China seeks trade pact and investment safeguards in Nepal

China has formally proposed signing a Bilateral Investment Agreement (BIA) and a Free Trade Agreement (FTA) with Nepal, aiming to safeguard and enhance its investments in the country. The proposals were put forward by Chinese Vice Minister for Commerce Yan Dong during separate meetings with Nepal's Minister for Industry, Commerce and Supplies Gauri Kumari and Finance Secretary Ghanshyam Upadhyaya.

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FTA has featured on the agenda of several high-level visits and meetings between Nepal and China, and also appeared in the revised text of the framework for the Belt and Road Cooperation signed in December 2024.

During his meeting with Minister Kumari, Yan Dong urged Nepal to establish a one-stop service center for Chinese businesses and investors, emphasizing China's position as the largest source of foreign direct investment in Nepal. He suggested Nepal could learn from China's economic liberalization policies, including corporate tax incentives, to attract investment. The Chinese vice minister even offered to rename the proposed FTA if Nepal had reservations about the term itself.

Minister Kumari did not immediately commit to the proposals, stating that Nepal would first study the potential advantages and disadvantages of an FTA before deciding on its position. This cautious approach comes amid Nepal's concerns over its significant and widening trade deficit with China. The idea of an FTA has been discussed previously, appearing in the revised text of the Belt and Road Cooperation framework in December 2024, but negotiations have stalled due to these economic asymmetries and regulatory challenges.

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We carried out a preliminary study in 2016, but dropped the idea because of the asymmetry in the two economies.

Yan Dong also expressed the Chinese government's readiness to support foreign investment promotion in Nepal. He proposed conducting joint studies on Nepal's potential export products, such as tea and medicinal herbs, similar to initiatives undertaken in other South Asian countries. This offer of collaboration aims to identify and develop Nepal's export capabilities, potentially helping to rebalance trade relations.

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He also noted that the success China has achieved since adopting its open economic policy in 1978, including tax incentives for foreign investment, improvements in the business environmen