress Party was aligned with the United States against China.

Furthermore, local criticism of the MCC arose after Acting Deputy Assistant Secretary for South Asia David J. Ranz at the U.S. Department of State reportedly cited³¹ the MCC as a critical initiative in the U.S. Indo-Pacific Strategy during his visit to Nepal in May 2019. Given that the Indo-Pacific Strategy aims to counter China on several fronts and establish “resilience in the regional rules-based order,”³² China perceives the MCC as a threat to its long-standing interests in Nepal, particularly the BRI. China capitalized on the public outcry on the streets of Kathmandu against the MCC in propagating an anti-U.S. narrative. However, Beijing’s propaganda campaign failed to sustain momentum as the Government of Nepal (GoN) successfully negotiated the 12-point interpretative declaration with the United States, addressing and clarifying all doubts surrounding the MCC.

The MCC ratification posed a twofold challenge for U.S. diplomacy in Nepal: domestic politics and China’s ultra-anti-MCC propaganda. These challenges were highlighted in the testimony of  the (U.S. Agency for International Development; USAID) Assistant Administrator for Asia of the Michael Schiffer before the U.S. House of Representatives Foreign Affairs Committee on February 28, 2023, where he stated that “the PRC was active in spreading disinformation and pressuring Nepalese leaders to reject an MCC compact.”³³ In the same testimony, Schiffer emphasized the role of USAID in engaging with the people in Nepal, stating, “USAID assistance enables civil society and media actors to shine a light on the distorting impact of PRC interference while holding governments accountable.”³⁴

No government in Nepal has been able to complete a five-year term in the past 15 years of its democratic journey. The self-centered political agendas of political parties and their leaders have rarely let foreign policy and national interests be the priority for the country. However, the MCC episode demonstrates a critical nexus between the PRC and Left parties in Nepal.

After China failed attempts to stall the MCC grant, Beijing expected the newly formed Left coalition government of the CPN (UML) and the Maoists, under the leadership of Maoist Centre Party chief Pushpa Kamal Dahal, to maintain a hotline with Beijing on issues related to the MCC, the Indo-Pacific, and other U.S.-led initiatives. Unfortunately, the political instability within the ruling coalition did not favor Beijing’s expectations. Within two months of support to the Prime Minister Prachanda–led alliance government, the CPN (UML) and other smaller partners withdrew their support, compelling Prime Minister Prachanda to align with the Nepali Congress Party — traditionally seen as close to India — to continue in the government. The new government faces the challenge of navigating between India, China, and the United States, primarily due to the demands of the coalition parties and ongoing pressure from China. As a result, Nepal’s foreign policy continues to lack timely decision-making and initiatives for the country’s development and economic upliftment.

Since the ratification of the MCC, Nepal has experienced a series of high-level visits from the United States. U.S. Under Secretary of State for Civilian Security, Democracy, and Human Rights and U.S. Special Coordinator for Tibetan Issues Uzra Zeya visited Nepal in May 2022.³⁵  Under Secretary Zeya met with the Tibetan refugee community in Nepal during her visit. She subsequently traveled to India, where she met with the Dalai Lama, creating a significant reaction within the Chinese establishment. In a press conference, the spokesperson of the Ministry of Foreign Affairs of China objected to her visits to Nepal and India, citing interference in China’s internal affairs. General Charles Lynn of the U.S. Army arrived in Nepal in June 2022,³⁶ where he reportedly discussed Nepal’s interest in joining the State Partnership Program (SPP).³⁷ The SPP seeks to facilitate joint exercises and collaborative efforts on natural disaster issues, education, and related activities between the U.S. National Guard and partnering countries.

