Nepal Signs First-ever Transit Treaty with China, Easing Dependence on India

Nepal will be given access to China’s Bohai Rim port of Tianjin, breaking its near total reliance on trade routes through India. The landmark agreement was reached during Nepali Prime Minister K.P. Sharma Oli’s visit to China in March 2016.

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Nepal PM KP Sharma Oli meets with Chinese President Xi in Beijing (Source: http://www.news.cn)

Currently 98 percent of Nepal’s trade is using India transit routes thanks to the enormous natural barrier – the Himalayan mountain range. The mountains between China and Nepal are of an average height of 6,700 meters and are snow-bound throughout the year. Difficulty of building rails prevents Nepal from trading across the northern border.

Nepal and India started their trade relationship in 1950. Since late 2015, cultural and political issues have strained relations between Nepal and India. In order to reduce its overwhelming economic dependence on India, Nepal has been seeking new partners.

“Up until now people here felt they had no alternative to putting up with the temper tantrums of the Indian establishment: either the vital necessities had to be imported via India, or not at all. So the new trade and transit treaties with China come as a big boost to the Nepali psyche,” observed Kathmandu Post in an editorial. Some republicans described the transit agreement as “a major geo-political shift.”

The Nepali government first reached out to China in the fall of 2015 for the shortage of fuel, marking the end of the four-decade fuel supply monopoly of the Indian Oil Corporation. According to IHS Global Trade Atlas, the value of total trade between the two countries increased by more than 60 percent to $851 million in 2015. Since then, Nepal has been putting effort to establish partnership with China in other sectors. “Our doors are open for investment in almost every sector. These include manufacturing, hydro-power, tourism, services, IT, mining, and agro-based industries.” Oli told a gathering of Chinese and Nepalese business leaders during his visit.

The advantages of opening Tianjin port are obvious. On the one hand, it will strengthen Nepal’s economic linkages with China, help attract more investment, and draw more tourists into Nepal. On the other hand, it can open up Nepal’s opportunities to connect with countries in Central Asia which are rich in fuel products, such as Uzbekistan, Tajikistan and Kyrgyzstan.

However, compared to the Haldia port of India, Tianjin port is more than three times far from the Nepal border. And also India has a strong transport infrastructure already in place, including railways and pipelines. Therefore, the effectiveness of the transit agreement is still in doubt.

Leveraging its enormous capacity and expertise in infrastructure building, China has been aggressively expanding its rail network in Tibet and plans to connect a rail line to the Nepalese border. It was reported that construction will be completed by 2020. The construction of rail will definitely be a huge government expenditure for China, regarding the challenge imposed by the world’s tallest mountains, while boosting the trade between the two countries.

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Six more rail lines will connect to the Chinese Qinghai-Tibet railway

From my point of view, Tianjin port will not be able to replace the Indian gateways in the short term, which have been in operation for decades. However, the closer trade relationship between Nepal and China will create more opportunities for technical communications and benefit people in both countries. Upon the expansion of rail network, Nepal will connect to the major manufacturing cities in Central China, such as Chengdu and Chongqing, and significantly promote the volume of trade.

 

References:

http://atimes.com/2016/03/nepal-inks-10-deals-with-china-cutting-dependence-on-india/

http://www.joc.com/international-trade-news/chinas-tianjin-port-link-deal-eases-nepal-dependence-india_20160325.html

http://thediplomat.com/2016/03/in-china-nepals-pm-seeks-alternative-to-india/

 

 

 

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