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While increasing engagement with the world’s second largest economy provides enormous opportunities for Nepal’s economic transformation, the Himalayan nation needs to act proactively in Sino-Nepal bilateral relationship to make the most out of it.


When Chinese President Xi Jinping landed in Kathmandu in the second week of October, the first official visit by a Chinese President in 23 years, many eyes were on him wondering if he would announce the construction of the much-hyped Kerung-Kathmandu Trans-Himalayan Railway and how large a financial assistance package China would offer to Nepal. President Xi neither promised the Railway line nor did he offer the big assistance package that China had offered during his visit to other South Asian countries. However, two major developments did take place during his visit that will redefine Nepal-China relations.

First, the Chinese President assured that China would help Nepal to realise its dream to transform itself from a landlocked country to a land-linked one by developing the Trans-Himalayan Multi-Dimensional Connectivity Network. Second, Nepal and China, for the first time, agreed to elevate bilateral ties to a 'strategic partnership'.

Addressing the state banquet hosted in his honour, President Xi said, "We will develop the Trans-Himalayan Multi-Dimensional Connectivity Network and help Nepal to realise its dream to transform itself from a landlocked country to a land-linked one." What made the statement important is that it came from the Chinese President himself.

A joint press statement issued after Xi's visit categorically stated that both countries have 'decided to, on the basis of the Five Principles of Peaceful Co-existence, Charter of the United Nations and principles of good neighbourliness, elevate Nepal-China Comprehensive Partnership of Cooperation Featuring Ever-lasting Friendship to Strategic Partnership of Cooperation.'

The announcement of the strategic partnership, at a time when the United States is also keen on making Nepal a part of the Indo-Pacific Strategy has huge geopolitical significance. Foreign policy experts say China, by assuring its support for Nepal to become a land-linked nation and entering into strategic partnership, has upped the ante for a large geo-political rivalry to unfold in Nepal.

While there was no 'big-ticket' projects offered by the China during Xi's visit, President Xi announced Rs 56 billion in assistance for the next three years. What makes this Rs 56 billion interesting is the amount matches the United States' Millennium Challenge Corporation (MCC) USD 500 million compact programme for Nepal.

From friendly neighbour to strategic partner
The bilateral relationship between Nepal and China has come to a new juncture following the maiden visit by the Chinese President. Nepal, now officially designated as a ‘strategic partner’ of China, was, until a couple of years ago, just a friendly neighbour with no major interest for the world’s emerging economic superpower.

While this has raised the hopes and aspirations of Nepalis that the northern neighbour will become a key partner in Nepal’s economic development, there is also apprehension within Nepal, whether the phrase 'strategic partnership' has any military and security dimensions.

Immediately after Xi’s visit, Prime Minister KP Sharma Oli and Foreign Minister Pradeep Gyawali ruled out any military alliance with the northern neighbour. According to PM Oli, the partnership is neither a military alliance nor a political one. "Friendship, connectivity and development are the main components of this partnership," said PM in an interview with Kantipur daily.

Rupak Sapkota, Deputy Executive Director at the Institute of Foreign Affairs, a government think tank, said the phrase strategic means deeper engagement between two countries. "The series of bilateral visits post 2016, Nepal's formal entry into Belt and Road Initiative (BRI) has given confidence to China that Nepal can be taken as a country with whom it can have greater economic ties," said Sapkota, who keeps a close eye on Nepal-China ties.

According to Prime Minister Oli, Chinese President's Nepal visit was relatively successful and its long-term impact will be visible in coming years.

The agreements Nepal signed with China, has incorporated connectivity as the core of Sino-Nepal bilateral ties. The construction of railway link is a long-term project while expanding road to Chinese border points is of current priority. The message from China is that it is ready for greater connectivity with Nepal, but there are some limitations and not all projects expected by Nepal would be taken forward immediately.

Foreign Policy experts say Chinese President is a watershed moment in Nepal-China relations taking bilateral ties to a new stage. According to them, the message from this visit is, 'China has prioritised Nepal and offered to closely partner with Nepal for connectivity.'

Nepal has been seeking greater connectivity with China to reduce its dependence on India. Nepal's pursuit for greater connectivity received a major boost with China agreeing on principle to develop key border points. Post-Xi visit, there is renewed hope in the Nepali political establishment that much-hyped infrastructure projects, will get momentum.