In July 2022, U.S. Assistant Secretary of State for South and Central Asia Affairs Donald Lu³⁸ visited Nepal, coinciding with a high-level political drama surrounding the SPP in Nepal. Nepal had initially requested the United States to join the program in 2015 following a devastating earthquake, and the United States accepted the request in 2019 after Nepal reaffirmed its interest in 2017. However, the Left parties raised concerns about the SPP as a military alliance. Consequently, the Government of Nepal decided not to participate in the program.³⁹  Also, Chinese pressure on Nepal became evident through the Chinese state media, ultimately contributing to Nepal withdrawing its request to participate in the SPP. China argued that Nepal’s involvement would violate the diplomatic understanding of peace and tranquility.

High-level U.S. visits to Nepal persisted after the election of a new government in December 2022. In January 2023, U.S. Under Secretary for State for Political Affairs Victoria Nuland visited Nepal and met with the newly elected Prime Minister Prachanda. In February 2023, Samantha Power, the Administrator of the USAID, visited Nepal in the aftermath of Nuland’s trip. Power announced a USD 58.5 million grant⁴⁰ to support democratic progress in Nepal. In the same month, U.S. Deputy Assistant Secretary of State in the Bureau of South and Central Asian Affairs Afreen Akhter also arrived in Nepal.

In an unexpected turn, the Government of Nepal withdrew⁴¹ its permission for William J. Burns,⁴² Director of the Central Intelligence Agency (CIA) of the United States, to visit Nepal. The GoN conveyed this decision to the U.S. Embassy in Nepal, saying the visit’s timing was unsuitable due to ongoing political upheaval within the ruling alliance. Burns had planned to visit Nepal after visiting Sri Lanka as part of his itinerary in South Asia. There were reports that the CIA chief was bringing “at least 2,000 weapons and a few modern vehicles of the American army”⁴³ to assist Nepal’s security forces. While the GoN released no official communication on the reason for denying permission to the CIA director, local media quoted Chinese pressure as behind the decision.

Nepal presents a range of shared interests and opportunities for both India and the United States, including ensuring stability and security, promoting democratic values, and facilitating economic growth and development. India has a long-standing connection with Nepal’s security forces, while the United States has supported these troops by providing equipment and training. India is one of Nepal’s top trading partners, and the United States has made financial contributions and investments across various industries, including infrastructure and energy. The two countries have also collaborated on advancing Nepal’s legal system, promoting gender equality, protecting human rights, and countering Chinese misinformation.

The growing strategic cooperation between India and the United States has fostered sufficient trust to see no significant opposition from India regarding the U.S.-led diplomatic efforts in Nepal. This includes a series of visits from Washington, D.C., to Kathmandu in the past 15 months, which have received India’s silent approval under what may be called an “India+1” approach, aimed at assisting Nepal on various fronts and addressing the challenges posed by China. Overall, the shared interests of India and the United States in Nepal provide a strong foundation for bilateral cooperation and coordination.

China has been pursuing Nepal to join the Global Security Initiative (GSI), which Beijing claims will “eliminate the root causes of international conflicts, improve global security governance, encourage joint international efforts to bring more stability and certainty to a volatile and changing era, and promote durable peace and development in the world.”⁴⁴ A closer look at China’s proposal to Nepal to join the GSI reflects upon its intent to forge a larger security cooperation with Nepal. While the GSI envisions global peace in principle, it is seen by some as a xenophobic security agenda designed to attract countries in the developing world – a view shared by officials in Nepal, as well.⁴⁵ Experts have linked the risks of data security, unequal distribution of benefits, transparency, looming economic dependence, and debt risks with the GSI. Nepal has reportedly⁴⁶ conveyed its unwillingness to join to China.

Meanwhile, the former Chinese ambassador to Nepal observed, “The Nepali side actively supports and responds to the Global Development and Security Initiative.”⁴⁷ Still, Nepal made no official statement endorsing this initiative. Notably, the geostrategic observers⁴⁸ in Nepal have criticized the GSI, mainly due to China’s lack of transparency regarding the potential agreement’s details.

