Nepal vs Anti- Corruption

3 Main Points

Gen-Z anti-corruption protests and Oli’s fall disrupted Nepal’s China-leaning tilt, creating

uncertainty for BRI and opening space for India to re-engage ahead of 2026. Nepal’s political

reset will shape India–China competition in the Himalayas, with governance stability, not

military alignment, deciding future influence in South Asia.

About the Authors

Priya is an International Studies student at

Leiden University, specializing in East Asia.

As the President of the BASIS East Asia

Committee, she has organized events

focused on regional politics, human rights,

and cultural diplomacy. Priya's interests

include diplomacy, human rights, and

conflict resolution, and she is passionate

about exploring the intersection of policy,

culture, and international development in

the Indo-Pacific region.

Francis Perdon is currently the Philippines

Country Lead for 'Investing in Women', an

Australian Government initiative. He has a

decade of experience working on public,

foreign, and development policies across a

range of professional settings, including in a

regional organization, academe and

diplomatic mission. He also had short stints

working for a bilateral donor project

focused on higher education, and in a

management consulting firm specializing in

Australian public policy. He received his

Master of Public Policy and Management

(First Class Honors) as part of the Dean's

Honors List from The University of

Melbourne, and was admitted to the

Certificate of Advanced Studies in Public

Governance and Administration (CAS PGA)

programme at ETH Zurich.

Nepal vs Anti- Corruption

Abstract

Nepal’s Gen Z–led anti-corruption movement culminated in the resignation of Prime

Minister K. P. Sharma Oli, marking a watershed moment in the country’s political trajectory.

Oli’s ouster signaled a potential recalibration of Nepal’s foreign policy, particularly in its

strategic balancing between China and India. Beijing’s economic stakes under the Belt and

Road Initiative face new uncertainties amid concerns over Nepal’s governance capacity,

while New Delhi has responded swiftly to mitigate regional spillover and safeguard its

strategic security interests. The appointment of interim Prime Minister Sushila Karki

introduces a technocratic leadership whose foreign policy orientation remains to be defined.

As Nepal prepares for elections in 2026, its political stability will be pivotal not only for

domestic renewal but also for shaping the future dynamics of South Asia’s regional security

architecture.

Introduction

On 9 September 2025, Nepal’s Gen Z–led anti-corruption movement reached a dramatic

climax. What began as youth-driven demonstrations against entrenched patronage and

impunity escalated into the resignation of Prime Minister K. P. Sharma Oli and the storming

of state institutions, culminating in the effective overthrow of the government. The protests,

coordinated largely through digital networks and marked by unprecedented participation of

young citizens, signaled a generational rejection of elite capture and institutional failure.

This episode is more than a domestic turning point for Nepal, and one that could potentially

turn into an international flashpoint. Holding their breaths are two countries whose strategic

equilibrium is balanced at the peaks of the Himalayas: China and India. For Kathmandu,

Beijing represents a critical trade and infrastructure partner, the latter delivered under the

ambit of the Belt and Road Initiative (BRI). New Delhi, on the other hand, maintains

significant cultural and religious relations in addition to deep people-to-people ties.

Both these political and economic heavyweights are suspicious of each other’s growing

influence in Nepal and the broader South Asia. In this context, Nepal’s political stability

becomes a critical variable not only in the regional security calculus, but also in the future

tenor of the China-India relations. This brief explores Nepal’s relationship with India and

China and its strategic balancing act; the implications of the regime change ushered by the

anti-corruption movement on Beijing and New Delhi’s engagement; and the broader

consequences for South Asia’s regional stability.

1. Nepal’s Balancing Act

Nepal has a legacy of balancing ties with its neighbouring regional powers. As a small,

landlocked country bordered by China to the north, and surrounded by India, Nepal’s foreign

policy posturing consistently displayed cordiality and pragmatic engagement between its

two neighbours as a way to protect its national interest and territorial sovereignty1

. As a

‘historic buffer state’, its interest is mediated by a delicate interplay of its economic and

border security objectives, though its relationship with China often overstates the

commercial and development imperatives, challenging India’s longstanding position.

A clear indication of Nepal’s economic (re-)alignment was deposed Oli’s first official visit to

China in December 2024 - a departure from the traditional pilgrimage of newly instituted

political leaders to India. And this historic visit bode well for Nepal: the two sides noted their

readiness to sign a memorandum of understanding on the construction of the

Trans-Himalayan Multi-Dimensional Connectivity Framework and the Framework for Belt

and Road Cooperation. These arrangements supported Nepal’s vision to be transformed

from a “land-locked.. to a land-linked country” with joint investments in ports, roads,

railways, aviation, power grids and telecommunication. China is also one of the major donor

countries in Nepal, and is the first country to sign a bilateral economic aid agreement in

1956.

1 Dahal, G. (2018). Foreign Relation of Nepal with China and India. Journal of Political Science, 18,

46–61. https://doi.org/10.3126/jps.v18i0.20439

While the economic engagement with China has consistently been spotlighted, Nepal’s trade

ties with India should not be downplayed. Kathmandu is a major destination of Indian

exports, especially oil and food valued, with bilateral trade valued at USD8.5 billion annually.

