“China aims to maintain itself as a soft power in Nepal using investment as an instrument.”

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How do you evaluate the joint statement issued by Nepal and China following President Xi’s visit in terms of enhancing economic and development cooperation between the two countries?


I think China’s engagement in Nepal is more tilted towards security diplomacy (not defence),of which economy is an instrument. For this, the country is working towards creating an institutional mechanism positioning itself as a soft power here. Given the current size of Sino-Nepal trade, China’s contribution to Nepal’s economy is quite small. China accounts for only two percent of our total export. While Nepal’s import from the northern neighbour is quite high, it is 14 percent of the country’s total imports. Talking about development cooperation, Nepal received a total of USD 1.6 billion from development partners in 2018. China contributed only USD 57 million, which is only three percent of the total development assistance Nepal received in that year.

However, China has aggressively come ahead as a FDI source country for Nepal over the last 3-4 years. Of the total FDI permission issued by Nepal government in FY2018/19, around 83 percent of such permissions were granted to Chinese investors. This indicates that China‘s main aim is to maintain itself as a soft power in Nepal using the investment as an instrument.

Looking at the joint statement, China has elevated Sino-Nepal ties to ‘strategic partnership’ by strongly incorporating the aspects that fit in its interest. However, Nepal’s interests have been very much diluted. For instance, neither the construction proposed Trans Himalayan Railway was prioritised nor the proposed Kathmandu-Pokhara-Lumbini railway got any attention. It has been said that only the feasibility study of the Kerung-Kathmandu Railway project will be carried out. On the other hand, it was also mentioned that a feasibility study will be conducted for ‘construction of the Tokha-Chahare Tunnel’.

The interest of China in terms of connectivity with Nepal has been mostly towards Keyrung leaving all other border points. Nepali government officials were hopeful that the full reopening of the Khasa-Tatopani border would be announced during Xi’s visit. But it was mentioned as ‘reopening and restoration of the freight functions of the Zhangmu/Khasa port’ and not the cross-border movement of people from there. On the other hand, it has been mentioned that functions at the Jilong/Keyrung port will be ‘optimised’ which indicates China’s focus to develop the border point where there will be movement of freights as well as people.

Meanwhile, signing of the Treaty on Mutual Legal Assistance in Criminal Matters and agreement to strengthen cooperation between the law enforcement agencies on information exchange, capacity building and training shows China’s security interests in its bilateral relationship with Nepal.

Talking about the Trans-Himalayan Multidimensional Connectivity Network, the language used in the joint statement regarding the development of three North-South corridors in Nepal, namely Koshi Economic Corridor, Gandaki Economic Corridor and Karnali Economic Corridor, is quite interesting which states China’s commitment to undertake the study on the ‘possibility of cooperation’. No matter how much we are excited about China’s role in Nepal’s economic development, all these indicate that China is not ready to proceed with the projects that don’t carry strategic importance for it. Meanwhile, areas of Nepal’s interests such as the establishment of a multifunctional laboratory and construction of the proposed Kimathanka-Leguawaghat section of the Koshi Highway have only been taken into ‘consideration’ by the Chinese side. It means China’s interests have been made obligatory for Nepal while our interests are non-obligatory for the northern neighbour. However, China will help Nepal to boost its tourism by increasing the flow of Chinese tourists to strengthen the people-to-people connectivity with a focus to establish itself as a soft power.

What do you think Nepal should do to secure its interests while engaging with China?
Nepal’s present need is to enhance its productive capacity and productivity. After these two, we need a market for our products. Our focus should be on infrastructure development in this regard. Nevertheless, there is a lack of home work and serious discussions. We need to be clear what we need in infrastructure development to raise our efficiency, whether it is railways, roads or air connectivity. Foreign investment is another area in this context. I think the Chinese FDIs coming into Nepal at present are more about seeking our natural resources than efficiency and market seeking. Now we need to focus on attracting such investors who are willing to produce goods here and export to other countries. I had expected that the establishment of the ‘cross border free trade area’, which is also provisioned in the Belt and Road Initiative (BRI), between Nepal and China would be discussed during Xi’s visit; but there were no discussions about it. Talking about the modalities of the free trade zone, it can be like the Kaesong Industrial Region in North Korea which the country used to operate as a collaborative economic development initiative with South Korea until a few years ago. Such an initiative can be important for us not only to receive Chinese investments but also to benefit from transfer of technology.

Besides, we can also work to attract Chinese companies. As China is no more a low-cost economy, many businesses there, particularly the labour intensive manufacturing companies, have been moving their production to other countries such as Vietnam, Cambodia and Bangladesh where the costs are low. It will be beneficial for us to engage in cooperation with China to persuade some of the companies to establish their manufacturing base here.  

What do you think about the agreement to export citrus fruits to China at a time when Nepal has not been able to benefit from the export of 8,000 items under the DFQF facility provided by China?
The mutual understanding to export citrus fruits from Nepal to China is one of the better parts of the joint statement. Providing DFQF access to a country like Nepal doesn’t carry any meaning in itself in terms of usefulness. What is the use of providing zero-tariff access to Nepal for exporting aircraft parts? The government has been urging the northern neighbour to revise the facility but they have not agreed to Nepal’s demand. The export privilege has been provided for such products which we don’t produce. Here we need a tariff line for exportable and potential products. At present, a tariff line for some 150 products will be sufficient for us; this will cover more than 95 percent of our exports.

Also, several non-tariff barriers exist in our trade with China. For instance, there is a language barrier; many documents are written in Mandarin which Nepali exporters don’t understand. Similarly, other non-tariff barriers such as transportation also create problems in this regard. For example, handicraft items, which are our major export to China, are mostly transported by air. According to exporters, customs clearances of such consignments are faster if the shipments are made through Chinese airlines; the process takes three months if the consignments are shipped through non-Chinese airlines.

As Nepal has already finalised transit protocols with China, what impact do you think it will have after Nepal starts using Chinese ports for trade with other countries?
65-66 percent of Nepal’s imports come from India while 14 percent is from China. On top of that, several high-value, low-volume goods are transported here via air. In this respect, the utilisation of the principally agreed port in China is only for 20 percent of our imports.  So, I don’t see a big impact in our trade with the access. For Nepal, I see a much bigger prospect with BRI’s road and rail transportation which aims to connect China with Europe over the sea route.  Distance wise, the ports in China cover a greater distance from Nepal than those in India. The port in Kolkata is 1,400 kilomteres from Nepal, whereas the port in Tianjin is 4,000 kilometres from Nepal which casts a shadow of doubt in terms of cost effectiveness of the transit. The modalities of the transit haven’t been finalised yet though the protocols to implement Transit and Transport Agreement have already been signed. I have talked to some people who have seen documents of modalities proposed by China. According to them, the proposals have provided discretionary powers to Chinese authorities.  That being said, the increasing connectivity with China has provided Nepal a fallback position enhancing our capacity to better negotiate with India.

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