Title: Chinese FDI in Nepal


Year of Publication: 2020

Foreign Direct Investment (FDI) in Nepal has shown significant growth over the years, with over 5,000 registered projects and a total proposed foreign capital of approximately $2.9 billion as of 2020. The majority of these projects are small-scale, concentrated in the service and tourism sectors. From 2008 onwards, FDI inflows have increased steadily, with a notable surge since 2012. The period between 2016 and 2020 accounted for nearly half of the total net FDI inflows from 1995 to 2019, with 2018 marking a record high of $152 million, largely driven by Chinese investments.

Chinese FDI in Nepal has seen a dramatic increase, growing by 17,876% from 2005 to 2020. The most significant jump occurred in 2018, with $404 million in approved investments. By 2020, China (including Taiwan) had the highest FDI commitments in Nepal, followed by India, the UK, and the US. Even during the COVID-19 pandemic, China pledged NRs 5.50 billion in the tourism sector in early FY 2020/21. Chinese investments have been bolstered by Nepal’s policy changes, such as allowing 100% FDI in the hydropower sector, which has attracted substantial Chinese capital.

Despite the substantial inflows, the detailed impact of Chinese FDI on Nepal’s economy remains unclear, especially beyond the energy and manufacturing sectors. Challenges in tracking and regulating these investments include issues like unauthorized use of Chinese digital wallets for transactions, which bypass local taxes. The integration of Chinese investments and workers in Nepal is expected to have significant economic, social, cultural, and political implications, highlighting the need for more robust monitoring and regulatory mechanisms to ensure these investments benefit the country comprehensively.