The Chinese government has pledged aid totalling NRs1.4bn (US$19m) to the Nepalese Army to finance infrastructure development. On March 24th two separate agreements were signed in the capital of Nepal, Kathmandu, by General Chen Bingde, the chief of staff of the Chinese PLA, and his Nepali counterpart, General Chhatra Man Singh Gurung. General Chen's visit to Nepal was the first by a high-level Chinese military delegation in ten years. His arrival in Kathmandu at the head of a 15-member delegation followed a visit to the Nepali capital in late February by China's vice-commerce minister, Fu Ziying. Mr Fu announced a loan of Rmb640m (US$98m) through the state-owned Export-Import Bank of China to finance a hydropower project, along with a grant of Rmb50m to extend and widen the ring road surrounding Kathmandu. The two visits are likely to cause some concern in India, which has historically considered Nepal to be firmly within its own sphere of influence.

Competition between China and India has intensified in recent years, often with destabilising consequences for Nepal. The UCPN (M) has traditionally sought to use China as a counterweight to India's influence in Nepal and has called repeatedly for a revision to the 1950 India-Nepal Friendship Treaty, a bilateral treaty establishing a close strategic relationship.

Although it is a small, resource-poor country, Nepal is strategically situated between Asia's two emerging superpowers. It also shares a border with Tibet and is home to a community of around 20,000 Tibetan exiles. Popular demonstrations are commonplace in Kathmandu, and the police allow most to occur without interference. However, the authorities have no tolerance for anti­Chinese rallies. On March 10th baton-wielding riot police dispersed a demonstration by hundreds of Tibetan exiles to mark the 52nd anniversary of a failed uprising against China. The 1959 uprising led to the flight to India of Tibet's spiritual leader, the Dalai Lama. In mid-February police prevented exiled Tibetans from electing new leaders to the Chushi Gangdruk, a welfare organisation that campaigns against the Chinese occupation of Tibet. Police in Kathmandu seized ballot boxes to prevent the election from taking place.