Although China faced difficulties convincing Nepal to join the GSI, it previously succeeded in persuading Nepal to cooperate in other security initiatives, including joint military exercises. In 2017, the Nepali Congress–led government agreed to have the Nepal Army engage in joint military exercises with the PLA. It was reported that the Nepali Congress did not wish to join, but the government agreed due to the political pressure from the Maoist Centre Party, a coalition partner in the Nepali Congress–led government. The first joint exercise between the Nepal Army and the PLA, “Sagarmatha Friendship,” took place in 2017, followed by another in 2018. However, no further exercises have taken place since 2018, possibly due to frequent changes in leadership in Nepal. Additionally, China unsuccessfully attempted to convince Nepal to sign an Extradition Treaty as a priority for China during the first visit of President Xi Jinping to Nepal in October 2019.

However, despite the best efforts and willingness of the then–CPN (UML)–led government, the Extradition Treaty was taken off the table as a result of mounting pressure from the opposition, civil society, and international human rights organizations, including Human Rights Watch. These groups believed the treaty jeopardized the future of Tibetan refugees without a refugee card in Nepal, as China might obligate Nepal to hand over those Tibetans to Beijing under the Extradition Treaty. As a result of mounting local and international pressure, the treaty did not materialize, but Nepal agreed to a Treaty on Mutual Legal Assistance in Criminal Matters with China at the eleventh hour during Xi Jinping’s visit in 2019. The treaty could give China the opportunity to get involved in issues concerning Tibetans residing in Nepal. An unhappy China expressed its intentions in the Joint Statement by stating hopes “for an early conclusion of the Treaty on Extradition.”⁴⁹ Given the complex geostrategic environment, Nepal is unlikely to sign the treaty anytime soon. Still, China is expected to continue relying on the Left parties in Nepal to further the process.

Nepal signed the memorandum of understanding (MoU) on the BRI in May 2017; after five years, there has been no progress in China’s ambitious narrative of projecting the BRI as a diplomatic success in bringing Nepal on board. While there was initial enthusiasm for celebrating Nepal’s participation in the BRI as a means of balancing ties with China against its over dependence on India, that enthusiasm has since faded. While some sections of Nepal’s political and civil society viewed the BRI optimistically, the strategic community saw it as a risky amount of debt and a way for Beijing to use debt-related leverage to pursue ambitious strategic plans in Nepal.

Nepal signed the BRI agreement with China when its relations with India were at their lowest point. In 2015, Nepal witnessed a violent protest at the Nepal-India border by the Madhesi Community, which shares close sociocultural and matrimonial ties with India, in response to the newly promulgated constitution. Madhesis complained that the provisions related to citizenship in the new constitution discriminated them due to their origin and close socio-cultural ties with India. The protests disrupted the India-Nepal border trade, and Nepal accused⁵⁰ India of supporting the Madhesis. Then, an alleged border blockade by India in 2015 significantly impacted India-Nepal ties.⁵¹ An aggrieved Nepal promptly identified the open border (with India) as a security threat in its first-ever National Security Policy of 2016.⁵²

In response to the strained Nepal-India relations, China offered alternate transit routes⁵³ for  Nepal’s third-country trade⁵⁴ through Chinese seaports⁵⁵ in Tianjin, Shenzhen, Lianyungang, and Zhanjiang, as well as three land ports in Lanzhou, Lhasa, and Shigatse. In 2016, during the visit of Nepalese Prime Minister KP Sharma Oli, Nepal signed the Trade and Transit Agreement with China. This was seen as another diplomatic setback for India after the BRI, as it would reduce Nepal’s reliance on India for third-country trade. However, no single shipment to Nepal has arrived via Chinese ports in seven years.⁵⁶

