Over the years, China has sought to turn Nepal into a strategic asset in South Asia. A major shift in China’s Nepal policy was observed in 2017, when Beijing played a role in bringing two Nepalese communist parties together — the Communist Party of Nepal (Unified Marxist-Leninist), led by the K. P. Sharma Oli, and the Communist Party of Nepal (Maoist), led by Pushpa Dahal. This paved the way for the installation of Oli as Nepalese prime minister.

In the years that followed, China’s involvement in Nepal’s domestic politics intensified, with Chinese President Xi Jinping (習近平) striving to bolster a communist government in Nepal — one that could align its policy and interests with China’s objectives in South Asia. While Xi’s 2019 visit to Nepal resulted in the two sides signing a comprehensive cooperation agreement, it also resulted in the Nepalese House unanimously passing a constitutional amendment recognizing three Indian areas as part of Nepal.

The Oli administration was instrumental in bringing Nepal into Xi’s pet project, the Belt and Road Initiative, in 2017. The presence of Chinese companies in Nepal’s strategic sectors — infrastructure, energy and others — has expanded. More to the point, major infrastructure projects were awarded to Chinese companies during the tenure of Oli. Defense cooperation has also witnessed some significant progress.

However, the new government’s coming to power in Kathmandu is seen as an unprecedented blow to China’s Nepal policy. First, the loss of political grip by the communist parties in Nepal would put a complete stop to China’s clandestine efforts to consolidate the tenets of a communist regime in South Asia and beyond.

Thus, the defeat of Oli and other top communist leaders is not merely a reflection of the people’s dissatisfaction with these leaders, but also underscores their discomfort with China’s inroads into Nepal. This can be gauged from the fact that sections of Nepal’s political parties, civil society and media had expressed their objection to China’s interference in internal affairs.

Second, Shah, the new prime minister, has a critical view of China. He canceled his visit to Beijing in 2023 on the grounds that China’s Ministry of Natural Resources’ standard map did not incorporate Nepal’s new map showing the Lipulekh, Kalapani and Limpiyadhura areas as Nepalese territory, instead of Indian territory.

Third, Beijing is also concerned that the Shah administration could review the feasibility of Chinese projects and recognize the economic and strategic costs Nepal would incur. That situation would not only adversely impact China’s interests in South Asia, but also give countries in other parts of the world a cue to resist China’s attempt to make them its colonies under the Belt and Road Initiative.

Fourth, China’s aim to foster a close bond between its military-industrial complex and Nepal’s defense needs, and thereby make Nepal dependent on it for military supplies and services, would also face a dead end. Coupled with this, the US’ engagement with Nepal has not gone unnoticed by Chinese strategists. With a US$500 million Millennium Challenge Corporation agreement and more than US$200 million in annual aid, US-Nepal ties have seen significant progress in the past few years.

Fifth, with the absence of a friendly government in Nepal, China would not be in a position to clamp down on Tibetan refugees in Nepal. At the same time, Beijing is apprehensive that the engagement between Tibetan refugees staying in Nepal and India would feel emboldened to challenge China’s Tibet policy.

Finally, Shah belongs to the Madhesi region of Nepal, which has the “bread and blood” relations with India’s state of Bihar, and he studied and lived in India for a long time, meaning that the prospect for a strong bilateral relationship with India during his tenure is high, further adversely impacting China’s interests.

With a new political generation emerging in Kathmandu and China facing strategic limitations in sustaining its engagement with Nepal, it is hoped that the consolidation of democratic institutions would enable the people of Nepal to comprehend China’s expansionist gaze on Nepal and South Asia.

Sumit Kumar is a Ministry of Foreign Affairs visiting fellow at National Chengchi University and an assistant professor in the Department of Political Science at the University of Delhi.