Over the past decade, Nepal has repeatedly found itself debating how to navigate competition among major powers. The U.S. Indo-Pacific Strategy, the Millennium Challenge Corporation (MCC) compact, and China’s Belt and Road Initiative (BRI) dominated the foreign policy discourse in Kathmandu.
Later, debates emerged regarding China’s newer initiatives, such as the Global Security Initiative (GSI) and the Global Civilization Initiative (GCI). China openly objected to America’s MCC compact, while Western countries cautioned Nepal that launching projects under the BRI could lead the country into ‘a debt trap.’
Now, such debates have subsided, but a new geopolitical debate may be approaching Kathmandu—one that will be less about roads, grants, or conventional development projects, and far more about the technology that will shape the next economy. Artificial intelligence (AI) is increasingly a two-horse race between the U.S. and China, leaving non-aligned countries like Nepal dependent on external powers for access, which could subsequently be used as geopolitical leverage.
In December last year, the U.S., along with two dozen partner nations and allies, announced the Pax Silica initiative. In July, Chinese President Xi Jinping announced the World Artificial Intelligence Cooperation Organization, which was signed by 29 countries. Nepal has joined neither initiative. However, China is encouraging neighboring countries to join its framework.
A few days ago, Maoist lawmaker Barsha Man Pun demanded that the government provide clear information to Parliament about whether Nepal plans to join Pax Silica, given its strategic and geopolitical importance. Indications suggest that Nepal will once again face pressure to pick a side and navigate another geopolitical debate.
On August 14, Reuters reported that the United States was preparing to communicate to dozens of countries that they may have to choose between the U.S.-led Pax Silica initiative and China’s rival Artificial Intelligence Cooperation Framework.
Five days later, China pushed back. Foreign Ministry spokesperson Lin Jian stated that countries should determine their AI partnerships according to their own national conditions and development needs, while opposing the creation of exclusive blocks or rival camps.
The emerging U.S.-China contest is no longer simply about whose AI model is better. It is increasingly about who controls the broader technological ecosystem surrounding AI: semiconductors, critical minerals, data centers, cloud computing, energy, telecommunications, standards, talent, and data. This reality makes the issue particularly critical for the countries of Global South.
Nepal has adopted the National Artificial Intelligence Policy 2082, establishing an institutional framework that includes an AI Regulation Council, a National AI Centre, and an AI Excellence Centre. The policy envisions the National AI Centre as a focal point for promoting and regulating AI research, development, and application, as well as coordinating international cooperation on AI. This marks an important development, as Nepal's AI policy is being formulated at the precise moment when AI is becoming a geopolitically sensitive technology.
Nepal's relationship with China provides Beijing with an obvious entry point. In June, Science, Technology and Innovation Minister Mahabir Pun and Chinese Ambassador Zhang Maoming discussed accelerating the implementation of the Nepal-China Science, Technology and Innovation Cooperation Agreement signed in 2023.
Their discussions covered innovation centers, research and development, satellite-data sharing, climate and environmental research, artificial intelligence, digital transformation, and exchange programs for researchers and scientists. Similarly, in meetings with other ministers, the Chinese envoy to Nepal has proposed broader collaboration in AI.
China's role in Nepal's technological development is not merely theoretical; an existing institutional framework allows cooperation to expand rapidly. China holds clear appeal for a developing country like Nepal, offering hardware, infrastructure, digital systems, technical training, and increasingly capable AI models. Beijing's expanding AI diplomacy is directed specifically toward developing nations.
Washington, meanwhile, is expanding its own technological engagement with Nepal. In July, the U.S. Embassy and Nepali partners organized an event titled "AI & Economic Transformation: Unlocking New Opportunities for U.S.-Nepal Partnership," bringing together entrepreneurs, policymakers, academics, and tech leaders. U.S. Chargé d'Affaires Scott Urbom affirmed Washington's commitment to supporting Nepal's digital transformation and helping local innovators leverage AI for economic growth. This forms part of a broader American effort to deepen economic and technological ties with Nepal. The significance of this engagement should not be understated.
For Nepal, however, this is not purely a U.S.-China dynamic. It is a four-way dynamic involving the U.S., China, India, and Nepal. India joined Pax Silica in February 2026, signing the declaration with the United States at the India AI Impact Summit in New Delhi. This decision is crucial for Nepal. The Pax Silica initiative focuses on critical minerals, semiconductors, AI, and the broader tech supply chain.
In June this year, Nepal and India signed a Memorandum of Understanding (MoU) to collaborate on AI-empowered multilingual language technologies and digital public infrastructure. Simultaneously, the Indian Embassy in Kathmandu and various business entities are working to strengthen bilateral cooperation in AI and emerging technologies. India is not simply a distant tech power; it is Nepal's immediate southern neighbor and primary economic partner. India is pursuing its own distinct AI ambitions rather than acting as a mere extension of Washington or Beijing.
This creates a complex balance for Kathmandu. Nepal's relationship with China carries strong geographic and strategic weight. Its relationship with India is indispensable due to geography, shared culture, and economic interdependence. Its relationship with the United States increasingly encompasses technology, education, entrepreneurship, and digital transformation. AI connects all three relationships—encompassing hardware, cloud computing, AI models, standards, and data, which remains the most strategic asset of all.
Another dimension could elevate Nepal's position in the global AI economy beyond what its current technology industry suggests: energy. Nepal's vast hydropower potential could position it as an attractive destination for green data centers. Nepal can maintain political non-alignment while engaging multiple technological partners without taking explicit sides.
