China and Nepal are set to jointly study the possibility of having a free trade agreement after a top-level meeting in Beijing on Monday.

According to a news release on the website of China's Ministry of Commerce, the two countries signed a memorandum of understanding on a joint feasibility study of a free trade agreement (FTA).

Observers said that the move is China's further efforts to expand trade with South Asian nations and to improve economic cooperation between China and neighboring countries in South Asia.

Compared with already upgraded FTAs between China and the Association of Southeast Asian Nations in 2015, "China and South Asia generally lag behind in economic cooperation and interconnection," Hu Shisheng, director of the Institute of Asian and African Studies at the China Institutes of Contemporary International Relations, told the Global Times on Monday.

China's Foreign Minister Wang Yi suggested in 2014 that China and India, the largest country in South Asia, sign a bilateral FTA during a visit to India.

However, little progress has been made since a joint feasibility study on regional trade agreements was first initiated in 2005.

"The difficulties in promoting trade between China and India are closely related to the unsolved border issue," Hu said.

Factoring in the political stability which Nepal has achieved since the promulgation of a new constitution in September as well as a more stable China-India relationship, Nepal could be a frontier market for China to enter the entire South Asia, according to Hu.

The move can also be seen as a friendly gesture, which may encourage other countries in the region to consider FTAs with China, Hu said.

FTAs require support work, including interconnection between the two countries' infrastructures, building of cross-border economic zones and agreements on transit trade, according to the expert.

Therefore, "Nepal's endowment of resources including its favorable geographical position between two giant markets, water resources and cultural resources for tourism" would be better exploited to underpin the country's development, he added.

On Sunday, Oli said in an interview with Xinhua that China's Belt and Road initiatives offer new opportunities for Nepal, an inland country, to conduct trade exchanges with the world in a freer and wider pattern through China.

Chinese Premier Li Keqiang met with Nepali Prime Minister K. P. Sharma Oli at the Great Hall of the People on Monday, and signed bilateral cooperation agreements in fields like transportation, cross-border trade, energy and finance.