Despite this, Nepal-Indian relations had more ups and downs, considering the ties founded

on shared culture, religion and trade. Government-to-government relations have been

volatile, especially around tense border disputes peppered with nationalist sentiment. More

recently, India had to play catch-up with China’s growing influence, due to Kathmandu’s

perceived inability of Indian Prime Minister Narendra Modi to effectively operationalise the

‘Neighborhood First Policy’

2

, New Delhi’s strategy to bring back economic, and security

development to its near-neighbours and to the subcontinent. This strategic void was swiftly

occupied by a more assertive and economically agile China, which increasingly positioned

itself as a responsive and dependable partner, particularly in the eyes of Nepal’s political

elite.

It is apparent that Nepal intends to benefit from both its Sino and Indian relations, while

being cautious to avoid the trappings of great power politics. Central to Nepal’s strategic

balancing posture is Kathmandu’s assertion of an independent foreign policy, an objective

that remains difficult to sustain amidst recurrent political instability and fragmented

governance.

2. Nepal’s 2025 Gen Z protest and implications to Chinese and Indian relations

On 8 September 2025, tens of thousands of young people came to the streets to protest

against corruption and nepotism, further aggravated by a government ban on social media

platforms. What followed next were images reported across the globe - the ransacking of

the parliament and scores of politicians' homes set ablaze. Similar anti-corruption uprisings

have also been seen in Indonesia and the Philippines. The following day, Oli had announced

his resignation. In a landmark political development, Nepal appointed former Chief Justice

Sushila Karki as interim Prime Minister, marking a historic moment as she became the

nation’s first female head of government.

2

Imran, S. (2021). Sino-Indian Strategic Balancing in Nepal. Strategic Studies, 41(1), 67–86.

https://www.jstor.org/stable/48732269

With Oli’s predisposition towards Beijing, his removal from office signalled a potential

realignment in Kathmandu. Official Chinese response however, was more measured,

emphasising the two countries’ “time-honored friendship” at the heels of Karki’s

appointment. It was reported that Chinese media outlets have acknowledged that Nepal’s

governance challenges - characterised by endemic corruption and institutional fragility -

pose significant risks to the efficacy of local institutions. These structural weaknesses are not

merely domestic concerns but carry strategic implications for the viability and long-term

sustainability of Chinese investments under the BRI. The operational success of BRI-linked

projects in Nepal - at least in the eyes of regular Nepali citizens - will ultimately hinge on the

capacity of local institutions to uphold transparency, regulatory coherence, and

administrative competence. However, the Oli government’s proposed social media

restrictions - widely interpreted as emulating Chinese models of censorship - may lead to

aversion to pro-China political figures, at least in the short-term.

This opens an opportunity for New Delhi to reengage. India has seen its near-neighbours

confront similar political turmoils, such as in Bangladesh in 2024 and Sri Lanka in 2022. But

the situation in Nepal has made India respond more quickly than the other civil disorders in

the subcontinent, with Modi swiftly reacting to unfolding events over X (formerly Twitter)

and activating an emergency security meeting with his cabinet. This can be expected, given

the large number of Nepali diaspora in India - at about 3.5 million - and without restrictions,

making it apparent for India to contain any spill-over effects, especially on the potential

breakdown at the borders. Prolonging the unrest would also have repercussions on India’s

energy security, such as its Arun-3 and Phukot Karnali hydropower projects in Nepal. New

Delhi also needs to walk a tightrope in engaging Nepal’s new government, considering its

close affiliation with Kathmandu’s major political parties, or build fresh ones with the newly

installed government.

Given Karki’s technocratic credentials and her background in the judiciary, it remains

premature to assess the contours of her foreign policy disposition. A major consideration for

her government is how it could harness international support to prepare for the elections on

5 March 2026, and one that is credible for China and India, and other key bilateral partners.

3. Conclusion and broader implications for South Asia’s security

Certainly, Oli’s exit from Nepal’s politics caused complications for China, and the manner by

which he was ousted was a security challenge for India. It is critical for both China and India’s

long-term interests that Nepal remain stable and peaceful. Recognising its inherent

geopolitics, Nepal would need to maintain its balancing act to advance its own interest with

pragmatism. For Beijing, Kathmandu would need to demonstrate that it is a serious

economic and development partner sufficient for sustained Chinese investments. For New

Delhi, Kathmandu can reopen dialogues on longstanding issues, such as on the border, to

arrive at a peaceful resolution, while stimulating two-way trade, especially on service and

digital sectors.

The Gen Z-led democratic renewal in Nepal can have broader implications in the security of

South Asia. Aside from China and India, Pakistan also monitored the situation closely given

its historical ties, albeit with limited strategic significance for Nepal. This demonstrates that

any political vacuum within Nepal would be a cause of concern for South Asian countries,

not only because of the spill-over effects, but also how governance and economic challenges

- such as youth unemployment, widespread corruption, and elite impunity - can become

drivers for deteriorating security situation and tools for opportunistic forces.