Nepalese Prime Minister K P Sharma Oli paid a week long official visit to China from March 20 to March 27, 2016. On 21st March 2016, a day after PM K.P. Oli began his maiden visit to China, Nepal and China signed ten agreements and Memorandums of Understanding (MoUs), including the much talked transit transportation agreement with China for its third-country commerce, exploring the possibilities of signing a bilateral free trade agreement, and building a regional international airport in Pokhara. The joint statements released on 23 March 2016, stipulate Chinese appreciation for the promulgation of the new constitution. Among others, both sides also agreed to carry out major projects under the framework of the Belt and Road Initiative, strengthen connectivity, support each other’s tourism promotion activities, and hold dialogue on energy cooperation.
Key Points of the Joint Statement
(Source: Joint Statement between the People’s Republic of China and Nepal, https://www.mofa.gov.np/joint-press-statement/)
Map1: Tatopani-Kathmandu Route
Source: google map
Map2: Kathmandu Ring Road
Source: google map
Transit- Transport Agreement
The signing of transit transportation agreement with China is being considered as Nepal’s endeavour to diversify its trade away from India and lessen its dependency on India. Nepal’s transit agreement with China will enable land locked Nepal to use the Tianjin port in China – the nearest from Nepal – about ‘3000 Km away from Nepal border’. However, the present condition of Tianjin-Kathmandu road infrastructure denies the economic feasibility of Nepal’s trade to any third countries through Tianjin transit port. The common perception among the analysts is that the agreement is a mere psychological gain for Nepal – at least till the extension of Tibet Railways at the Nepal border. At present, Nepal has no other options than to rely on Indian ports for trade with third countries. However, China-Nepal trade through overland routes is bound to augment with the improvement of road and rail connectivity between the cities of Nepal and Chinese main land, if other transit procedures such as visa, documentation, custom rule, use of technology, etc, are business friendly.
Currently, Nepal is using Haldia port, which is just about 1000 km away from the Indo-Nepal border and well connected with roads. During PM Oli’s visit to India in February 2016, India offered Nepal the use of its Visakhapatnam port also, situated 1500 km (approx) away from the Nepal border.
Map 3: Showing Tianjin and Haldia
Edited by author- (not fit to scale, source for outline map: 24 point)
Chinese Rail to Nepal
To enhance the connectivity in the region, China is ready to consider Nepal’s request of a rail link between the two nations. As poor overland connectivity has been a key obstacle in Nepal-China trade, both sides are now looking firm to improve the connectivity and bilateral trade. Improved infrastructures in Nepal’s northern mountainous region and transit trade treaty will subsequently reduce Nepal’s dependency on India for trade and economy to a certain extent, and, further, it will also alter the current dynamics of trade cooperation in the region.
The Chinese Qinghai-Tibet Railway Network has already reached Xigatse and there is plan to further extend it to Jilong at Nepal border, 540 kilometres south-east to Xigatse and just a few kilometres away from the Tibetan border town Kerung by 2020. In the past, its further extension to Kathmandu has been a subject of discussion in bilateral meetings.1 The plan to extend Qinghai-Tibet Railways up to Nepal border and further connecting Kathmandu with Qinghai-Tibet Railways is being considered as a part of ‘Chinese long term vision’ to enhance connectivity between Nepal and China and further with India.2 If the plan to connect Lhasa with Kathmandu becomes a reality, it will be a boost for Nepal-China trade, tourism, people-to-people connect and cultural ties.
The expansion of the Qingai-Tibet Railway network near Kerung will provide Nepal an opportunity to augment its trade with China as the Kerung route is not only directly connected with Kathmandu via road, but is also linked with major cities of China. At the same time, the construction of Inland Container Depot (ICD) at Timure, 2.5 kilometres from Rasuwagadhi, will be an added advantage for Nepal-China trade.
The current status of Nepal’s trade with China is heavily skewed towards import. Nepal’s total export to China is about three percent of its import from China. There is enormous gap in the value of import from and export to China (see table 1) and, in future, as Nepal-China trade will grow, the gap will remain huge as Nepal has its own limitation to augment the export with China. As far as Nepal’s export to China is concerned, Tanned skin, handicraft items and woollen crafts are key commodities in terms of export volume.3 The low export amplifies the transportation cost as most of the bogies of Kathmandu bound goods trains return empty to Lhasa or Golmud. But, in the case Nepal is using the Tianjin transit port, the scenario may be different. Although, the export and import statistics of Nepal (see table 2 &3) and distance of Tianjin port from major cities of Nepal does not encourage Nepal’s trade with third countries via Tianjin transit port.
