When Xi meets Modi and Oli

With Xi Jinping as host, Narendra Modi and K P Oli are both attending the Shanghai Cooperation Council (SCO) meeting on 31 August. It would be appropriate if the diplomatic ‘sherpas’ were able to organise a joint meeting to overcome some sticking points that have emerged in the trilateral interface.

These issues are relatively new, related to China’s economic and geo-strategic rise, which has reversed its earlier disinterest on matters south of the Himalaya (other than concerns over Tibet activism). While Beijing’s leaders used to be standoffish on Nepal, even advising Nepali leaders to remain on good terms with New Delhi, they are now bullish while lacking full appreciation of Nepal’s positions and interests.

Matters are complicated for Nepal by the fact that after decades of relative Indo-Chinese calm following the debacle (for India) of the 1962 war, the 2023 Galwan clashes led to a bilateral nosedive. Both neighbours entered a phase of hi-decibel rancour, with the Indian officialdom and media expecting Kathmandu to choose sides.

New Delhi tends to hype any engagement by Kathmandu with Beijing as proof of a ‘China tilt’, or opportunistic use of the ‘China card’. There is irony in this, of course, because China is India’s foremost trading partner, and a source for much that makes India’s economy hum, from pharmaceutical raw material to EV batteries, solar panels, integrated circuits, industrial machinery, etc.

While in an inextricable economic embrace with Beijing, New Delhi diplomats, media commentators and ‘think-tankers’ would want Kathmandu (and Dhaka, Colombo) to keep Beijing at arm’s length. Nor would they stop to consider that it was the Indian economic blockade of 2015 that accelerated Kathmandu’s signing a slew of agreements with Beijing two years later on cross-border roads, transmission lines, bilateral trade, third-country transit, as well as the Belt and Road Initiative Framework.

Chinese goods and services

New Delhi analysts must abandon suspicions of foul play whenever a South Asian neighbour seeks out Chinese goods and services, scientific advances, education, and bilateral and third-country trade. They also need to consider the advantages of Nepal providing the most geographically practical surface connectivity between the Chinese mainland and the Indus-Ganga-Brahmaputra basin, using the railhead that has already arrived at Shigatse west of Lhasa.

Of the 14 countries that China borders, and India’s seven, Nepal is unique for its open border to the south. New Delhi security experts constantly warn of third-country infiltration into India using the free passage, but if that is the case Beijing too will now have reason to feel vulnerable, given the possibility of quick south-to-north passage across Nepal on new highways. Nepal is also unique in that its citizens have historically been allowed to join the Indian military, even though recruitment is halted since 2022 due to the Covid pandemic, followed by India’s introduction of the Agnipath recruitment scheme.

As is natural between any two neighbours, Beijing and Kathmandu have issues to sort out, such as: the mutual respect of Bon, Mahayana and Vajrayana communities across the Himalaya defiles, access to historically shared high pastures, unilateral closure of border points by Beijing that impacts tourism and trade, and the occasional ill-considered statements regarding Nepal’s third-country relations that emerge from Beijing officialdom, such as on the US-funded Millennium Challenge Compact.

It is a fact, however, that the Nepal-China relationship is clouded by diffidence of the Kathmandu polity in dealing with Beijing interlocutors. The Nepal side has been conditioned over the decades by the need for Kathmandu to prop up the China relationship as a counter to the overwhelming presence of India in the polity, which has meant more fawning northward than is healthy.

Meanwhile, it would help for Chinese delegations not to insist on the Nepali side repeating ad nauseum its commitment to the one-China policy, or disallowing Nepali territory to be used against China. These are by now state policy, not requiring humiliating repetition.

India-China-Nepal

The India-China-Nepal interface has not been discussed enough as a foreign affairs sub-discipline, mainly because of the timidity of Kathmandu’s officialdom and intelligentsia. In these times of ascendant China and defensive India, Nepal must place its concerns on the three-way table. 

Limpiyadhura Triangle: The area in Nepal’s northwest encompassing 370 sq km between Limpiyadhura peak, Lipulek pass and Kalapani encampment is claimed by Kathmandu, the area having been incorporated in the 2015 Constitution. The Sugauli Treaty of 1816 indicates Nepal’s western boundary as the Kali River, and Kathmandu claims the main river stem as starting from Limpiyadhura. Whereas, New Delhi claims that the smaller stream going straight north from Kalapani is the official Kali.

Nepal is thus in a significant territorial dispute with India, a matter that was ignored by both New Delhi and Beijing when they reached an accord in May 2015 to regularise cross-border trade and pilgrim traffic via Lipulek. Prime Minister Sushil Koirala sent a protest note to both capitals. And yet, tone-deaf to Nepal’s position, foreign ministers Wang Yi and S Jaishankar on 19 August 2025 signed an agreement to resume border trade via Lipulek.

Especially because he is scheduled to visit the SCO Summit in end-August and Bodh Gaya on 17 September, it is important for PM Oli to immediately send diplomatic notes to both capitals as did his predecessor PM Koirala. To recall, it was under Oli as Prime Minister that the Limpiyadhura Triangle was officially incorporated into Nepal’s Constitution in the Second Amendment of June 2020. 

Hydropower Exports: While there is a power trade agreement between Nepal and India, New Delhi has put regulations that restrict Kathmandu from exporting from hydropower plants that are funded, financed or constructed with Chinese involvement. This stricture even applies to the agreement to supply 40MW to Bangladesh via the Indian grid.

New Delhi’s officialdom evidently believes that electrons have nationality, and anything with a whiff of Chinese involvement is to be rejected. This is an unfriendly position towards both Nepal and China, though one does not know whether Beijing is bothered enough as it seeks to woo India and its massive consumer market. Meanwhile, the restrictions on ‘China tainted’ energy exports have impacted Chinese FDI in Nepal’s hydropower sector.

Airports and Airlines: The new international airports at Bhairawa and Pokhara have become a burden on the economy because of the in-country graft and malfeasance. Neither of the two airports has been able to ‘go international’ due to the government’s inability to plan ahead on air routes, passenger traffic and tourism.

India has been least cooperative, however, disallowing instrumental landing system at Bhairawa on the pretext that it will interfere with flights at its nearby military airbase. This point is moot now because of satellite-aided navigation systems, but New Delhi officialdom continues to dissuade airlines from connecting Indian cities to both airports because of Chinese involvement in their construction.

Sourcing international loans, grants and contractors is Kathmandu’s sovereign lookout, and it is improper for New Delhi to act so obstructionist. While Pokhara’s airport was built on a loan from the Export–Import Bank of China, Bhairawa was financed by the Asian Development Bank, with only the civil works carried out by a Chinese company responding to a global tender.

At the upcoming summit of the Shanghai Cooperation Organisation, whose goal is “regional security, economic cooperation and cultural exchange”, PM Oli must remind both his host President Xi and fellow guest PM Modi that the China-India relationship even as it blows hot and cold can never be at the cost of Nepal.