ILLUSTRATION VIA BEHANCE
THE PHRASE Nepal’s policymakers have been repeating since the 2015 earthquake is “land-linked, not landlocked”. The idea is that Nepal, positioned between India and China (the world’s two most populous countries and its first and fifth largest economies by purchasing power), could turn its geography into a commercial asset: a transit corridor, a trade bridge, a country that earns from the flow of goods between two giants. Those giants do not trade directly with each other across their contested Himalayan border.
It is an elegant idea. Yet it has not produced a single functioning route. Nine years after Nepal signed the Belt and Road Initiative and began putting forward this vision, the Kerung-Kathmandu railway remains a feasibility study. The transit protocol with India is not always applied. Nepal’s trade deficit is at its largest in recorded history.
The problem with the transit bridge vision is not geography, though the Himalayas are genuinely difficult. It is that the two superpowers Nepal proposes to connect have no interest in being connected through Nepal. At specific moments of decision, both have shown a willingness to block Nepali infrastructure choices that lean too far towards the other side.
One of the BRI projects, the Phukot Karnali Hydroelectric Project (480MW), is now being developed through a joint venture between India’s NHPC Limited and a Nepali company, not by the Chinese firms that originally pursued it. The reason is not that NHPC outbid the Chinese. India, Nepal’s main electricity export market, has an informal policy of not buying power from Chinese-built plants.
That single condition makes Chinese investment in Nepali hydropower commercially unworkable for any project aimed at export. The income that would justify the investment is not available to a Chinese developer. Nepal’s most valuable asset, its hydropower, is being carved up between Indian developers, who can sell to the Indian market, and Nepali developers, who can sell under power-purchase agreements. Chinese capital, however willing to invest, faces a buyer that has disqualified it.
India’s influence runs deeper than the electricity market. Nepal’s entire trade with the rest of the world travels mostly through India; the only overland route to a seaport goes south. The 2015 unofficial blockade showed that this dependence is not abstract. It followed Nepal’s introduction of a new constitution that India found politically objectionable. When Indian truck operators stopped crossing the border for five months, Nepal’s fuel supplies ran critically low. Hospitals rationed oxygen. The earthquake reconstruction programme stalled for lack of cement and steel.
Nepal did not forget. Every government since has understood that the transit bridge needs India’s cooperation at the most basic level. India has shown that its cooperation comes with conditions on Nepal’s political choices.
China has offered an alternative, and Nepal has accepted the language of that offer: the BRI, the Trans-Himalayan Multi-Dimensional Connectivity Network, the hope of an overland route that bypasses India. Yet Nepal has not been able to put it into practice. The Tokha-Chhahare Tunnel, seen as a strategic gateway linking Kathmandu with Kerung in Tibet, is stuck at the start. Nepal wants to complete a feasibility study before an environmental assessment; China prefers the reverse order.
This dispute over sequencing has gone on for years. Behind it lies the unresolved question of grant versus loan. Nepal wants grants; China offers loans at low interest. Neither side has formally settled the deadlock. Then there is the harder question of what a functioning China-Nepal route would actually carry. Tibet, on the other side of the Himalayan passes, has about 3.5 million people. It is not a big consumer market for Nepali goods. Nor is it a manufacturing base that produces things Nepal needs to import.
The transit bridge works if you draw a line on a map. In reality, it requires China and India to let goods move across their contested border through Nepal. Neither country has agreed to that, and neither has a reason to help it happen.
The United States has added a different complication. The $500m Millennium Challenge Corporation compact, ratified by Nepal’s parliament in 2022 after years of political controversy partly stirred up by Chinese-aligned parties who called it a strategic threat, has been partly undermined by the Trump administration’s withdrawal of USAID from Nepal in early 2025. The MCC money is real and is funding transmission lines.
The USAID withdrawal took away $659m in committed development financing. That money was doing something different: building the skills of the workforce and the know-how of government bodies, so that Nepal could use its infrastructure well. A transit corridor without efficient customs, without a working financial system (Nepal is on a global watch list for weak financial controls), and without the reliability that traders need before they send goods through a country, is a road that leads nowhere commercially.
Caught between an India that controls Nepal’s main trade access and will block infrastructure that helps China, and a China that offers financing on terms Nepal cannot easily accept for projects that need Indian commercial co-operation to work, Nepal’s transit bridge vision is more a wish than a policy. The outside world in which that wish might have come true; a world where India-China relations were stable, American engagement was steady, and great-power rivalry pushed both neighbours to court Nepal’s connectivity rather than block the other side; has not existed since about 2017.
What has existed since then is a growing rivalry that has made Nepal’s neutrality more costly, its choices fewer, and its transit-bridge dream harder to realise each year that the railway remains just a line on a map.
Nepal has no real way out of this position. Being between India and China is not a choice. The task is to get the most practical benefit from its geography while avoiding commitments that would turn a manageable dependence into a dangerous one. Every government since 2017 has tried some version of this. The current RSP government, whose foreign minister promised “closer ties” in Beijing while the prime minister’s India visit produced warm words about a reset, is attempting the same balancing act. It has more political support to spend but less diplomatic experience than most of its predecessors. Whether it succeeds will depend partly on its own choices and mostly on choices being made in New Delhi and Beijing. ■