Map 4: China-Nepal Railway Route
Table 1: Nepal- China Trade
Source: Trade and Export Promotion Council, Nepal
Year |
Nepal Export to China US$) |
Nepal Import to China (US$) |
Nepal Export and Import to China- percentage of total Nepal China Trade |
Total Trade ( US$) |
Balance of Trade (US$) |
|
Export |
Import |
|||||
2009 2010 2011 2012 2013 |
20,329,189 13,688,847 10,172,303 22,890,571 21,465,916 |
421,846,367 560,568,337 691,308,173 741,864,285 732,499,886 |
4.59 2.38 1.45 2.99 2.84 |
95.40 97.62 98.25 97.00 97.16 |
442,175,556 574,257,184 701,480,476 764,754,856 753,965,802 |
-401,517,178 -546,879,490 -681,135,870 -718,973,714 -711,033,970 |
Table 2- Nepal: The Major Import Destinations in 2013
Ranking |
Country |
Percentage of Total lmport |
1 2 3 4 5 6 7 8 9 10 |
India China P. R. U.A.E. Indonesia Thailand Argentina Brazil U.S.A. Malaysia Japan |
66.4 10.8 5.9 2.1 1.5 1.4 0.9 0.9 0.8 0.8 |
Source: Trade and Export Promotion Council, Nepal
Ranking |
Country |
Percentage of Total Export |
1 2 3 4 5 6 7 8 9 10 |
India U.S.A. Germany China P. R. U.K. Bangladesh France Afghanistan Turkey Japan |
66.4 10.8 5.9 2.1 1.5 1.4 0.9 0.9 0.8 0.8 |
Table 3- Nepal: The Major Export Destinations in 2013
Source: Trade and Export Promotion Council, Nepal
Nepal has to Wait for Commercial Oil Trade Deal with China
The joint statement mentioned that the two sides have agreed to conclude a commercial deal for import of petroleum products from China to Nepal. But, before the finalisation of the agreement, they have to negotiate on a range of issues, which primarily include pricing, taxation, customs and quality control.
The acute fuel shortage in Nepal due to ‘blockade’ by Madhesi in the Terai region compelled Nepal to look beyond India for oil import. Despite the geopolitical limitations, Nepal found China as the best alternative, and, as expected, China responded positively to Nepal’s request of oil supply. China not only signed the framework agreement to supply oil to Nepal on 23 October, 2015 in Beijing, but also signed a separate contract for ‘expeditious’ delivery of 1000 MT oil assistance to Nepal. The signing of the framework agreement between Nepal Oil Corporation (NOC) and China National United Oil Corporation (PetroChina) was being considered as Chinese endeavour to end Nepal’s absolute dependency on India for oil import and diversify Nepal’s fuel dependency. Although, the deal paved the way for Nepal’s petro trade with its northern neighbour, China, but, for the commencement of oil trade beyond the ‘promised grant’, China will wait till improvement in its overland connectivity with Nepal.
The issue of dual taxation in Tibet Autonomous Region and long transportation distance from the nearest Nepali city to Chinese refineries is compelling China to delay its commercial oil agreement with Nepal.4 Pengzhou and Lanzhou, two nearest major Chinese refineries from Kathmandu, are more than 1500 Km (aerial distance) away while the nearest Indian refinery Barauni is just about 374 km away. Birgunj – a city of Nepal at its southern border – is just 241.7 km away from Barauni.
The transportation cost of Chinese oil to Nepal could be significantly reduced with the extension of Tibet Railways to the Nepal border and further to Kathmandu as Lanzhou and most of the Chinese refineries are well connected with Tibet Railway (See map 5 and 6). In future, if the cost of construction of China-Nepal oil pipeline could be balanced by its economic and strategic gains, China would not hesitate to build a pipeline to supply petroleum products to Nepal. China might also go for substantial oil subsidy for strategic gains.
However, many analysts believe that China-Nepal oil trade, if initiated, will not be sustained for long as infrastructure, terrain and weather in northern mountainous region will not permit uninterrupted supply. Perhaps, the strength of Chinese technologies and their commitment to finish projects on time, which have already been demonstrated successfully during the construction of Tibet rail and Karakoram highways, does not support their views.
