analysis Asia
Floods expose fragility of Nepal’s bid to reduce trade dependence on India through China
Deadly floods have destroyed Nepal’s main overland trade route with China, highlighting the challenge Kathmandu faces as it tries to reduce its heavy economic dependence on India.
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KATHMANDU/BEIJING: More than six decades ago, Nepal's King Mahendra defied concerns about opening his Himalayan kingdom to communist China and backed the construction of a highway from Kathmandu to the Tibetan frontier.
It was both a road and a statement of intent: landlocked Nepal, overwhelmingly dependent on India for access to the outside world, wanted another way north.
Amid fears that the highway could become a conduit for Chinese influence, Mahendra famously said that “communism does not travel by taxi”.
Since then, Nepal has sought greater connectivity with China partly as an economic counterweight to its overwhelming dependence on India, the country’s largest trading partner and the source of about 60 per cent of all its imported goods.
The latest deadly floods, which wiped out Nepal’s principal trading route with China, have exposed the physical vulnerabilities of that strategy just as trade, investment and geopolitical importance have grown with its northern neighbour, experts told CNA.
On Aug 26, the collapse of part of a glacier and underlying bedrock triggered a devastating flood through the Bhote Koshi-Trishuli river system in north-central Nepal.
The death toll from the flood stands at 1,357 as of Sep 9, with more than 5,300 people still missing. It also destroyed critical infrastructure along a trade corridor used heavily for Chinese garments, footwear, consumer electronics and, increasingly, electric vehicles (EVs).
At least 55km of road needs to be rebuilt, while more than 100 bridges were damaged or destroyed in Nepal, according to the country’s disaster authority.
Critically among the ruined infrastructure was the Rasuwagadhi-Gyirong border crossing with Tibet, which handles close to 11 per cent of Nepal’s imports from China and nearly half of its relatively small exports in the other direction.
“Because of the disaster, we are in an unimaginable situation right now. We lost all the trucks that were in the process of bringing goods from across the border,” said Bhagwan Thapa, an importer for Musa Logistics, a company that specialises in cross-border trade with China.
“All the goods that had arrived for the festival season have been carried away. Half of the cargo vehicles are no more,” he told CNA.
“VERY CHALLENGING” GEOGRAPHY
For decades, that original highway commissioned by King Mahendra, running northeast from Kathmandu to the border at Tatopani, provided Nepal’s main overland trade connection with China.
A second route, running north from Kathmandu through Rasuwa district to the Rasuwagadhi-Gyirong crossing, opened shortly before Nepal’s devastating 2015 earthquake.
When the quake badly damaged the old Tatopani route, trade shifted west to Rasuwagadhi. The newer crossing eventually became Nepal’s most important overland trade route with China.
Its rise came despite a precarious approach on the Nepalese side, where sections of road cling to steep mountainsides above the river, leaving the corridor highly exposed to floods and landslides. The route was also closed for several months last year after flooding caused extensive damage.
“The geography is very challenging, and in hindsight, one can always argue that we should not have built a road there,” said Paras Kharel, executive director of South Asia Watch on Trade, Economics and Environment, a Kathmandu-based NGO, referring to the route to Rasuwagadhi.
The destruction leaves Nepal with few alternatives. It could take years for operations to return to normal at Rasuwagadhi, experts said, given the likely ongoing damage risks in the area.
Tatopani, which is also reached through a steep, wet and geologically unstable gorge, has been closed to cross-border trade by China since Aug 29 because of landslide risks on the Nepali side.
That leaves the high-altitude crossing at Korala in Mustang as Nepal’s only operational land trade gateway with China. Cargo is being rerouted there, but the corridor remains underdeveloped and its extreme altitude of about 4,650m leaves it vulnerable to cold, heavy snow and seasonal disruption.
“Korala is over 400 km away with harsh geography and high altitude issues. It can operate for a month at most. However, it's a necessity right now for 2,000 to 3,000 containers en route for the festive season,” said Ram Hari Karki, president of the Nepal Trans Himalaya Border Commerce Association.
Nepal cannot escape the constraints of geography, or the growing threat posed by landslides, floods and other disasters - which scientists say are more likely to occur due to climate change - to its connectivity with China, Kharel told CNA.
“I wouldn't say that our strategy has failed. It's just that we need more diversified routes, and when developing alternatives, the geological conditions and how prone they are to landslides must also be taken into account,” he said.
Chinese analysts acknowledged that geography and growing disaster risks posed a persistent challenge to Nepal's northward connectivity, but pushed back against the idea that they imposed a hard limit on deeper economic ties with China.
Poor terrain and frequent natural disasters were "unavoidable practical challenges" for China-Nepal trade routes, said Huang Yunsong, professor and deputy dean of the School of International Studies at Sichuan University.
But some disruptions could be mitigated through engineering, while others reflected geological vulnerabilities that could never be eliminated entirely, he said.
"That does not mean these routes are unviable," Huang told CNA.
Rather than trying to keep every route permanently open, he said the priority should be to build a more resilient network, with stronger disaster protection, alternative crossings and joint China-Nepal monitoring and early-warning systems.
Liu Zongyi, senior research fellow and director of the Center for South Asia Studies at the Shanghai Institutes for International Studies, similarly viewed the latest damage at Gyirong as a serious but temporary disruption.
The recent debris flow there was historically "extremely rare", Liu said, while climate change could make such events more frequent.
A key weakness, he added, lay in the disparity in infrastructure on either side of the border. "Infrastructure on the Chinese side is very well-developed," Liu said.
