Nepal: Chinese support in road construction and Investment

[haidian]

Nepal: Chinese support in road construction and Investment

Sunday, January 6, 2013 4:35 AM

Ms. Isabelle Duquesne
Nepal Expert French Scholar

Access and Mobility between the two Countries:

Six years after the start of construction, the Arniko Highway was opened to traffic in 1967. The then president of the Nepal-China Friendship Society, Poorna Bahadur, termed the Arniko Highway as “the second degree of freedom” (for the landlocked country), comparing it to the “first degree of freedom”-the transit route via India to Calcutta. It is now part of the Asian Highway as developed by ESCAP.

To date, China has contributed to much road and bridge infrastructure construction: the Arniko Highway and its rehabilitation (104 km), the Kathmandu Bhaktapur Road (13 km), the Prithvi Highway with Surface Pitch Paving (174 km), the Narayanghat-Mugling Road (36 km), the Gorkha Narayanghat Road, the Majhuwa-Gorkha-Road (24 km), the Kathmandu-Bhaktapur Trolly Bus (14 km), the Kathmandu Ring Road (27.2 km), the Pokhara-Baglung Road (65 km) and the Seti River Bridge at Pokhara. One current large project is the northern route with eight bridges, the Syafrubesi-Rasuwagadhi Road, for which China is the 100% contributor.

Chinese Aid:

China supports Nepal in various projects besides road construction. Monies are contributed to the health sector (Civil Service Hospital in Meenbhawan, Kathmandu, and the B. P. Koirala Memorial Cancer Hospital, Bharatpur), to education (Polytechnic Institute in Banepa), to communications (Nepal Television Metro Channel Station Expansion and improvement). Other projects under consideration include the National Ayurvedic Research and Training Institute, the Outer Ring Road in the Kathmandu Valley, and the Conservation Research Centre.

In the area of industrial aid, support has gone to the Bansbari Leather and Shoes Factory, the Hetauda Cotton Textile Mills, the Harisidhi Brick Factory, the Bhaktapur Brick Factory, the Industrial Gloves and Apron Manufacturing at Bansbari, the Bhrikuti Paper Mills and the Lumbini Sugar Mills. Other projects include overhauling buildings, infrastructure, equipment and maintenance, and large buildings that serve public functions, as well as support in establishing industries, resource development, health, sports, and education.

China has been assisting Nepal’s socio-economic development since the opening of their diplomatic relations. In October 1956, the first Agreement between China and Nepal on Economic Aid (20 million Indian rupees- about US$444,440-in cash and double the amount for projects) was signed. Afterwards, assistance occurred through the completion of projects, without cash transfer. Since the mid-90s, the Chinese government has been giving grants under the Economic and Technical Cooperation program whereby the operations are based on mutually acceptable development schedules. The sums provided are about 80 million Yuan (US$ 12.178 million) a year. However, Him Bahadur Thapa remarks that the Chinese Government considers providing project-centered aid instead of finance. This is due to an unsuccessful disbursement of the monies into the projects in full by the Nepal government, and the desire to control that aid is going where the donor had intended. Furthermore, Chinese involvement is becoming more attractive as Chinese interests will potentially grow more and more rewarding in Nepal. China says that their assistance towards Nepal is the highest in South Asia.

China has been providing 100 scholarships annually to Nepalese students in China. Since the MoU on cultural cooperation in 1995, exchanges, cultural fairs and programs have been organized in each other’s country.

During his visit to China in April 2009, Nepal’s Foreign Minister, Upendra Yadav, was promised an increase of 50% in the annual assistance, which stands at 100 million Yuan (US$1.5 million) today. China also intends to provide duty-free access to as many as 497 different Nepali export items and to help develop Rampur Agriculture Campus in Chitwan into an agriculture university.

Trade and Commerce:

For Nepal, doing business outside the country in a highly competitive environment is extremely difficult. In view of China’s pragmatic policies of economic cooperation for development and the future opportunities for Nepal to enter the Chinese market, the strategic balance between north and south is more significant-and more promising-than ever before. In October 1982, the two countries established the Inter-Governmental Economic and Trade Committee (IGETC). For 16 years, this forum served as a discussion platform regarding China-Nepal bilateral economic and technical assistance, bilateral trade and tourism. This stopped in 1998, to be started again in a new form.

