Nepal stuck in asymmetrical economic ties with China

Nepal faces a widening trade deficit with China, driven by heavy imports and weak exports. World Bank data shows BRI projects favour Chinese firms, deepening structural imbalances and exposing Nepal’s economic vulnerabilities

New Delhi: Nepal is facing an ever-widening trade deficit with China as it imports goods such as electronics, machinery, vehicles and textiles from the neighbouring country, while its exports, in return, are a small fraction of this amount, an article noted.

The asymmetry is stark as in the first half of the financial year 2025-26, Nepal’s imports from China exceeded Rs 195 billion, while exports to China amounted to a small percentage, according to the article in Eurasia Review.

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It highlights that infrastructure financing under the Belt and Road Initiative, which Nepal formally joined in 2017, reinforces this structural imbalance between the two countries. According to World Bank research, more than 60 per cent of Chinese-funded BRI projects globally are awarded to Chinese firms, compared to roughly 30 per cent in projects funded by non-Chinese institutions.

Nepali construction firms tend to participate at the margins of projects in their own country, while Chinese firms capture equipment contracts and specialised engineering work.

“Nepal’s manufacturing sector is small by regional standards. Industrial output is concentrated in food processing, textiles, and some construction materials. In sectors that overlap with Chinese import categories, Nepali producers have seen market share erode. This is partly a competitiveness problem and partly a policy problem, since the FDI terms that bring Chinese capital can also bring Chinese competition into domestic markets,” the article pointed out.

Nepal’s central bank and Finance Ministry have both identified import dependence on China as a structural risk in their public planning documents. The remedies require either diversifying Nepal’s import sources, which requires alternative trade agreements and supply chain development or building domestic productive capacity in import-competing sectors, which requires capital investment and skills development at a scale Nepal cannot currently fund domestically. Chinese capital is available for both. The terms tend to circle back to the same place, the article added.