The Himalayan terrain between Nepal and China poses challenges for transit, and the distance between Nepal and Chinese ports is greater than that between Nepal and Indian ports, such as Kolkata and Vishakhapatnam, which provide easy access to Nepal through railways and highways. All four Chinese seaports identified for Nepal’s third-country trade are located 2500 miles away,⁵⁷ while Indian ports are within a mere 650 miles range and well-connected to Nepal. In addition to the road infrastructure and distance issues, the two existing transit border trade points between Nepal and China were partially closed after the 2015 earthquake in Nepal. Later, both border trade points with China were closed due to stringent COVID-19 policies deployed in Tibet by China, resulting in no transit across the border.⁵⁸ Nepalese traders reported significant financial losses due to the alleged Chinese blockade at the border.⁵⁹ The reported blockade has also affected the border communities on the Nepalese side, which depend on Tibetan markets for daily supplies.⁶⁰

Also, since the signing of the BRI in 2017, China has been urging Nepal to finalize the projects under the initiative. However, no progress has been made in the past five years. Initially, 35 projects were identified under the BRI, but Nepal later narrowed this down to only nine projects. No government in Nepal has committed to moving forward with these projects due to concerns about the unclear financial terms of Chinese loans. Nepal has reportedly conveyed to the Chinese side that it prefers grants over loans.⁶¹ One of the key projects — the Trans-Himalayan Multi-Dimensional Connectivity Network⁶² that aims to connect Kathmandu and Tibet through railways, roads, and digital infrastructure — remains unmoved. Overall, there have been no visible developments under the BRI initiatives in Nepal.

The strengthening alliance between the United States and India serves as a formidable challenge to China's expansionist ambitions in Nepal. The contrast between the democratic, collaborative, and growth-oriented approach advocated by the United States and India and China's domestically driven, debt-laden strategy underscores a profound shift in the dynamics of Himalayan diplomacy — and Nepal is at the center of these developments.  Nepal's decisions will become keystones that shape its own destiny and resonate across the region's evolving power dynamics. Nepal has embarked on various diplomatic overtures through trade, cultural exchanges, and diplomatic channels, but it has yet to harness its strategic Himalayan vantage point fully.

Nepal must pragmatically balance the competing objectives of India, China, and the United States while advancing its internal goals and priorities. Kathmandu’s objective approach to China will be critical in maintaining peace and stability in the Himalayas. With a judicious deployment of policy instruments, Nepal stands poised to turn the Millennium Challenge Corporation to its economic advantage while conveying a message of openness to China, particularly regarding the BRI.

However, Nepal's voyage forward is not devoid of challenges. The management of Tibetan refugee concerns, the preservation of political equilibrium, and meaningful participation in global forums will all be measures of Nepal's resilience and finesse. Above all, the tumultuous tides of political shifts and unanticipated alliances could potentially steer Nepal's geopolitical course in unforeseen directions, impacting the developmental aspirations championed by India and the United States.

¹ U.S. Embassy Kathmandu, “The MCC-Nepal Compact Top Ten Facts,” U.S. Embassy in Nepal, March 3, 2022, https://np.usembassy.gov/mcc-in-nepal-top-ten-facts/.

² Kamal Dev Bhattarai, “Understanding BRI in Nepal,” The Annapurna Express, March 24, 2023, https://annapurna-express.prixa.net/news/understanding-bri-in-nepal-400….

³ “Nepal Compact,” Millennium Challenge Corporation, accessed September 14, 2023, https://www.mcc.gov/where-we-work/program/nepal-compact.

⁴ “Nepal's MCC example of US maximizing leverage against small countries,” Global Times, Feb 28, 2022, //www.globaltimes.cn/page/202202/1253480.shtml.

⁵ Lan Jianxue, “US Manipulating Nepal and MCC a Geopolitical Pact Targeting China –Global Times,” Global Times, February 15, 2022, https://www.globaltimes.cn/page/202202/1252306.shtml.

⁶ Anil Giri, “Six Years after BRI Agreement, Nepal Has Little to Show for It,” The Kathmandu Post, May 17, 2023, http://kathmandupost.com/national/2023/05/17/six-years-after-bri-agreem….