The volume of Nepal-China trade is increasing every year, but so is the gap between exports and imports. The trade balance is significantly unequal, with a deficit of 40 billion Rupees in 2010. Nepal’s trade with China occurs largely through Hong Kong and Tibet. It is difficult for Nepal to market its products in China. The bulk of exports revolve around paper, wooden and bamboo products. The imports are more diversified and in larger quantity: textiles, machinery, spare parts, medical and electrical equipment, and medicine. To ease Nepal’s efforts to balance its trade, the establishment of industrial estates and commercial points near the border,

Export Processing Zones, even warehouses across the border, are necessary. Overland trade presently goes through six border points into TAR: Kodari-Nyalam, Rasua-Kerung, Yari (Humla)-Purang, Olangchunggola-RIYO, Kimathanka-Riwo and Nechung (Mustang)-Legze. However, Nepalese exporters have complained of sometimes uncooperative behavior from TAR government officials towards them.

While Nepal is asking China to enter a bilateral free trade agreement, China is asking Nepal to consider being a party to the Bangkok Agreement. TAR’s development by China is an opportunity for Nepal: new relations with the proximate neighbor can bring mutual benefits.

Nepal is asking China to include the potential of this proximity in its Western Development Strategy.

Tourism:

China has designated Nepal as a tourist destination and Chinese tourist agents organize group and business trips there. The two countries have signed an Air Services Agreement in 2003 and a direct bus service between Kathmandu and Lhasa opened in 2005. Nepal’s Tourism Ministry and TAR Government have formed a joint committee to promote their common “Top of the World” natural heritage.

Following China’s entry into WTO in 2001, the government increased the number of countries with Approved Destination Status rapidly, Nepal being one of them in the same year. By 2002, says Pradeep Raj Pandey, Chinese outbound travelers amounted to 16.6 million, up 36.8% from the previous year. Despite the SARS epidemics, the number of tourists in January-August of 2003 had already reached 11.84 million; up 15% from the same period the previous year. Forty percent of travelers go to Hong Kong and Macao.

In 2004, Chinese arrivals in Nepal made up about 2.5% of total entries, contributing to an increase in arrivals by air of 7%. The new middle class in China makes up about 110 million people, roughly 10% of the working population. Some estimates say it will reach 400-500 million within 10 years, all of them financially able to travel and keen to explore their Asian neighborhood and the historical roots of Buddhism. Most visitors today come from large urban centres such as Guangzhou, Shanghai and Beijing. Hong Kong, Lhasa and Shanghai have direct air routes to Nepal.

Chinese Investment in Nepal:

Chinese direct investment is growing. While on the one hand, Chinese business expertise and dedicated funds are necessary, it is important that Nepal keep its national assets and potential growth in its hands. Nepali people are challenged to rise to the expertise level of the Chinese (and the Indians) and create joint ventures with them rather than letting the industrial landscape be controlled by either of their neighbors. Chinese investors are interested in the tourism and hospitality trade in Nepal, garments, civil engineering, construction of infrastructure and buildings, hydro power and electronics. While seeking short-term gain or mutual benefits, it is crucial that Nepal be careful not to sell itself out. Defending territorial sovereignty under international law is one thing, protecting economic rights under the tenets of “market liberalization” quite another. Only fair deals are good deals.

The Nepal-China Non-Governmental Cooperation Forum, established in 1996, is co-organized by the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the All China Federation of Industry and Commerce (ACFIC). The ninth meeting’s theme in June 2007 was “Prosperity through investment and tourism.” The Forum seeks to strengthen the bonds between the trade and industrial communities. For the first three months of 2007, China’s foreign trade with Nepal had reached US$71 million (an increase of 46.99%), with Chinese exports reaching US$66 million (increase of 4l .88%) and imports reaching US$5 million (an increase of l76.57%).

China’s Nepal policy aims to accommodate each other’s political concerns, enhance economic cooperation on the basis of mutual benefit, boost people-to-people and cultural exchanges, and strengthen coordination and cooperation in international and regional affairs. Demonstrating such engagements, over 30 Chinese delegations visited Nepal in 2008. Beijing is cultivating ties with all the political parties, separately and together, and is showing much interest in Terai politics. Thirty-three new China Study Centers (CSCs), fully funded by China, have been established in southern Nepal adjoining the Indian border. China Radio International has launched a radio station in Kathmandu in order to bring China closer to Nepal. Military assistance is gaining significance. On 7 December 2008, during a meeting in Kathmandu between Nepal’s Defense Minister Ram Bahadur Thapa and the deputy commander of China’s People Liberation Army, Lieutenant General Ma Xiaotian, China pledged to provide US$2.6 million as military assistance for Nepal’s security sector. In September 2008, China announced military aid worth $1.3 million. In the government’s dispute concerning the integration of the 19,000 ex-Maoist combatants and the sacking of the Army Chief of Staff, China sided with the Maoist leaders (i.e., the full integration of former rebel combatants into the Nepal Army).

