Kathmandu at a Crossroads; Welcoming Chinese Capital While Guarding Against Its Consequences
Nepal received FDI pledges of roughly Rs 30.69 billion—approximately $230 million—in the fiscal year ending 2023, a figure depressed by a year of political turbulence.
Author- Mohammad Arif Khan, Middle East affairs expert
Nepal received FDI pledges of roughly Rs 30.69 billion—approximately $230 million—in the fiscal year ending 2023, a figure depressed by a year of political turbulence. Of that, Chinese sources accounted for the single largest share in terms of commitments, as they have for most of the past decade. The caveat that matters is that Chinese pledges have historically converted into realised investment at a far lower rate than pledged: across thirteen years of data, only about one-third of total FDI commitments to Nepal have actually materialised.
The pattern that has genuinely built over a decade is one of China consistently topping the pledge table in sectors Nepal needs capital for, while alternative partners have not matched even that level of expressed intent.
This is not a corruption story, and it is not a conspiracy. Nepal's government has made rational choices under genuine constraints. India, the historically dominant partner in terms of actual delivered investment, has been a reliable but often difficult partner whose infrastructure engagement in Nepal has been complicated by recurring political friction, despite significant recent commitments in hydropower.
Western donors have attached governance conditions that can delay or derail projects. China has offered construction at speed and financing at scale without demanding institutional reform as a precondition.
The result is a foreign investment landscape in which Chinese pledged capital now touches hydropower, roads, tourism infrastructure, and manufacturing. The Trans-Himalayan Multi-dimensional Connectivity Network is the formal architecture for this engagement. What it means in practice is that Nepal's most consequential development decisions are increasingly made in conversation with Beijing.
Nepal's policymakers are not unaware of this. The country's parliament passed a Public Debt Management Act in November 2022 that imposes statutory ceilings on external borrowing—capping it at one-third of the previous fiscal year's GDP—and on domestic borrowing, replacing what had been largely discretionary limits with enforceable ones.
Nepal has also sought to diversify its partnerships through the United States Millennium Challenge Corporation compact, which was ratified by parliament in February 2022 after years of domestic political turbulence, and which has since grown to a total programme value of $747 million in grants. Renewed bilateral discussions with India on connectivity have produced concrete new hydropower contracts.
These are the right instincts. They have not changed the structural picture. The MCC compact is a grant, not a recurring capital relationship. Indian investment, while growing, remains concentrated in a handful of large projects. China's share of Nepal's expressed investment pipeline has expanded because China has consistently shown up with pledges and proposals, when alternatives have not matched that volume, even accounting for the gap between what China commits to and what it delivers.
What Nepal needs is not a rupture with Beijing. It is a framework for engaging with Chinese capital that puts repayment terms, procurement conditions and labour requirements on record, publicly, before construction begins.
Countries that have failed to build that framework have found themselves in renegotiations that do not go well for the borrower. Nepal still has the option to build it. The window is not permanent.
Two Real Estate Agents Negotiating a War: When Deals Replace Diplomacy in the Middle East
Author- Mohammad Arif Khan, Middle East affairs expert
Nepal received FDI pledges of roughly Rs 30.69 billion—approximately $230 million—in the fiscal year ending 2023, a figure depressed by a year of political turbulence. Of that, Chinese sources accounted for the single largest share in terms of commitments, as they have for most of the past decade. The caveat that matters is that Chinese pledges have historically converted into realised investment at a far lower rate than pledged: across thirteen years of data, only about one-third of total FDI commitments to Nepal have actually materialised.
The pattern that has genuinely built over a decade is one of China consistently topping the pledge table in sectors Nepal needs capital for, while alternative partners have not matched even that level of expressed intent.
This is not a corruption story, and it is not a conspiracy. Nepal's government has made rational choices under genuine constraints. India, the historically dominant partner in terms of actual delivered investment, has been a reliable but often difficult partner whose infrastructure engagement in Nepal has been complicated by recurring political friction, despite significant recent commitments in hydropower.
Western donors have attached governance conditions that can delay or derail projects. China has offered construction at speed and financing at scale without demanding institutional reform as a precondition.
The result is a foreign investment landscape in which Chinese pledged capital now touches hydropower, roads, tourism infrastructure, and manufacturing. The Trans-Himalayan Multi-dimensional Connectivity Network is the formal architecture for this engagement. What it means in practice is that Nepal's most consequential development decisions are increasingly made in conversation with Beijing.
Nepal's policymakers are not unaware of this. The country's parliament passed a Public Debt Management Act in November 2022 that imposes statutory ceilings on external borrowing—capping it at one-third of the previous fiscal year's GDP—and on domestic borrowing, replacing what had been largely discretionary limits with enforceable ones.
Nepal has also sought to diversify its partnerships through the United States Millennium Challenge Corporation compact, which was ratified by parliament in February 2022 after years of domestic political turbulence, and which has since grown to a total programme value of $747 million in grants. Renewed bilateral discussions with India on connectivity have produced concrete new hydropower contracts.
These are the right instincts. They have not changed the structural picture. The MCC compact is a grant, not a recurring capital relationship. Indian investment, while growing, remains concentrated in a handful of large projects. China's share of Nepal's expressed investment pipeline has expanded because China has consistently shown up with pledges and proposals, when alternatives have not matched that volume, even accounting for the gap between what China commits to and what it delivers.
What Nepal needs is not a rupture with Beijing. It is a framework for engaging with Chinese capital that puts repayment terms, procurement conditions and labour requirements on record, publicly, before construction begins.
Countries that have failed to build that framework have found themselves in renegotiations that do not go well for the borrower. Nepal still has the option to build it. The window is not permanent.
