Nepal's relationship with its northern neighbour, Tibet, was cemented when the Nepali princess Bhrikuti Devi married the king of Tibet, Songtsan Gampo, in the seventh century AD and earned the divine title White Tara. Thereafter, hundreds of Nepali artisans visited Tibet to build monasteries; and trade in bronze, gold and silver idols of Tara and other deities became one of the cornerstones of commerce between the two countries. For Nepal, Tibet was a more immediate entity than China, for thinking of distant Shanghai as a city with which to do business was farfetched.
During the mid-16th century, a treaty was signed between Nepal and Tibet that made Kathmandu the sole entrepot for the latter. In a fairly short timeframe, this allowed the ethnic Newar merchants of the Kathmandu Valley to build a roaring business with Tibet, trading with goods to and from India. However, defeat to a Chinese expedition force in 1792 changed Nepal's fortunes till trade was restored in 1856, when Nepal invaded Tibet and forced the trade routes to re-open. The Newar merchants again began to set up businesses in Lhasa, where they could trade goods from India and other parts of the world for gold and silver.
Newly communist China invaded Tibet in 1950, the same year that Nepal's first flirtation with democracy began after the end of the autocratic Rana regime and the reinstatement of the Shah kings. The relationship with Tibet quickly came under review, particularly in the context of an India that was at the time attempting to play a dominant role in Nepal, while King Mahendra attempted to play Nepal's 'equidistance' card between India and China. Kathmandu subsequently agreed to Tibet being a part of China by substituting an ambassador in Lhasa with a consul-general. Nepal signed a comprehensive friendship treaty with China in 1960, and the following year construction began on a highway connecting Kathmandu with Lhasa, though this did not see commercial use for long. The 1962 India-China war changed the equation again, however, as India became increasingly concerned about Nepal's position vis-à-vis China, leading to New Delhi's agreement to a more flexible trade-and-transit treaty with Nepal. In turn, by 1964, Beijing agreed to unfreeze the bank accounts of Nepali traders in Lhasa, leading again to a resumption of trade relations between Lhasa and Kathmandu.
Yet over time, India's role in Nepal's geopolitical scheme remained dominant, despite Kathmandu's attempts to prop up the Beijing relationship as a counterbalance. While China supported King Birendra's Zone of Peace proposal for Nepal during the 1970s and 1980s, India saw it as an attempt by Nepal to wriggle out of its sphere of influence. India rejected the concept and Nepal itself dumped the proposal after democracy's second coming, in 1990. India's geopolitical supremacy vis-à-vis Nepal was thus confirmed, yet again. In 1989, the import of arms by Nepal from China without the knowledge of the Indians led to the imposition of a trade embargo by New Delhi. While this action sparked international condemnation of India, it did weaken King Birendra's authoritarian power, giving way to a constitutional monarchy. In the democratic era after 1990, India continued in its privileged place in Kathmandu's radarscope. The rush of Indian multinationals investing in Nepal further consolidated its position. It was only in 1994, after the Communist Party of Nepal (Unified Marxist-Leninist) won general elections that the relationship with China was revisited. The recent electoral success by the former Maoist rebels is a further extension of this, as the comrades just out of the jungle have sought rather desperately to woo Beijing.