In April 2009, the Nepal-China Executives Council (NCEC) and the Chinese People’s Association for Friendship with Foreign Countries (CPAFFC) signed a MoU. The trade volume between the two countries then stood at $401 million, with China selling goods worth about $386 million, and Nepal exporting a mere $15 million. To help bridge the trade deficit, China wants to provide duty-free access to 497 Nepali goods in the Chinese market in the near future.

China “has expressed interest in establishing manufacturing units of its firms” to make products that are consumed in large quantity on the domestic market in Nepal. Chengdu, the capital of the Sichuan province in Southwest China, for example, is looking to setup factories in Nepal. FDI and joint ventures with neighboring partners are welcome opportunities for inter-trade relations and Nepal is in great need of it. Nonetheless, Nepal should care not to repeat a negative symbiosis northwards by becoming the workshop of Chinese garments, Chinese phones, Chinese footwear under Chinese brands, factories, investment rules and regulations to the point of imbalance. Negotiations have to create deep advantages for both sides, encouraging interdependence but also independence for Nepali products on the long-term, providing international but also national sustainable industrial and commercial relations. Whatever Nepal produces in cooperation with international companies, and in view of the proposition of this book, it should not manufacture weapons.

The Water Denominator in Sino-Nepalese Relations:

China has been contributing in the development and harnessing of Nepal’s waters. Aid has flown directly to four projects: 1) the Sunkoshi Hydroelectricity Plant; 2) the Pokhara Water Conservation and Irrigation Project (multipurpose); 3) the Sunkoshi Vicinity Electricity Transmission Project; and 4) the Sunkoshi Kathmandu Electricity Line Transmission Project. The Daramkhola hydroelectricity project is being run by China Machine-Building International Corporation (CMIC) in cooperation with the Gorkha Hydroelectricity Project. Negotiations are taking place with the Shanghai Group regarding the construction of the Upper Tamakoshi Project. China wants to continue providing active cooperation in energy development. On the conservation and security side, the two countries are considering establishing an International Centre for Snow and Ice to monitor the glaciers and their waters.

Conclusion:

Sino-Nepalese relations are, in some regards, similar to Indo-Nepalese relations: China is a donor and leading investor in Nepal, able to provide, help and choose. Yet it is different in many other ways; for example, there is no borderlessness or perceived “unequal treaties.”

The situation of Tibetan refugees in Nepal remains uncomfortable. If the refugees start advocating for Free Tibet in the Nepalese capital, the GoN is bound to remain loyal to its treaties with Beijing, which leads to necessary containment of protests.

While the power of economic China is welcome, its purchase of Nepal is not. So it will be a matter of cautious management and negotiations to keep investments and joint ventures truly mutually beneficial. For the time being, Nepal depends on China’s interests in the country, but it should plan to create relations that demonstrate more partnership and less recipience. Surely it will be to the long-term benefit of China also if Nepal creates a stronger, more independent economy, able to export Nepali made products and gradually restore a healthy trade balance.

Thirty years ago, China supported the idea of Nepal being a Zone of Peace. We may assume that this stance remains true today. In view of the desire by billions of Chinese, South Asians, Central Asians and South-East Asians to resolve their intra- and interstate conflicts, continued Chinese support for a Zone of Peace at its doorstep may strengthen regional pacification. Also considering the growing rapprochement between China and India, a significant decrease of distrust will enable them to share their growth with their neighbors. We assume, therefore, should Nepal wish to become a Zone of Peace, which China would agree, seeing it as a stable base for their constructive commercial, industrial, and foreign policies.

Published in the Telegraph Weekly with the permission of the author. From the book “Nepal Zone of Peace published by Bhrikuti Academic Publications 2011. Thanks both the publisher and the author: Ed.

Nepal: Chinese support in road construction and Investment