"The problem is on the Nepalese side," he added, describing roads, bridges and other facilities in some areas as poor or extremely limited.
Nepali experts agreed, saying that roads on the Chinese side had historically proven more resilient despite difficult terrain, pointing towards deficiencies in Nepal's construction and investment.
“It stems from government neglect. Rasuwa won't recover for two or three years. Long-term investments like tunnel construction along vulnerable areas are needed,” Karki said.
MEMORIES OF A BLOCKADE
As Nepal reeled from the 2015 earthquake, which claimed nearly 9,000 lives and caused about US$7 billion in damage and economic losses, it faced a secondary crisis as a blockade along its border with India choked off fuel and other essential supplies.
Kathmandu accused New Delhi of enforcing the blockade, a charge India denied.
The restrictions quickly caused acute shortages of fuel, cooking gas, medicines and other essential goods, further hampering a country struggling to recover from the disaster.
For Kathmandu, the crisis also exposed the strategic risks of relying overwhelmingly on its southern neighbour for access to essential supplies. More than ever, Nepal began looking north to China for an alternative, said Mahesh Kumar Maskey, the Nepali ambassador to China at the time.
Maskey said policymakers explored whether about one-third of Nepal's essential trade could instead be supplied through China, providing a buffer against future disruptions.
“That would still give us a way to survive, like a cushion in a crisis,” he said.
“That was Nepal's very open standing and that's how we tried to negotiate with China,” he said.
Months after the blockade, Nepal signed a landmark transit agreement with China, giving the landlocked country an alternative route to the sea through Chinese territory.
An implementation protocol followed in 2019, although the facility has yet to be put into practical use.
China was already Nepal’s second-largest source of imports, accounting for about 13 per cent in 2015. A decade later, that share has risen to about 20 per cent, although India remains dominant at nearly 58 per cent.
The political determination produced by the blockade ultimately ran up against geography and economics. Chinese fuel was more expensive and difficult to transport across the Himalayas, while, by 2019, India offered a dedicated cross-border petroleum pipeline.
Kharel argued that successive Nepali governments had failed to make the investments needed to turn their long-standing diversification strategy into reliable northern connectivity.
“Despite the fact that in the span of over four decades China was rapidly growing, and all eyes of the world in terms of economic power was directed at China, we just kind of slept over that momentous change,” he said.
Even before the latest disruption, 50 to 60 per cent of Nepal's imports from China travelled by sea to India and then overland into Nepal.
That is a route that typically takes more than twice as long as by land. For certain time-sensitive items like fresh food, there will be issues in the near term if land connectivity is hampered, Thapa said.
Small and medium businesses that cannot import in bulk may also suffer from higher prices or delays for their goods.
There are also likely to be supply constraints for Chinese EVs, which have surged in popularity in Nepal in recent years.
Chinese models accounted for about three-quarters of the value of Nepal’s EV imports last fiscal year, with 9,640 vehicles imported from China. Rasuwagadhi has been particularly important to that boom.
A SOUTH ASIAN CORRIDOR?
The stakes extend far beyond getting Chinese clothes or EVs into Kathmandu.
China and Nepal have spent years discussing Belt and Road Initiative (BRI) infrastructure, north-south corridors and eventually a railway across the Himalayas.
The BRI is a vast infrastructure and investment programme launched by Chinese President Xi Jinping in 2013 to finance roads, railways, ports and energy projects across dozens of countries.
Behind those projects lies a grander idea pursued by Kathmandu for years: Nepal as a bridge between China and South Asia.
But the latest disaster raises more questions about what it would take to realise that ambition.
For larger BRI projects, Huang of Sichuan University said climate and geological risks would increasingly have to be factored into feasibility studies, route selection and life-cycle costs. That could mean higher engineering standards and localised route changes in particularly risky areas, he said.
"Taking risks seriously does not mean blindly slowing projects down or simply cutting their scale," Huang said. Instead, the emphasis should shift from construction speed and scale towards safety and resilience, he said.
Beyond engineering, Liu of Shanghai Institutes for International Studies said geopolitics would also shape how far Nepal could develop into a broader China-South Asia corridor.
Nepal "does want to become a corridor connecting China and South Asia, but I think that is very difficult", he said.
Liu said Nepal's ambitions would also depend on the wider relationship between China and India. Tensions between the two neighbours complicate prospects for greater regional connectivity, he said.
For Beijing, connectivity with Nepal was important but not uniquely so compared with China's other neighbours, he said.
For landlocked Nepal, however, the stakes were greater. "If it wants to connect with the outside world, apart from India, there is (only) China," he added.
China may have both the willingness and capability to help improve infrastructure on the Nepalese side of the border, but Liu said the obstacles went well beyond engineering.
Practical hurdles within Nepal were significant, he added, pointing to difficulties coordinating between different levels of government, as well as questions over funding, land acquisition and relocation.
Any Chinese involvement would also have to navigate questions of sovereignty and national security, as well as India's geopolitical concerns, he said.
Maskey was optimistic, saying Nepal was well-placed to benefit from its position between China and India if the two powers found ways to cooperate.
“I think India will change their mindset,” he said, believing India would eventually see benefits in greater Nepal-China connectivity, including the possibility of Indian goods using the same corridors.
Whatever the wider geopolitical calculations, Maskey said the destruction had reinforced rather than diminished Nepal's need for a northern connection.
“There’s no doubt that we have to have built this connectivity with China in spite of all the disasters, but how do we do that? How do we make it safe?” he said.
“This is something now both sides have to consider seriously. That is the lesson we draw from here.”
Additional reporting by Tashi Bista
