China is Nepal's second-largest trading partner by total volume, but the relationship looks nothing like Nepal's trade with India. Where India buys a meaningful share of Nepal's exports, China barely does — in FY 2025/26, Nepal exported goods worth just Rs 1.89 billion to China while importing Rs 425.25 billion, one of the most lopsided bilateral trade relationships Nepal has with any major partner. Here's how the Nepal-China trade and transit relationship actually works, and where it's headed.
Overview of Nepal-China Trade Relations
China is consistently Nepal's second-largest source of imports, supplying everything from construction steel and machinery to consumer electronics and fresh produce. On the export side, the relationship is minimal — Nepal's exports to China fell 28% year-on-year in FY 2025/26 to just Rs 1.89 billion, driven by weak demand for traditional Nepali handicrafts, carpets, and garments in the Chinese market, with pashmina one of the few categories showing resilience. The result is Nepal's second-largest bilateral trade deficit after India, at Rs 423.35 billion for the year.
Key Trade & Transit Points (Tatopani, Rasuwagadhi, Kerung)
Nepal and China agreed in 2012 to open six dedicated land trade routes: Humla, Korola, Rasuwagadhi, Tatopani, Olangchunggola, and Kimathanka. In practice, only a couple of these have carried significant commercial volume in recent years. The Rasuwagadhi-Kerung crossing, operational since 2014, has become the more consistently active route, particularly after China reopened it following extended COVID-era closures. Tatopani, historically Nepal's primary land gateway to China before the 2015 earthquake severely damaged the route, has continued operating in a more restricted capacity. In the first ten months of FY 2025/26, Tatopani handled Rs 37.11 billion in imports and Rasuwagadhi handled Rs 28.27 billion — together representing the large majority of Nepal's overland trade with China.
The Nepal-China Transit Transport Agreement Explained
Nepal and China signed a Transit and Transportation Agreement in 2016 — a strategically significant deal that, on paper, gives Nepal access to seven Chinese land and sea ports for third-country trade, reducing Nepal's total dependence on Indian ports for imports and exports beyond the immediate region. In practice, implementation has been slow: bringing the agreement fully into effect requires both countries to formally confirm their domestic legal frameworks are aligned with its protocol, a step that has taken years longer than either side initially anticipated. Successive Nepali governments have continued to push for full activation, viewing it as a genuine strategic hedge against complete reliance on India for access to the sea.
What Nepal Exports to China
Pashmina has emerged as one of the more resilient Nepali export categories to China even as broader handicraft exports have declined sharply — in certain recent periods, pashmina exports to China rose even as overall exports to the market fell by double digits. Beyond pashmina, Nepal has periodically exported smaller volumes of handicrafts, herbs, and plant-based products, along with occasional agricultural niche items. None of these come close to offsetting the overwhelming import imbalance, and Chinese demand for traditional Nepali handicrafts and carpets has softened considerably in recent years amid competition from lower-cost domestic Chinese producers.
What Nepal Imports from China
China supplies Nepal with an unusually broad range of goods — iron and steel products, machinery, plastics, electrical goods, textiles, synthetic yarn, and chemicals of nearly every category, alongside consumer items like fresh fruit (Chinese apples alone have been a notable import line item), walnuts, and garlic. This breadth reflects China's role as a manufacturing and agricultural supplier across categories, rather than Nepal depending on any single Chinese commodity the way it depends on Indian petroleum, for instance.
Challenges: Terrain, Infrastructure, Seasonal Closures
The Himalayan terrain along the Nepal-China border is the single biggest structural constraint on this trade relationship. Roads through Tatopani and Rasuwagadhi are prone to landslides, seasonal monsoon damage, and periodic winter closures at high altitude, making the trade routes considerably less reliable year-round than Nepal's flat, open border with India. The 2015 earthquake severely damaged the Araniko Highway serving Tatopani, and China has periodically restricted crossings for reasons ranging from public health measures to its own domestic policy considerations, leaving Nepali traders with limited redundancy if one crossing point becomes unavailable.
Future Potential: Rail Link & New Trade Routes
The most significant long-term development is the proposed Kerung-Kathmandu cross-border railway — a roughly 75-kilometre line that would connect the Nepali capital directly to the Chinese rail network via Kerung, with a planned terminal at Tokha in Kathmandu. China has funded and largely completed a feasibility study for the project, expected to be handed over to Nepal around mid-2026, though the northern alignment faces real challenges around land compensation, environmental concerns, and extremely difficult mountain geology. Alongside the railway, the two countries have also agreed to advance upgrades to the Syafrubesi-Rasuwagadhi highway, the Araniko Highway, the Tokha-Chhare tunnel, and a Chilime-Kerung 220kV cross-border electricity transmission line — all infrastructure that, if completed, would meaningfully improve the reliability and capacity of Nepal-China trade beyond its current bottlenecks.
FAQs
Which is Nepal's main trade route with China?
Tatopani and Rasuwagadhi (linked to Kerung on the Chinese side) are the two main operational land crossings, together handling the large majority of Nepal-China overland trade.
Does Nepal have a trade surplus or deficit with China?
A large and growing deficit — Nepal imported roughly Rs 425 billion from China in FY 2025/26 while exporting less than Rs 2 billion, making China Nepal's second-largest bilateral trade deficit after India.
Is the Kerung-Kathmandu railway happening?
A feasibility study is underway and expected to conclude around mid-2026, but construction timelines remain uncertain given significant geological, environmental, and financing challenges along the proposed route.
Can Nepal use Chinese seaports for third-country trade?
In principle, yes, under the 2016 Transit and Transportation Agreement, which grants access to seven Chinese ports — but full implementation of the agreement's protocol has been delayed for years.
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