Experts who are closely watching the developments in Sino-Nepal economic cooperation, said the latest presidential level delegation from the northern neighbour has been significant in a number of ways. “This visit is special not only because of the long gap in a Chinese president’s trip to Nepal. The fact that this visit took place after signing the transit transport protocols between Nepal and China over the past few years has also added to its significance. This high-level visit indicates the level of importance the current Chinese leadership has given to Nepal,” observes Ravi Shanker Sainju, former joint secretary at the Ministry of Industries, Commerce and Supplies.

Former commerce secretary Purushottam Ojha also agrees with Sainju. “In totality, the whole gamut of Nepal-China economic cooperation, be it in the area of energy, infrastructure development and various other Chinese assistances such as in health and education are covered by the agreements signed between the two countries. This shows the gravity of Xi’s visit to Nepal,” he said.

Improving Connectivity
The two countries, during Xi's visit agreed to enhance connectivity hubs such as ports, roads, railway, aviation and communications within the overarching framework of the Trans-Himalayan Multi-Dimensional Connectivity Network. The 14-point joint statement talks about reopening and restoring the freight function of the earthquake-ravaged Khasa port as well as optimising the functions of the Kerung port and opening the Lizi/Nechung port at the earliest to ensure improved road connectivity with China.

The two sides also agreed to bring into implementation the Protocol concerning the Utilization of Highway in Tibet by Nepal for cargo transport and the Protocol to the Agreement on Transit Transport was also reached between the two sides.

The Chinese side also agreed on a feasibility study for the construction of tunnels along the road from Kerung to Kathmandu. China also agreed to consider the construction of the Kimathanka-Leguwaghat section of the Koshi Highway for the future and undertake a study on the possibility of cooperation for the development of three north-south corridors, namely Koshi Economic Corridor, Gandaki Economic Corridor and Karnali Economic Corridor. As per the agreement reached between the two sides, the airlines of both countries will now be encouraged to operate more direct flights. In July this year, both sides inked a new air services agreement (ASA) with a focus to increase the number of weekly flights to 98 from 70 on a reciprocal basis.  As per the revised ASA, Chinese airliners will operate flights at Gautam Buddha International Airport and Pokhara Regional International Airport after these airports are constructed.  Besides, Chinese officials have also agreed to add eight new destinations for Nepali airliners from the existing seven.  China has also permitted the Himalaya Airlines, Nepal’s first private international airliner, to operate direct flights to Beijing. After receiving the permission, the airlines in October 2019 started flights to the Daxing International Airport with its Airbus A320.

While Xi’s comment of helping Nepal become a land-linked nation was met with widespread appreciation within Nepal, much depends on how things will move ahead in this comprehensive infrastructure development drive. The investments are big and the stakes are even bigger to construct the proposed infrastructures.

Initial estimations put the cost of the Kathmandu-Kerung Railway project at USD 5.5 billion. It has been projected that it would take at least two years and Rs 35 billion to conduct a feasibility study and complete the detailed project report (DPR) of the Kathmandu-Kerung Railway project. As it is one of the most challenging terrains in the world to construct a land connectivity infrastructure, it has been estimated that over 98 percent of the section will be covered by bridges and tunnels in order to build the 80 kilometres long cross-border railway line. Similarly, the total cost to construct the Kathmandu-Pokhara-Lumbini Railway has been estimated at USD three billion.

One and a half months after Xi’s visit, Nepali and Chinese officials met in Kathmandu on November 26 for an intergovernmental meeting where they signed an agreement to initiate a detailed feasibility study of the much-hyped Kathmandu-Kerung Railway project along with the proposed Kathmandu-Pokhara-Lumbini Railway project. While these are just studies to find out whether or not the proposed projects are technically feasible, many people are hopeful that trains will cruise on Nepal’s land someday to become a game-changer infrastructure for the country’s economic transformation.

Ojha, however, maintains that it is too early to be sure that all things agreed between the two countries will be implemented in a timely manner and that there won’t be any problems in the future. “It is the implementation and execution that matters,” he expressed.

However, some experts hold a more cautious outlook. Dr Posh Raj Pandey, chairman of South Asia Watch of Trade, Economics and Environment (SAWTEE) is one such expert who says that China’s current engagement in Nepal is directed more towards securing its own interests rather than partnering with Nepal for mutual benefit. “Looking at the joint statement issued by President Bidhya Devi Bhandari and her Chinese counterpart, China has elevated Sino-Nepal ties to ‘strategic partnership’ by strongly incorporating the aspects that fit in its interest,” he said. He pointed out that Nepal’s interests have been very much diluted in the agreements. “For instance, neither the construction proposed Kathmandu-Kerung 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,” said Pandey.