⁷ “The Rise and Fall of the BRI,” Council on Foreign Relations, April 6, 2023, https://www.cfr.org/blog/rise-and-fall-bri.

⁸ Leo E. Rose, Nepal: Strategy for Survival (University of California Press, 2023).

⁹ “Boundry Treaty between the People’s Republic of China and the Kingdom of Nepal,” Ministry of Foreign Affairs, the People’s Republic of China, October 5, 1961, http://treaty.mfa.gov.cn/tykfiles/20180718/1531876402103.pdf.

¹⁰ United Nations High Commissioner for Refugees, “Refworld | Tibetan Refugees in Nepal Crying out for Documentation,” Refworld, June 4, 2013, https://www.refworld.org/docid/51b5b30e4.html.

¹¹ Human Rights Watch, “Appeasing China: Restricting the Rights of Tibetans in Nepal: II. Background,” accessed August 22, 2023, https://www.hrw.org/reports/2008/tibetnepal0708/3.htm.

¹² Philip P. Pan, “China Backs Nepal Over Maoist Rebels,” Washington Post, July 14, 2002, https://www.washingtonpost.com/archive/politics/2002/07/14/china-backs-….

¹³ Baburam Bhattarai, “40 Point Demand,” Southeast Asia Terrorism Portal, February 4, 1996, https://www.satp.org/satporgtp/countries/nepal/document/papers/40points….

¹⁴ “Hundreds of Tibet Protesters Arrested in Nepal,” Amnesty International, March 24, 2008, https://www.amnesty.org/en/latest/news/2008/03/hundreds-tibet-protester….

¹⁵ “Hundreds of Tibet Protesters Arrested in Nepal.”

¹⁶  “Nepal to Reassure China on Tibetan Exiles,” Reuters, September 8, 2009, sec. South Asia News, https://www.reuters.com/article/idINIndia-42299020090908.

¹⁷ Press Trust of India, “Nepal PM Prachanda Holds Talks with Chinese President, Premier,” India Today, August 24, 2008, https://www.indiatoday.in/latest-headlines/story/nepal-pm-prachanda-hol….

¹⁸ U.S. 116th Congress (2019–2020), “Text – H.R.4331 – 116th Congress (2019–2020): Tibetan Policy and Support Act of 2019,” legislation, January 30, 2020, September 13, 2019, http://www.congress.gov/bill/116th-congress/house-bill/4331/text.

¹⁹ “India-China dispute: The border row explained in 400 words” BBC, December 14, 2022, https://www.bbc.com/news/world-asia-53062484.

²⁰ China Power, “How Is China Expanding Its Infrastructure to Project Power along Its Western Borders?” ChinaPower Project (blog), March 16, 2022, https://chinapower.csis.org/china-tibet-xinjiang-border-india-military-….

²¹ Brahma Chellaney, “China’s Himalayan Salami Tactics | by Brahma Chellaney,” Project Syndicate, March 9, 2021, https://www.project-syndicate.org/commentary/xi-jinping-salami-tactics-….

²² Lin Minwang, “Nepal Should Be Vigilant about India’s Bid to Encroach Its Territory – Global Times,” Global Times, August 14, 2022, https://www.globaltimes.cn/page/202208/1272911.shtml.

²³ Minwang. “Nepal Should Be Vigilant.”

²⁴ Ministry of External Affairs, “Official Spokesperson’s Response to Media Queries on the Passing of Constitutional Amendment Bill Revising the Coat of Arms of Nepal by the House of Representatives of Nepal,” June 13, 2022, https://www.mea.gov.in/response-to-queries.htm?dtl/32757/Official_Spoke….

²⁵  Minwang, “Nepal Should Be Vigilant."

²⁶ Fan Lingzhi Hu Yuwei, “BBC’s China-Nepal Border Dispute Hype a ‘Smear Campaign’ – Global Times,” Global Times, February 10, 2022, https://www.globaltimes.cn/page/202202/1251902.shtml.

