Claim: The Himalayas crosses a country that borders China.

Bhutan -LRB- -LSB- buːˈtɑːn -RSB- -RRB- , officially the Kingdom of Bhutan -LRB- druk gyal khap -RRB- , is a landlocked country in Asia , and it is the smallest state located entirely within the Himalaya mountain range . Located in the Eastern Himalayas , it is bordered by China -LRB- in the north -RRB- and India -LRB- in the south -RRB- . Bhutan lacks a border with nearby Nepal due to the Indian state of Sikkim and with Bangladesh due to the Indian states of West Bengal and Assam . Bhutan is geopolitically in South Asia and is the region 's second least populous nation after the Maldives . Thimphu is its capital and largest city , while Phuntsholing is its financial center .   The independence of Bhutan has endured for centuries , and the territory was never colonized in its history . Situated on the ancient Silk Road between Tibet , the Indian subcontinent and Southeast Asia , the Bhutanese state developed a distinct national identity based on Buddhism . Headed by a spiritual leader known as the Zhabdrung Rinpoche , the territory was composed of many fiefdoms and governed as a Buddhist theocracy . Following a civil war in the 19th century , the House of Wangchuck reunited the country and established relations with the British Empire . Bhutan fostered a strategic partnership with India during the rise of Chinese communism and has a disputed border with the People 's Republic of China . In 2008 , it transitioned from an absolute monarchy to a constitutional monarchy and held the first election to the National Assembly of Bhutan , that has a two party system characterizing Bhutanese democracy .   The King of Bhutan is known as the `` Dragon King '' . Bhutan is also notable for pioneering the concept of gross national happiness . The country 's landscape ranges from lush subtropical plains in the south to the sub-alpine Himalayan mountains in the north , where there are peaks in excess of . The highest mountain in Bhutan is the Gangkhar Puensum , which is also a strong candidate for the highest unclimbed mountain in the world . There is also diverse wildlife in Bhutan .   In South Asia , Bhutan ranks first in economic freedom , ease of doing business , and peace ; second in per capita income ; and is the least corrupt country as of 2016 . However , Bhutan continues to be a least developed country . Hydroelectricity accounts for the major share of its exports . The government is a parliamentary democracy . Bhutan maintains diplomatic relations with 52 countries and the European Union , but does not have formal ties with the five permanent members of the United Nations Security Council . It is a member of the United Nations , SAARC , BIMSTEC and the Non Aligned Movement . The Royal Bhutan Army maintains extensive military relations with the Indian Armed Forces .