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Nepal-China trade ties

Except for some literature produced by the Trade Promotion Centre, there is not much one can find on contemporary Nepal-China economic ties. This must be embarrasing for the Nepalese academic community, given the rich historical background. After all, there was a time when Nepal prospered through the trade routes that linked China with India.

The responsibility for this neglect does not solely rest on the shoulders of the venerable community; government policies, especially of the nineties, are equally to be blamed.

China has been on the blind spot of latter-day policy makers despite their emphasis on openness, liberalization and new trade treaties. Even attempts to blend economic policies with the foreign policy, so-called economic diplomacy, could not bring this vast country to the focus deserved by a neighbour.

It is in this environment of neglect that the FNCCI’s sanction of a study* on Nepal-China relations appears commendable. Had there been enough literature flying around, the FNCCI step might have appeared too meagre- an obvious step to bring to light aspects that are already common knowledge even for the layman. Since it is not so, the fact that contemporary issues have been brought to the focus itself is an achievement.

What ails Nepal-China trade? Apart from policies of the two countries, there are infrastructural problems. Most of the overland trade is conducted through the Kodari Highway built some 35 years back and in spite of the long years the last portion of the road, linking Tatopani to the border, is still not blacktopped. A gravel road continues through some distance even on the Tibetan side. Somehow, the repair works carried out recently on the Kodari Highway could not include this last stretch of the road in its list of activities.

Neither are there any kinds of storage facilities and godowns at the border. Trade thus appears to be carried out on an ad hoc basis through this important strategic linkage. Once the Sindhuli-Banepa highway is complete pressures could mount for the existing facilities to be upgraded and new ones added. This road, nearing completion, would not only give a direct access for the plains to the northern border, but would bypass the Kathmandu Valley as a transit point for the first time after modernisation started in Nepal.

To pass through Kathmandu is painfully costly for goods originating in the Tarai. Roads that come to the capital are famous for meandering through unnecessary miles of difficult mountains and valleys. The Sindhuli link therefore should make trade easier and help to restore the country’s image as the entrepôt that it once was.

Still, this study reveals that this is not the shortest route possible. The proposed road from Rasuwa to Tibet would shorten the distance even more as it passes through the historical Kerung pass. If another link is established between Trishuli and the Galchhi point along the Prithvi highway, this would indeed be the shortest trade route linking most parts of Nepal with the Tibetan region of China. The Chinese have already committed themselves to build a link through Kerung.

Another proposal the study makes is the linking of the settlements along the northern border with short roads with the Tibetan highway that runs along from the east to the west. One of the first beneficiaries would be Humla, one of the most backward places in the Kingdom. About eight kilometers of construction would make this place accessible through roads, though Nepalese from other parts would have to travel to Tibet first, travel along Tibetan territory and then enter Humla. There are other places that could immensely benefit from links to the Tibetan highway. The Nepalese used this method of travelling to reach southern Nepalese towns- via the Indian transport network- before the Mahendra Highway was built.

Roads alone are not enough to carry out trade, although this is a basic requirement. A proper approach, policies and other infrastructural work are absolutely necessary if gains are to be made through trade. And, in this too the Nepalese have not made a dent worthy of consideration in enhancing Nepal-China economic ties.

There is no bank to facilitate transactions on the Nepalese side of the border, neither is it possible for Nepalese to open accounts in Chinese banks on the other side. There is no exchange rate between the two currencies. The language problem and lack of a trader-friendly visa facility in both the countries have given rise to a dis-organised trading system. Moreover, the road barriers along the Kodari highway and the different costs imposed by the Tibetans on their side discourage trading even further. All these need to be looked into and policy remedies sought. The trading agreement between the two countries needs updating because it was concluded in the early eighties, when both the countries were only contemplating openness. Today, the situation is different; both have come some distance through the path of openness.

The study goes on to suggest ways to reduce the trade deficit that is piling up with growing trade between the two countries. Since, defict trading is a problem with many countries, they read like a set of recommendations to make Nepal an export production centre, not just ways to manufacture exportables to China. But the China-specific suggestion has to do with an industrial district at Panchkhal of which some discussions have been made ever since the establishment of Nepal-China Non-governmental Forum established in 1995.

Similar is the case with Chinese investment. Some important steps were made when government to government cooperation was the order of the day. Large industries were established with Chinese assistance and technology which played an instrumental role in import-substitution. When the private sector started being given a larger role in economic matters in both countries, that pace has slackened. In Nepal, the high profile Chinese aided industries were handed over to the private sector.

The study finds comparative advantages in the hydropower sector from which both countries could benefit through joint-venture.

Tourism is another area identified. The authors would like to see Nepalese benefit particularly from Indian tourists’ desire to visit Mansarowar and Mt. Kailash. But they should know that both China and India are neighbours themselves and that the two religious sites are nearer to the Indians via India itself, rather than via Nepal. And they have not pointed out why the Indians would prefer to visit Tibet through Nepal rather than do it through their own northern borders. Unless this question is answered, there is little likelihood of any practical progress over the matter.

There are 31 Chinese joint venture projects going on in different phases at the moment in Nepal. The Chinese construction companies could invest more in Nepal if there were facilities solely aimed at making their life easier. For example, lack of bonded warehouse facilities has made it difficult for them to keep their equipment in Nepal when they are out of jobs, necessitating the transportation of the heavy equipment to and from China frequently.

Though the book may not promise much for those who have been watching Nepal-China economic ties closely, it would surely provoke one into thinking about the changing perceptions in both the countries and the need to adjust their policies to suit them.

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