Chinese Foreign Minister Wang Yi is visiting Kathmandu next week. This is the first visit by a senior Chinese government official to Nepal since President Xi Jinping’s visit in October 2019. This visit comes in the wake of parliamentary ratification of Millennium Challenge Corporation’s $500 million Nepal Compact. Nepali Prime Minister Sher Bahadur Deuba talked to the US Secretary of State Anthony Blinken on March 2 and the latter seemed to affirm Nepal’s commitment to working “closely together on economic development and regional challenges”. Given that the US regards China as a “regional challenge”, this may have a bearing on the otherwise cordial China-Nepal relationship.
As a Nepali with substantial experience and knowledge of China and the relationship between the two countries, I would like to make a few suggestions to Nepali leaders on topics that need to be discussed during the meeting with the Chinese foreign minister.
The MCC Compact needn’t be a barrier to China’s cooperation with other countries. Mongolia, for example, which is beginning the transition to stage 2 of the MCC, exports 85 percent of its products to China, and imports nearly 32 percent of its products from there, making China by far its largest trade partner both ways. Mongolia has a very robust set of trade agreements with China and trade and development cooperation with China remain smooth. This has meant that Mongolia has been able to maximize benefits from China’s economic growth and replicate some of the achievements when it comes to infrastructure development. It has also led to a vast growth in the Human Development Index.
Nepali leaders should bear this in mind when they meet Wang Yi. In May 2016, former PM KP Oli signed a Transit and Transportation Agreement with the Chinese government, which would theoretically enable Nepal to make use of Chinese ports. There has been no progress in the implementation of the deal since 2016, and this is partially due to turbulent political changes in the country. Because the MCC does not explicitly prohibit trade deals, it is important for our leaders to stress its implementation. China’s ports are some of the most globally competitive in the world (Shenzhen and Tianjin, which the deal covers, are among the top 10 ports). Access to them would increase the scope of the domestic market and Nepal’s industries and maximize the benefits that all parties could reap. More robust imports could mean a transition for the Nepali economy from a model based on remittance (which it is at the moment) to domestic industry, especially with raw materials from Tianjin. It could also make Nepal a regional hub for materials transportation opening the potential for materials imported directly from China to be sold and used in India, aiding the industrialization of the Indo-Gangetic plains, thereby Nepal’s Tarai as well.
Ties between India and China since the beginning of the pandemic have been turbulent. But the truth is when it comes to the question of dominance in Nepal, the two parties have a fierce rivalry. Given that Nepal (so far) enjoys cordial relations with both powers, our leaders have the potential to coordinate China-India negotiations. Both China and India have a common interest in making Nepal a regional trading hub as the world, China and India in particular faces consequences from the ongoing Russian invasion of Ukraine, and should look for mechanisms to heighten trade cooperation in areas like food security and technological development. Because both parties have substantial interests in Nepal, it could play the role of facilitating trade and interaction between their public and private sectors, and mechanisms for maximizing the benefits of FDI could be discussed. This includes, for example, maximizing Tibet-Tarai trade through road links in Nepal, and investing in joint energy projects within Nepal. Although India benefits from the energy production under the MCC, the introduction of the US into the framework somewhat tampers its attempts at establishing an independent presence in Nepal. And because India is a member of the QUAD, it has an interest in de-escalating tensions in the South Asia region, which heightened joint cooperation with China in Nepal could help deter. Sher Bahadur Deuba administration should attempt to coordinate some of these discussions.
Access to the Chinese ports will help increase the scope of the domestic market and Nepal’s industries and maximize the benefits.
A possible framework for what I am saying could appear as China and India compensating for each other’s lack of access to certain trade partners. For instance, although Prime Minister Narendra Modi has been attempting to improve relations with the EU, trade volume remains low. Chinese exports of goods manufactured through trade with the EU through Nepal would benefit all parties: it would improve Nepal’s global connectivity, and aid India’s economic growth by allowing it to purchase them at a relatively cheap price (due to exchange rates). Bolstering regional cooperation in this realm helps build robust financial infrastructure for the region as a whole.
Connectivity with China
For hundreds of years, Nepal was split into spheres of influence. To the north, the Tibetan sphere of influence included Humla, Mustang and numerous other districts. A thriving trade culture (centered around salt) was established in these regions, and for a long time served as the lifeline of the Himalayas.
Until recently, before the onset of Covid-19, trade volume through the border between Nepal and China’s Tibet was increasing, especially between the cities of Simikot and Burang (where a mutual trade working agreement was established in 2014). In certain areas like Mustang district, this cooperation had not yet been ensured, and the pandemic has severed many links that existed between the two countries in all border areas.
The government should raise the issue of reestablishing regular exchanges with Tibet as a high priority during the Chinese foreign minister’s visit. Although China has been enforcing the zero-Covid policy for migration, the resumption of trade along land borders has already started with Mongolia, Vietnam and Laos (with a railway opening in the latter), in addition to the Wa State Autonomous Region of Myanmar. The Nepali government should argue that the Tibet-Nepal border is a region of economic activity and thus expand the previous agreement of 2014 allowing a person, resident within 30km of the borders of each country, to commute to the other side to participate in economic activity, making it as an exception to zero-Covid migration policy.
Nepal’s far-flung districts have little or no link with Kathmandu (other than air, which is expensive), and in the long run, the resumption and heightening of cross-border ties would help with increasing trade volume but also improve Beijing’s ability to interface directly with Kathmandu and increase benefits through integrated infrastructure development. This should be part of the talks.
Time for coordination
Nepal and China have many things in common with one another. Both countries are ancient with multicultural points of intersection and straddle the Himalayas. Certainly, Nepal has a lot more in common with China (and India). Developing economic links that already exist further through negotiations and dialogue (along with a commitment to more regular dialogue) can accelerate Nepal’s development and competitiveness in the global market. The passing of the MCC has the primary component of injecting $500 million into the Nepali economy. This money can be used for the benefit of the country. It does not need to mean succumbing to American foreign policy positions, much less does it mean dependence on the US. In the long run, strategic coordination with China on key issues such as those mentioned above is more important to Nepal’s global position.
That’s so because China’s global footprint is expanding and growing stronger by the day.
Safal Aryal, a high school senior studying in Beijing, follows geopolitics, economics and China affairs.