“Nepal-China economic relation is in good shape”

Hiranya Lal Shrestha is a foreign affairs expert in the country to be reckoned with.  Apart from working in a leading position in various national committees related to the country’s international relations, he has also penned more than two dozen books on various aspects of such relations. In his exclusive tete-a-tete with Nirjal Dhungana, editor, ceotab.com, he shares his opinions on especially the economic dimension of the bilateral relations between Nepal and China. Excerpt:

As someone well-versed with Nepal-China relations, how do you assess particularly the economic dimension of such relations?

In fact, the economic ties between the two neighbouring countries date back to the ancient times. In these times, a local trade of the certain goods like sculptures and paintings used to take place between Tibet, the autonomous region of China, and Kathmandu. But, over the period of time, the nature and scope of their economic relation has witnessed a sea change. Currently, they are making continuous efforts to bolster the bilateral cooperation in areas like infrastructure, power development, communication, agriculture and technology, tourism and aviation, capacity building etc.

 The northern neighbour has already emerged as Nepal’s largest source of foreign direct investment (FDI) and remained so over the last few years.  It is contributing over 80 per cent of the total FDI commitments being received by this Himalayan nation.

China is the second largest trading partner as well as the second largest source of foreign tourists for Nepal, only after India. Similarly, China has been offering assistance to Nepal under the Economic and Technical Program to help it accomplish major development projects. Such projects include Upper Trishuli Hydropower Project, Food/Material Assistance in northern 15 bordering districts, Kathmandu Ring Road Improvement Project, Pokhara International Airport etc.

Similarly, China has already granted a status of founding member of its Asian Investment Infrastructure Bank (AIIB) to Nepal.   So, Nepal is looking to expedite its infrastructure development though soft loans floated by the bank. 

In a nutshell, the economic relation between the two countries seems to be in good shape.

Nepal has already decided to be a part of the China-led Belt and Road Initiative (BRI). In your view, how do you opine this?        

Initiated by Chinese President Xi Jingpin in 2013, the BRI, also known as One Belt, One Road (OBOR), is a US $ 1 trillion dollar global infrastructure project spanning some 65 countries.  And, interestingly, it has so far been able to garner support from more than 100 countries and international organisations.

The agreement between Nepal and China to cooperate for such mega transnational project by enhancing connectivity in key areas including ports, roads, railways, aviation and communications within the prime framework of Trans-Himalayan Multi-Dimensional Connectivity Network is indeed laudable.

Nepal, in particular, stands to reap a range of incredible benefits from this agreement from the economic standpoint.  

Among other, it could contribute to turnaround the country’s tourism sector.  Tens of millions of Chinese tourists have been visiting foreign countries annually. If the infrastructure is built in line with the vision of OBOR, we can attract a sizeable chunk of them here in the country,

Similarly, Nepal stands to accrue other unique economic benefits by developing connectivity with Asia and Europe through the revival of ancient Silk Road. In fact, this will link Nepal with not only China, India and Bangladesh but also with Gulf countries and Europe.

Such enhanced connectivity might help in bringing down the time and cost involved in the export and import transactions for the country. High shipment cost is among the major factors responsible for eroding competitiveness of Nepali products in the international market.

China and India are poised to increase the volume of their bilateral trade to US $ 200 billion in the next few years. So, the development of infrastructure under the OBOR can help Nepal become a transit country between these two big economic powerhouses in the world. This will obviously be in the best economic interest of our country.

The incorporation of especially the cross-border railway project in the Belt and Road Initiative during the state visit of President Vidya Devi Bhandari to China in April this year has created new optimism in Nepal.  How do you assess the prospects of such railway seeing the light of the day?

Constructing the much-talked about Kerung-Kathmandu railway project, of course, is not a cakewalk. There are a slew of geological, engineering, technical, environmental as well as economical challenges facing this project. The feasibility study on the project conducted last year by China clearly points out this fact.

Lately, preparation of the DPR of this project has surfaced as a major topic of discussion in the meetings between the officials of the two countries.

  The Nepal government estimates that it will take around two years and Rs35 billion to complete such report and wants China to fund this. But, Beijing, has been making a pitch for 50 percent contributions from both the countries. Hopefully, both sides will reach a prudent, concrete conclusion in this regard. After completing such report, they will be able take the next step of deciding the investment modality of this $2.75 billion (Rs257 billion) cross-border railway project. As far as the time frame of 

In my view, both Nepal and China shall display a great deal of strategic vision to move ahead with this highly ambitious project

Nepal and China have already signed the Protocol of Transit and Transportation, a landmark agreement between the two countries made in 2016 during the visit of Prime Minister KP Sharma Oli to Beijing. What is your take on this?

The signing of the said protocol will allow Nepali traders to use Chinese sea and land ports for third-country trade.

 Nepal can utilize seaports in Tianjin, Shenzhen, Lianyungang and Zhanjiang and three dry ports in Lanzhou, Lhasa and Shigatse.

The protocol also allows Nepal to conduct exports and imports through six dedicated transit points along the Nepal-China border: Rasuwagadhi, Kodari, Yari, Kimathanka, Olangchungola and Nechung.

Similarly, Nepal is entitled to use any of three kinds of services-inland, road and rail- at these six border points on the basis of cost effectiveness.

The finalization of the protocol is very crucial for Nepal to end its chronic dependence on only one country- India- for carrying out international trade. It is such dependence that has forced the country to undergo the acute shortages of daily consumables during the times of illicit Indian economic blockades.

Broadly speaking, the implementation of the trade and transit agreement could also well help turnaround the Nepali economy through the diversification of its trade with other foreign countries. 

Nepal is suffering as huge trade deficit as around Rs 185 billion with China annually. What can be done to help mitigate this problem?

The northern neighbor provides duty-free, quota-free market access to 8,030 Nepali products. In addition, it is allowing Nepal to use seven border points including Tatapani for carrying out trade. However, the Nepali side has so far been unable to cash in on such facilities in its favour.   

So, it is mandatory to take certain urgent measures to help minimize the surging trade deficit of Nepal with China.

One of such measures could be the removal of non-tariff barriers — mutual accreditation arrangements, entry-exit inspection and simplified quarantine rules and regulations at the entry points, including mainland China- and simplification of customs procedures.

Similarly, establishing joint venture companies between Nepal and China in the special economic zone (Sez) being constructed in Kavrepalanchowk district might well be another important measure.

This can be helpful in identifying the changing trends among Chinese buyers and produce those goods that address their changing needs and aspirations. The above-mentioned measures can go a long way in boosting revenues from the exports to China. 

The finalization of the protocol is very crucial for Nepal to end its chronic dependence on only one country- India- for carrying out international trade. It is such dependence that has forced the country to undergo the acute shortages of daily consumables during the times of illicit Indian economic blockades.