According to Pandey, there have not been any concrete mentions of the development of the proposed three North-South economic corridors in the joint statement; China has merely reiterated its commitment to undertake the study on the ‘possibility of cooperation’ for the development of the economic corridors, which Nepal has long hoped for in order to become a major connectivity hub to help it to transform into a transit economy between China and India. “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,” said Dr Pandey.

Problems in Boosting Sino-Nepal Trade Ties
Many of the 20 agreements signed during Xi's visit give special focus to enhancing the bilateral trade ties. At present, Nepal is not in an advantageous position in its trade with the northern neighbour as the country’s foreign trade statistics are self-explanatory when it comes to the precarious situation of Sino-Nepal trade. The data for the last 10 fiscal years show a substantial rise in Nepal’s imports from China, whereas the growth of its exports to the northern neighbour have remained subdued. In FY2009/10, Nepal’s total imports from China amounted to Rs 39.21 billion which has reached to Rs 214.80 billion in FY2018/19. On the other hand, Nepal’s total exports totaled Rs 1 billion in FY2009/10 which just reached Rs 2.58 billion in FY2018/19.

Trade experts suggest the government to come up with policies to increase Nepal’s exports keeping the USD 5 trillion Chinese consumer market in mind. “Besides the products we have been exporting traditionally, there is a big potential in exporting several high quality consumable items that are in huge demand in China. Also, putting efforts to export semi-processed or intermediate goods to the country will be very much advantageous for us,” said Sainju.

Overcoming the Connectivity Bottleneck
Nepal’s inability to benefit from its trade with the northern neighbour is attributed to several factors. Historically, problems in connectivity have been the major bottleneck in Nepal’s trade with China. Despite being neighbouring countries, road connectivity between the two countries is mostly underdeveloped primarily because of the difficult terrain of the Himalayan region to build roads and other means of connectivity. In 2015, both neighbours signed an agreement to open seven new points of entry at Nepal-China borders at Hilsa, Kora La, Nagcha, Keyrung, Tatopani, Olangchungola and Kimathanka.

However, the development of six out of the seven new border points has only been on paper. Following the devastating 2015 earthquake, the Tatopani-Khasa border was closed indefinitely depriving Nepal of a vital trade route with China. The border point saw its opening in May this year with very limited exchange of transportation between the two countries. It is believed that China is unwilling to re-develop the border point to its state prior to the earthquake because of security reasons. The current focus of China seems to be on developing the Rasuawagadhi-Kerung border point where most of the transportation for cross-border trade has been directed. Currently, 30-35 freight trucks enter Nepal through the Rasuwagadhi-Kerung border point every day, while barely five freighters make it to Nepal from the Tatopani-Khasa border point. During President Bidhya Devi Bhandari’s visit to China in April 2019, both countries inked the Protocol on Implementing Agreement on Transit and Transport which was pending since 2016. The Transit and Transportation Agreement was signed during the 2016 visit of Prime Minister KP Sharma Oli.  The agreement, which was hailed as a landmark signing in Nepal’s transit transportation ambitions, allows the Himalayan nation to access seven sea and land ports for its third-country trade. The implementation of this understanding is expected to become a milestone for Nepal’s third-country trade which has basically remained dependent on India. The agreement allows Nepal to use sea ports in Tianjin, Lianyungang Zhanjiang and Shenzhen and land ports in Lhasa, Lanzhou and Shigatse for its foreign trade. As per the agreement, Nepal can also use six entry points for bilateral trade with China.

Nevertheless, experts cast doubt on Nepal’s ability to utilise the ports. “The transit protocol has been finalised but it is not clear how Nepal bound goods from third countries will be transported from Chinese sea and land ports. Similarly, it is not clear how Nepali goods are exported to other countries via China’s territory,” said former commerce secretary Ojha. According to him, this process and our international trade haven’t been mentioned in the Transit and Transportation Agreement, and also many things have been left to the discretion of Chinese customs officials. The long distances involved to reach Chinese ports are a major hindrance for Nepal in this regard. For instance, Tianjin is over 4,000 kilometres from Nepal’s border. “Till date, the distance of 3,750 kilometres between Kazakhstan and the Black Sea is the world’s longest distance in transit transportation. Longer distances translate to higher transportation charges and other expenses in trade. So, it raises the question about the practicality in using the ports,” mentioned Ojha.

Post 2016, there has been a surge in high-level visit between Nepal and China. Prime Minister KP Sharma Oli's 2016 China visit is considered as a milestone, during which Nepal signed Transit and Transportation Agreement with northern neighbour. Oli for the second time visited China in 2018. President Bidhya Devi Bhandari visited China in April, 2019 when the two sides signed Protocol to Implement the Transit and Transportation Agreement.

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