Nepal’s construction industry employs approximately one million people — around 13.8% of total employment — and contributes roughly 9.5% of GDP. It is not a glamorous sector. But it is the sector most directly exposed to the structural terms of Chinese-financed infrastructure, and those terms have generally not served Nepali firms well.
When the China EXIM Bank or a Chinese state development bank funds a project in Nepal, the accompanying procurement arrangements tend to favour Chinese enterprises. According to World Bank research, more than 60% of Chinese-funded infrastructure projects globally are awarded to Chinese firms — roughly double the rate seen in projects funded by non-Chinese institutions. This is not necessarily the result of explicit contractual sourcing mandates written into loan agreements, whose terms are often not made public. It reflects procurement dominance that operates through related-party relationships, tied financing structures, and the competitive advantages that vertically integrated Chinese state firms bring to bid processes. The practical effect in Nepal is consistent: Nepali construction firms tend to work as subcontractors on the least technically demanding portions of large projects, while the contracts that build capability and generate profit go to Chinese enterprises.
This pattern is not unique to Nepal. The same criticism has been levelled at Chinese infrastructure lending across sub-Saharan Africa, Pakistan, and several Southeast Asian economies. Defenders of the model argue that recipient countries lack the industrial capacity to supply what large infrastructure projects require, and that Chinese firms are filling a genuine gap. Critics from local industry associations counter that the gap would close faster if financing terms created space for domestic firms to develop into it. Nepal’s contractors’ associations have lobbied their government repeatedly on this point. The government’s leverage in renegotiating procurement terms with Chinese creditors remains limited — a country seeking a loan is rarely in a position to dictate how that money is spent.
Beyond construction, Chinese investment in Nepal’s manufacturing sector has brought capital and employment, though the picture is more nuanced than often portrayed. The most prominent example of Chinese manufacturing FDI — Hongshi Shivam Cement, a joint venture between a Chinese parent company and a Nepali partner — has actually increased competitive pressure on domestic producers while also lowering cement prices for consumers and pushing other manufacturers to modernise their production processes. Whether this kind of competition is a net benefit or a threat to domestic industrial development depends on the time horizon: in the short term, cheaper inputs; in the medium term, eroded margins for Nepali producers who cannot match the scale of their Chinese-linked rivals.
One important corrective to the article’s original framing: Nepal’s southern industrial corridors around Birgunj and Bhairahawa are more closely integrated with Indian supply chains than Chinese ones. Industrialists in the region note that raw material dependence has, if anything, shifted further toward India rather than China, given the logistics of cross-border trade through Nepal’s southern Terai border points. The competitive threat that Chinese manufacturing capital poses to Nepali industry is therefore more about market dynamics in overlapping product categories than about Chinese factories directly cross-subsidised by Chinese inputs.
What is undeniable is that Nepal’s industrial development trajectory is being shaped significantly by external capital—Chinese and Indian alike—rather than by domestic entrepreneurial capacity. Whether that results in genuine technology transfer and capability-building for Nepali workers and firms, or simply substitutes foreign production for domestic, is the central question that Nepal’s industrial policy has yet to answer.
