Trade relations between Nepal and China

Trade

China is the second largest trading partner of Nepal. In 2017/18, total exports to China stood above US$
23 million. During the same period, import from China stood above US$ 1.5 billion. Trade deficit of
Nepal with China has been in an increasing trend. Although, China has given zero tariff entry facility to
over 8,000 Nepali products since 2009, Nepal hasn’t been able to bring the trade deficit down. Nepal
regularly participates in various trade fairs and exhibitions organized in China. Nepal-China’s Tibet
Economic and Trade Fair is the regular biannual event hosted by either side alternatively to enhance
business interaction and promote economic cooperation between Nepal and TAR, China. Nepal
participated in the China International Import Expo held in Shanghai in November 2018. The 16th Nepal-
China’s Tibet Economic and Trade Fair was held in Lhasa on 24-29 October 2018.

Economic Cooperation:

Nepal-China economic cooperation dates back to the formalization of bilateral relations in 1950’s. The
first “Agreement between China and Nepal on Economic Aid” was signed in October 1956. From the
mid-80s, the Chinese Government has been pledging grant assistance to the Government of Nepal
under the Economic and Technical Cooperation Program in order to implement mutually acceptable
development projects.

Chinese assistance to Nepal falls into three categories: Grants (aid gratis), interest free loans and
concessional loans. The Chinese financial and technical assistance to Nepal has greatly contributed to
Nepal’s development efforts in the areas of infrastructure building, industrialization process, human
resources development, health, education, water resources, sports and the like.

Some of the major on-going projects under Chinese assistance include:

Upper Trishuli Hydropower Project- Power station and Transmission Line Projects

Food/ Material Assistance in northern 15 bordering districts.

Kathmandu Ring Road Improvement Project

Larcha (Tatopani) and Timure (Rasuwagadi) Frontier Inspection Station Project

Pokhara International Regional Airport

Upgradation of Syaprubensi- Rasuwagadhi Road

Upgradation of Civil Service Hospital

Upgradation of Kodari Highway and restoration of bordering bridges at Kodari and Rasuwagadhi
With the signing of the Memorandum of Understanding on Cooperation under the Belt and Road
Initiative on 12 May 2017 in Kathmandu between Nepal and China, new avenues for bilateral
cooperation in the mutually agreed areas are expected to open. The major thrust of the MoU is to
promote mutually beneficial cooperation between Nepal and China in various fields such as economy,
environment, technology and culture. The MoU aims at promoting cooperation on policy exchanges,
infrastructure connectivity, trade connectivity, financial integration and connectivity of people.

…..

The Nepal-China trade deal allows people living within 30 km on either side of the border to travel freely
by merely providing residence proof to engage in barter trade.

Tatopani-Zhangmu and Rasuwagadhi-Kerung are the two major trade points. Tatopani has been the
closest trade point with China since 1960s but it was closed after a severe earthquake hit in 2015. It
reopened only last year, impacting trade.

Bulk of Nepal’s exports to China is consumed in Tibet. China’s attempt is to provide Nepal access to
another port through the Kathmandu-Rasuwadadhi highway.
Problems

Recently there has been border disputes between Nepal and china over humla district. China unilaterally
constructed 11 buildings in the Nepali territory specifically the lapcha area and When tried to
communicate with Chinese security officials they urged that the 11 buildings have been built in the
Chinese territory. Chinese have banned Nepalese of that Area from visiting the lapcha area.During road
construction in that area some 8 years ago a boundary pillar no 11 was damaged and it hasn’t been
erected since then. After that the buildings were made whose purpose remains unknown.

The other problem is that Agreements have been signed between the two nations however there hasn’t
been follow up projects after that. It has been a year since the Chinese president xi jinping has visited
Nepal, however there hasn’t been much progress on agreements to accelerate projects under belt and
road initiative. Signing up to China’s multi-trillion dollar BRI in 2017 was expected to result in
improvements in Nepal’s infrastructure, commerce and agriculture. Instead, the lack of progress has
exposed glaring weaknesses in Nepal’s state mechanisms. Only 9 out of 36 Nepali projects have been
approved under the BRI, and even the projects that got the go-ahead were found to lack proper
planning, investment models and review mechanisms.

Nepal has not gone beyond the planning stage on the protocols signed for the Trade and Transit Treaty
that was to come into effect on 1 January 2020, allowing Nepal to use the Tibet railway for export and
import with third countries using sea ports on China’s east coast. There has been no movement on that
corridor.

Easing trade and business with China has also been limited to rhetoric. The investment task force of
Nepal-China secretaries has only met once. An ambitious plan to open Bank of China branches in Nepal
has also failed to materialize.

Only Rasuwagadi and Tatopani checkpoints have any trade activity with China, where export is currently
nil and imports are ocassional and limited.

There was nothing to stop Nepal from using the lockdown period this year to improve the condition of
the road link from Kathmandu to Kerung in Tibet, which remains nearly impassable after the monsoon.
Little attention has been paid to the crumbling infrastructure needed to support trade with China.

Similarly, Trans-Himalayan Multidimensional Connectivity Network is an economic corridor between

(In a post-agreement meeting on 13 October 2019, China agreed to conduct on-site evaluation while
Nepal took on environmental and legal clearances. Nothing has happened since then. The pandemic is
being used by Nepal’s politicians and bureaucrats as an excuse for their pre-Covid failures to get the
agreements off the ground.)