State Councilor Yang Jiechi is leading the delegation on the two-day visit.
Yang is China's highest-ranking diplomat, a post akin to National Security Advisor.
The Chinese delegation is scheduled to meet Nepal's Foreign Minister and Home Minister Madhav Ghimire.
Yang is also scheduled to call on Chairman of Interim Election Government Khil Raj Regmi and Vice President Paramananda Jha tomorrow, according to sources at the Council of Ministers.
As per media reports here, two agreements will be signed during his visit - one with Nepal's Election Commission, where China will provide NRs 155.50 million for Nepal's Constituent Assembly polls in November.
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During his visit to Nepal last year, former Chinese Premier Wen Jiabao had exchanged notes on Chinese assistance in building the police academy.
Earlier today, the Chinese Foreign Ministry in Beijing praised Nepal for curbing Tibetan "separatist forces" on its soil.
Yang is also scheduled to open the Kathmandu Ring Road Improvement Project tomorrow.
Yang is the highest-ranking foreign dignitary to visit Nepal after the formation of the Interim Election Government in March.
Yang will also meet leaders of major political parties and discuss the latest political situation in Nepal.
Prachanda was one of the early visitors to Beijing this year after the once-in-a-decade leadership change in China and he had met new Chinese President Xi Jinping and other top leaders.