Map 5: China: Major Oil Refineries
Source:http://www.hydrocarbonprocessing.com/Article/3123863/Asia-China.html)
Map 6: China: Railway Routes Connecting Xigatse
(Source: http://www.chinatibettrain.com)
Nepal, China to Reopen Tatopani-Khasa Route
To resume operation on Tatopani-Khasa route (see map 1) by constructing the required infrastructure on either side of the border at the earliest, the Chinese side has also agreed to speed up the feasibility study on the Araniko Highway, which connects Kathmandu with Lhasa via Tatopani check point. Earlier, on December 25, 2015, Nepal’s Finance Secretary, Lok Darshan Regmi and Vice Minister of Commerce of China, Zhang Xiangchen, signed the Agreement on Economic and Technical Cooperation under which “China would make available RMB 900 million as grant assistance for the implementation of the projects of repair and maintenance of Araniko Highway and other projects of interconnection and interworking.”5 The route was heavily damaged due to heavy landslides during the April 25, 2015 earthquake and since then, trade has not taken place through this route.
Tatopani, the largest trading point for Nepal-China trade, carried out 27.18 percent of total Nepal-China trade during 2013 calendar year. In comparison to single lane Rasuwagadhi-Kathmandu route, double lane Tatopani-Kathmandu (Araniko Highway) route has been easier for the movement of heavy vehicles and tankers.
Table 4: Nepal-China Trade through Tatopani Check Trade Point |
||||
Year (calendar year) |
Import (Value in US $) |
Export (Value in US $) |
Total trade (Value in US $) |
Percentage of total Nepal- China trade (value in US$) |
2009 |
98,991,515 |
18,524,693 |
11,751,6208 |
26.57 |
2010 |
112,268,599 |
4,258,986 |
116527585 |
20.29 |
2011 |
211,186,993 |
8,111,948 |
219298941 |
31.26 |
2012 |
165,932,058 |
17,559,614 |
183491672 |
23.99 |
2013 |
189,731,413 |
15,250,365 |
204981778 |
27.18 |
Source: Trade and Export Promotion Council, Nepal
The re-commencement of trade through Tatopani checkpoint, which connects Lhasa with Kathmandu through Friendship and Araniko Highways, would be a boost for Nepal-China trade as the route had been the main ‘conduit’ for Nepal-China bilateral trade in the past. Besides widening and upgrading the Araniko Highway, Chinese authorities are considering setting up new immigration, custom and quarantine offices at Nayalam as an alternative to the shattered Khasa town.6 Nyalam is located on old Nepal-Tibet trading route, which is opposite to Nepali border town Kuti and is just five kilometres away from Khasa.
Map 7: Showing Kerung (Kyirong) - Rasuwagadhi Road and Syabrubensi
Source: Raonline
China has agreed to repair and Opening of Maintenance Project of Syaphrubesi-Rasuwagadhi Highway. At present, Rasuwagadhi is the only operational trade check point at Nepal’s northern border. Although in modern era, Rasuwagadhi border point was formally opened for Nepal-China trade in December 2014, the route has historical importance as it was one of the busiest trade links for Nepal-Tibet trade during the Lichhavi (5th to 8th Century approximately) and Malla (10th to 18th century) periods.
PM K P Oli speech at Renmin University
Addressing a seminar at Renmin University, China, PM K P Oli called China an all-weather friend, which was with Nepal during the time of distress as well as the time of comfort. "China has respected our sovereignty and supported our development endeavours. Our two nations have been all-weather friends, friends at times of distress as well as at the time of comfort,”7 he said. The phrase ‘all weather friends’ generally has been used to illustrate Pakistan-China friendship.
Considering the sensitivities of China, PM Oli said, “Nepal adheres strongly to the ‘One-China Policy’, and has not allowed its land to be used, under any pretext, against China. And it will continue to keep this commitment firm and intact.”8
Inspiring much stronger bonding with China, PM Oli stressed the need to set higher and superior ambitions – “higher than the Mount Everest, and superior than the Great Wall.”9 He said that the initiative of ‘One Belt One Road’ is a key step to ‘unleash the potential’ to move together and catalyze the shared interests of both countries.10 Highlighting the importance of One Belt One Road initiative, he said, “The successful process of Belt and Road initiative will converge our interests. With the avenues opened for trade and investment, it will pave a route for prosperity, a route for development.”11
Madhesis on PM Oli’s visit
China’s remarks on Nepal’s constitution displeased Madhesis. Criticising China for supporting Nepal’s constitution, Madhesi leader Rajendra Mahto said, “China welcomed a constitution that is discriminatory against Madhesis and Janajatis.”12 “Unless the people of this country take ownership of the constitution, welcoming of our constitution by a foreign country is meaningless,”13 he said.