²⁷ “China Encroaching along Nepal Border – Report,” BBC News, February 8, 2022, sec. Asia, https://www.bbc.com/news/world-asia-60288007.

²⁸ Hu Yuwei, “Pro-US or Pro-India Forces Likely behind Nepali Civic Group’s Repeated Smears of ‘Land Encroachment by China’ – Global Times,” Global Times, June 22, 2022, https://www.globaltimes.cn/page/202207/1271147.shtml.

²⁹ “Nepal Compact,” Millennium Challenge Corporation, September 14, 2023, https://www.mcc.gov/where-we-work/program/nepal-compact.

³⁰ “Statement on Parliament's Ratification of the MCC” Nepal Compact, Feb. 27, 2022, https://np.usembassy.gov/statement-on-parliaments-ratification-of-the-m….

³¹ Roshan S. Nepal, “‘MCC Important Initiative under Indo-Pacific Strategy,” The Himalayan Times, May 15, 2019, https://thehimalayantimes.com/nepal/millennium-challenge-corporation-co….

³² The White House, “U.S.-Indo-Pacific-Strategy.Pdf,” The White House, February 2022, https://www.whitehouse.gov/wp-content/uploads/2022/02/U.S.-Indo-Pacific….

³³ USAID, “Combatting the Generational Challenge of Chinese Communist Party Aggression | February 28, 2023,” U.S. Agency for International Development, March 1, 2023, https://www.usaid.gov/news-information/congressional-testimony/combatti….

³⁴ USAID, “Combatting the Generational Challenge.”

³⁵ Diwakar, “US Undersecretary Uzra Zeya Calls on PM Deuba – OnlineKhabar English News,” May 22, 2022, https://english.onlinekhabar.com/uzra-zeya-nepal-pm-deuba-meet.html.

³⁶ Shirish B. Pradhan, “US Army’s Pacific Commander Arrives in Nepal on Four-Day Official Visit,” ThePrint (blog), June 9, 2022, https://theprint.in/world/us-armys-pacific-commander-arrives-in-nepal-o….

³⁷ U.S. Embassy Kathmandu, “State Partnership Program Factsheet,” U.S. Embassy in Nepal, June 17, 2022, https://np.usembassy.gov/state-partnership-program-factsheet/.

³⁸ “US Assistant Secretary of State Donald Lu Arrives,” Kathmandu Post, July 28, 2022, http://kathmandupost.com/national/2022/07/28/us-assistant-secretary-of-….

³⁹ Anil Giri and Tika R. Pradhan, “Government Decides to Stay Away from SPP,” Kathmandu Post, June 21, 2022, http://kathmandupost.com/national/2022/06/21/government-decides-to-stay….

⁴⁰ USAID, “Combatting the Generational Challenge."

⁴¹ Yubaraj Ghimire, “Timing Not Suitable: Nepal Barred Visit by CIA Chief William J Burns Last Week,” The Indian Express (blog), February 24, 2023, https://indianexpress.com/article/world/timing-not-suitable-nepal-barre….

⁴²  “Why Did PM Dahal Stop the Nepal Visit of US Intelligence Agency CIA Director Burns?” My Republica, March 1, 2023, http://myrepublica.nagariknetwork.com/news/137142/.

⁴³ Tapendra Karki, “Security Agencies Express Dissatisfaction as Govt Halts Visit of CIA Chief,” My Republica, accessed August 22, 2023, http://myrepublica.nagariknetwork.com/news/137116/.

⁴⁴ “The Global Security Initiative Concept Paper” Ministry of Foreign Affairs of People’s Republic of China, accessed Fe. 21, 2023, https://www.fmprc.gov.cn/mfa_eng/wjbxw/202302/t20230221_11028348.html#:….

⁴⁵ Anil Giri, “Nepal’s Stated Policy Keeps It from Joining China’s GSI,” Kathmandu Post, February 23, 2023, http://kathmandupost.com/national/2023/02/23/nepal-s-stated-policy-keep….

