In the changed political context in Nepal following last year’s Gen Z movement, China has proposed signing a Bilateral Investment Agreement (BIA) and a Free Trade Agreement (FTA) to safeguard and promote its investment in Nepal.

The proposal came from Chinese Vice Minister for Commerce Yan Dong on Tuesday during his separate meetings with Minister for Industry, Commerce and Supplies Gauri Kumari and Finance Secretary Ghanshyam Upadhyaya. During the meeting with the industry minister, the Chinese side proposed an FTA, while in the meeting with Upadhyaya, he called for concluding the BIA, officials at the Finance and Industry ministries told the Post.

During the meeting with Minister Kumari, Yan said that, as China is the largest source of foreign direct investment (FDI) in Nepal, the government should establish a one-stop service center for Chinese businesses and investors. He also urged Nepal to pursue an FTA with China.

Yan said Nepal could draw valuable lessons from China’s economic liberalisation policy introduced in 1978, including corporate tax incentives for investors, to attract investment.

He pushed for an FTA and even offered to rename it if Nepal had reservations about the term itself, said an official at the industry ministry.

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.

Minister Kumari made no commitment but told the Chinese side that Nepal would study the potential advantages and disadvantages of an FTA before conveying its position, the official said.

China first proposed an FTA in 2016. During the visit of the then commerce minister Dipak Bohora to China, the two sides agreed to set up a working group to conduct a comprehensive study on areas of common concern. During the same visit, both sides also decided to expedite the construction of the Nepal-China free trade zone.

“We carried out a preliminary study in 2016, but dropped the idea because of the asymmetry in the two economies,” the official at the Industry Ministry told the Post. The proposal was later removed from the MoU on the Belt and Road Initiative signed in May 2017 after Nepal’s objections.

Although the joint feasibility study was launched in 2016, negotiations have remained at the consultation stage because of concerns over Nepal’s widening trade deficit with China and regulatory challenges.

According to the Industry Ministry, Vice Minister Yan also said the Chinese government is ready to support the promotion of foreign investment in Nepal. He proposed conducting joint studies on Nepal’s potential export products—particularly tea, medicinal herbs, and other products—similar to those undertaken in other South Asian countries.

“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 environment, and administrative facilitation, could serve as useful lessons for Nepal. He suggested that Nepal adopt an integrated approach to trade and economic reforms,” according to a statement issued by the Industry Ministry.

Yan said China is one of the leading sources of foreign direct investment in Nepal. He expressed confidence that Chinese investment would increase further if Nepal could ensure a more transparent, investment-friendly, and efficient business environment through a one-stop service system for Chinese businesses and investors.

He further observed that Nepal’s Ministry of Industry, Commerce and Supplies and China’s Ministry of Commerce share the common objective of promoting trade and investment, and stressed the need for closer coordination and cooperation between the two ministries in the future, according to the statement issued by the Industry Ministry.

Yan reaffirmed China’s commitment to further strengthening Nepal-China bilateral relations and elevating economic and trade cooperation to a new level. He also said China is willing to facilitate Nepal’s participation in trade fairs and expos held in China and is ready to support the construction and reconstruction of trade infrastructure at the Tatopani and Rasuwagadhi border points.

During the meeting, Minister Kumari emphasised the need to expand cooperation in areas such as trade, investment, industrial development, infrastructure construction, trade facilitation, cross-border infrastructure, private sector collaboration, and supply chain strengthening. She also briefed the delegation on Nepal’s investment-friendly environment, recent legal and policy reforms, and the country’s industrial development potential, saying she was confident that Chinese investment in Nepal’s productive sectors would continue to increase.

During Yan’s meeting with the Finance Secretary Upadhyaya, the two sides also discussed expediting Chinese-funded infrastructure and connectivity projects in Nepal and expanding cooperation in trade and investment.

“We urged them to expedite and complete some of the China funded projects that are at various stages of development, including the Kimathanka-Khadbari road, Hilsa-Simikot road project, Syafrubeshi-Rasuwagdhi road and bridges, among others,” a Finance Ministry official said. “They, in turn, asked us to create a more conducive business environment for Chinese investors and businessmen in Nepal.”

They also proposed signing a BIA and sought Nepal’s support in the World Trade Organization’s arbitration and dispute settlement mechanism.

China has been one of the most active participants in the WTO dispute settlement system over the past two decades. The Chinese delegation also sought Nepal’s support for China’s position on critical and strategic minerals.

China first proposed a BIA in 2012 after Nepal and India signed a similar agreement in 2011, which is currently under challenge in the Supreme Court. The two countries agreed in principle to sign BIA in 2014 and exchanged draft texts.

After reviewing China’s draft, Nepal sent its comments and proposed revisions and sought Beijing’s endorsement. Nepal has already signed bilateral investment protection agreements with six other countries, including France, Germany, Britain, Mauritius, Qatar, Finland and India.

“We have a framework for bilateral investment protection agreement, and under that broader understanding, we are prepared to sign the agreement,” a joint secretary at the Finance Ministry said. “We told them we are open to further negotiations.”

According to officials, the proposed draft covers investment promotion, the creation of a favourable investment climate, investor protection, and security guarantees, among other things.