Madhesi leader Upendra Yadav, who was also a former deputy PM and foreign affairs minister, said that PM Oli has failed to achieve anything new from his China visit. He was of the opinion that PM Oli did not succeed to get new deals with China in the field of hydro power, transport, communications and human resources. “Those who are speaking high of the new Nepal-China agreement and those who think they have achieved big things are under a wrong impression,” he mentioned.14 “Although China wanted to extend all possible help to Nepal, but Prime Minister KP Sharma Oli-led government was not able to seek help from the northern neighbour,” he argued.15
Nepali Print Media on K P Oli’s visit to China
Chinese Media on K P Oli’s Visit (English-print)
Global Times writes, China never asked Nepal to take side of it.16 “New Delhi is now showing how difficult it is to imagine China replacing its influence in Kathmandu. But Beijing has never asked Nepal to side with it,”17 the news paper mentioned. The Global Times notes that New Delhi should consider the fact that Nepal is a sovereign state not a “vassal of India”. It mentioned, “Kathmandu has the right to choose the development partners that maximize its national interests.”18
Liu Zongyi, Senior Fellow of Shanghai Institutes for International Studies and a Visiting Fellow of the Chongyang Institute for Financial Studies, Renmin University of China, raised the question in a news article in the Global Times, whether Nepal would be a bridge between China and India? He was of the opinion that “China hopes Nepal can serve as a bridge between China and India, rather than a stage of competition.”19
Opinions of Nepali Opinion Makers
***
* The Author is a Research Fellow at Indian Council of World Affairs, New Delhi.
The views expressed are that of the Researcher and not of the Council.
End Notes
1 "Rail Network can be Extended up to Kathmandu, Say Chinese Officials,” The Kathmandu Post, Kathmandu, July 19, 2015.
2 Ibid.
3Nepal’s export to China goes up 81.9 percent and decreased with India by 4.9 percent in four months, Available at: http://www.spotlightnepal.com/News/Article/Nepal-Export-China-up-India-declined, 05 April 2016.
4 “India has Old Ties with Nepal, China has Cash and Tact,” Indian Express, 06 January, 2006, Available at: http://indianexpress.com/article/explained/in-fact-india-has-old-ties-with-nepal-china-has-cash-and-tact/
5 Press Release on an official meeting between Deputy Prime Minister and Minister for Foreign Affairs of Nepal and Minister for Foreign Affairs of the People’s Republic of China, Available at: https://www.mofa.gov.np/press-release-on-an-official-meeting-between-deputy-prime-minister-and-minister-for-foreign-affairs-of-nepal-and-minister-for-foreign-affairs-of-the-peoples-republic-of-china/, December 25, 2015
6 "Trade through Tatopani Unlikely to Resume Soon," The Kathmandu Post, Kathmandu, 14 December, 2015.
7 PM Oli Addresses Seminar at Renmin University, Available at: http://therisingnepal.org.np/news/10012, 25 March, 2016
8 Ibid
9 Ibid.
10 Ibid.
11 Ibid.
12 China Irks Madhesi Leaders, http://www.nepalitimes.com/blogs/thebrief/2016/03/25/china-angers-madhesi-leader/, 02 April, 2016.
13 Nepal’s Madhesi leader Says Nothing New in Deal with China, http://www.freepressjournal.in/nepals-madhesi-leader-says-nothing-new-in-deal-with-china/811857, 03 March, 2016.
14 The Himalayan Times, https://thehimalayantimes.com/kathmandu/nothing-new-deal-china-says-yadav/ March 26, 2016.
15 Ibid.
16 Nepal is not bargaining chip between China and India, http://www.globaltimes.cn/content/974897.shtml#.Vu9IWm7eGuM.twitter, 21 March 2016
17 Ibid.
18 Ibid.
19 Liu Zongyi, Can Nepal be Bridge between China, India? http://www.globaltimes.cn/content/976285.shtml, 27 March 2016.
20Kanak Mani Dixit, Unintended Trans-Himalayan Consequences, http://nepalitimes.com/article/nation/unintended-trans-himalayan-consequences-of-blockade,2942 , 25-31 March 2016
21 Rubena Mahato, Escape Velocity, http://nepalitimes.com/regular-columns/This/Nepal-seeking-closer-relations-with-China,688, 04 April, 2016.
22 Ibid.
23 “Next Door Nepal: Symbolic, not Substantive,” Indian Express, 04 April 2016, New Delhi
24 Ibid.
25 Biswas Baral, “India’s ‘Blockade’ has Opened the Door for China in Nepal,” http://thewire.in/2016/03/02/indias-blockade-has-opened-the-door-for-china-in-nepal-23042/, 03 April 2016
26 Bibek Paudel, The Pan Himalayan Reality that Awaits South Asia, http://thewire.in/2016/04/03/the-pan-himalayan-reality-that-awaits-south-asia-27082/, 03 April 2016.
27 Ibid.
28 Nepali PM's China Visit Landmark to Enhance Relations: Experts, http://news.xinhuanet.com/english/2016-03/24/c_135220296.htm, 24 March 216.