The agreements and economic deals between Nepal and China have flopped and caused huge economic losses to Nepal
In recent years, Nepal has signed several agreements with China in trade and transit, the use of Chinese ports for Nepal’s trade with third countries, connectivity through oil pipelines, the establishment of special economic zones, the purchase of aircraft, and building airports in Nepal. The expectation was that some of these economic deals would help Nepal achieve rapid development. However, most of these agreements were either pipe dreams or inflicted huge economic losses on Nepal.
A case in point is the Trade and Transit Agreement that was signed between Nepal and China in April 2016 when Nepalese Prime Minister KP Sharma Oli visited China. On that occasion, China agreed to provide Nepal access to seaports, including Tianjin, Shenzhen, Lianyungang, and Zhanjiang, apart from three land ports in Lanzhou, Lhasa, and Shigatse for trade with third countries. The agreement also allowed Nepal to export goods through six border points between Nepal and China.
China agreed to provide Nepal access to seaports, including Tianjin, Shenzhen, Lianyungang, and Zhanjiang, apart from three land ports in Lanzhou, Lhasa, and Shigatse for trade with third countries.Many people in Nepal were made to believe that the Trade and Transit Agreement with China would help them reduce their dependence on India. Besides, it would also help Nepal import petroleum products from Kazakhstan through the Chinese pipeline. The then Nepalese ambassador to China, Mahesh Maskey, even went on to say that he was confident enough to deal with Kazakhstan on petroleum issues. At that time, Nepal expected to import at least 30 percent of its total needs of petroleum products from Kazakhstan through the Chinese pipeline, but not a single drop of petroleum products could trickle into Nepal. In another case, Nepal signed an agreement with the Aviation Industry Corporation of China (AVIC) in 2012 to purchase six civil aircraft from China at a cost of INR 6.67 billion. Of the six aircraft, one crashed in 2018. Later, it was found that the equipment used in those planes was substandard. Also, it proved too costly to use Chinese pilots to fly those planes. Thus, in 2020, the Board Members of Nepal Airlines decided to ground all the remaining five ‘Made in China’ planes that it had acquired from China between 2014 and 2018. Before they were grounded, the total accumulated losses to Nepal had already reached INR 1.9 billion. Bangladesh had rejected the purchase of those planes from China, but Nepal went ahead and procured them. Furthermore, Nepal signed the Belt and Road Initiative (BRI) agreement with China in 2017, under the Dahal administration. After signing the agreement, views were floated that Nepal’s trade with BRI member countries would quadruple as China would facilitate the country’s trade through its territory. Towards this end, agreements were also signed between Nepal and China to establish special economic zones in Kerung (China) and Nuwakot (Nepal) closer to the Sino-Nepal border to facilitate not only bilateral trade with China but also trade with third countries through the Chinese territory. But the fact was that Nepal’s trade with China tumbled thereafter. The cargo movements between the two countries through the land routes largely remained paralysed in the last three years because of the frequent closure of two main trade points along the border. Therefore, most of the Nepalese traders and freight forwarders who had been doing business with China found it increasingly difficult to import goods from China through the land routes. Instead, they found it easier to import Chinese goods through the Indian ports of Kolkata and Visakhapatnam.
In 2020, the Board Members of Nepal Airlines decided to ground all the remaining five ‘Made in China’ planes that it had acquired from China between 2014 and 2018.After a lot of hue and cry, after a gap of eight years, China re-opened the Tatopani border point on 1 May this year for trade between the two countries. This border point is the main land route for trade with China and is about 115 kilometres northwest of Kathmandu. However, China stopped the entry of all three containers loaded with plastic utensils through that border point the day after the reopening. Because those containers remained at the customs yard, the Nepalese exporters had to pay INR 5,000 to INR 10,000 per day as charges to the customs. Before the Tatopani border point was closed in the wake of the April 2015 earthquake, Nepal used to export handicrafts, herbs, noodles, and other products to the Tibetan market in Khasa, Shigatse, and Lhasa. By that time, the Nepal government used to collect over INR 15 million in revenues per day through this border point. During the COVID-19 period, Nepal procured Vero Cell vaccines by Sinovac from China in 2021 under a non-disclosure agreement. Therefore, the price of the vaccine was not disclosed while signing the agreement. Later, it was found that the price for a single dose of the vaccine was US$10. Before this deal with China, Nepal had procured Covishield, the AstraZeneca vaccine, from the Serum Institute of India for only US$4 per dose.
Most of the Nepalese traders and freight forwarders who had been doing business with China found it increasingly difficult to import goods from China through the land routes.Recently, on 1 January this year, on the eve of the inauguration of Pokhara International Airport in West Nepal, China created a fresh controversy when it claimed that the airport was built under the BRI, which is China’s flagship project. But Nepal instantly rejected the Chinese claim. Nepal had taken a loan from China’s EXIM Bank for the construction of the airport, but it was not built under the BRI. What is also worrying for Nepal is that no international flight has ever arrived at this airport ever since it was inaugurated. To be sustainable, at least 100 domestic and 50 international flights need to be operated at this airport. It is now time to evaluate why the economic agreements and deals made between Nepal and China mostly flopped and caused huge economic losses to Nepal. Was it due to the lack of sufficient homework on the part of Nepal? Or was it due to the petty interests of someone at the helm of affairs at the cost of national losses? Whatever the truth may be, Nepal now needs to assess the factors that created huge economic losses to it. The concerned agency should see to it that national interest serves as the core of any economic deal that is made with a foreign country.
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Hari Bansh Jha is a Visiting Fellow at ORF. Formerly a professor of economics at Nepal's Tribhuvan University, Hari Bansh’s areas of interest include, Nepal-China-India strategic ...
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