⁴⁶ Giri, “Nepal’s Stated Policy Keeps It from Joining China’s GSI.”

⁴⁷ Anil Giri, “Nepal on the Horns of Dilemma over China’s Global Security Initiative,” Kathmandu Post, September 7, 2022, http://kathmandupost.com/national/2022/09/07/nepal-on-the-horns-of-dile….

⁴⁸ “Nepal on the horns of dilemma over China’s Global Security Initiative" Kathmandu Post, Sep. 09, 2022, https://kathmandupost.com/national/2022/09/07/nepal-on-the-horns-of-dil….

⁴⁹ Ministry of Foreign Affairs, “Joint Statement between the People’s Republic of China and Nepal,” Ministry of Foreign Affairs, the People’s Republic of China, October 13, 2019, https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649_665393/201910/t201910….

⁵⁰ Gopal Sharma, “Nepal’s Madhesis Decide to Press on with Protests on India Border,” Reuters, December 22, 2015, sec. India Top News, https://www.reuters.com/article/nepal-protests-charter-idUKKBN0U51XJ201….

⁵¹ Amish Raj, “Opinion | Is This the End of the ‘Special Relationship’?” Kathmandu Post, June 11, 2020, http://kathmandupost.com/columns/2020/06/11/is-this-the-end-of-the-spec….

⁵² Government of Nepal, “Nepal’s National Security Policy, 2016” (Government of Nepal, 2016), https://nepalindata.com/media/resources/bulk_file/231574029-National%20….

⁵³ Anil Giri, “7 Years since Transit Deal with China, No Shipment Has Moved,” Kathmandu Post, April 22, 2023, http://kathmandupost.com/national/2023/04/22/7-years-since-transit-deal….

⁵⁴ “Trade Agreement – NTIP,” Nepal Trade Portal, accessed August 22, 2023, https://nepaltradeportal.gov.np/trade-agreement?p_p_id=utilportlet_WAR_….

⁵⁵ Anil Giri, “Nepal’s Transit Deal with China Makes No Headway Even after Five Years,” Kathmandu Post, July 11, 2023, http://kathmandupost.com/national/2021/07/11/nepal-s-transit-deal-with-….

⁵⁶ Giri, “Nepal’s Transit Deal with China.”

⁵⁷ Nihar N. Nayak, “Nepal-China Transit Agreement: An Evaluation,” September 17, 2018, https://idsa.in/system/files/issuebrief/ib-nepal-china-transit-agreemen….

⁵⁸ Krishana Prasain, “Nepal Has Two Main Border Points with China. But Why Does Trade Suffer?” May 7, 2023, http://kathmandupost.com/money/2023/04/09/nepal-has-two-main-border-poi….

⁵⁹ Krishana Prasain, “Border Uncertainty in North Troubles Traders Again – Ahead of Festivals,” Kathmandu Post, August 22, 2022, http://kathmandupost.com/money/2022/08/22/border-uncertainty-in-north-t….

⁶⁰ Dipendra Shakya, “Food Shortage in Sankhuwasabha Villages as China Border Closure Continues since 2020,” Kathmandu Post, April 27, 2023, http://kathmandupost.com/province-no-1/2023/04/27/food-shortage-in-sank….

⁶¹ Anil Giri, “Five Years on, BRI Projects Are Nowhere on the Horizon,” Kathmandu Post, May 20, 2022, http://kathmandupost.com/national/2022/05/20/five-years-on-bri-projects….

⁶² Ministry of Foreign Affairs, Nepal, “Reply Speech by The Rt. Hon’ble K.P. Sharma Oli, Prime Minister of Nepal – Ministry of Foreign Affairs Nepal MOFA,” Ministry of Foreign Affairs of Nepal, June 22, 2018, https://mofa.gov.np/reply-speech-by-the-rt-hon-k-p-sharma-oli-prime-min….