Nepal inks 10 deals with China, cutting dependence on India

Nepali Prime Minister K P Sharma Oli’s visit to China has yielded ten agreements, including a landmark deal on transit trade.

Aimed at reducing Nepal’s overwhelming economic dependence on India, the transit agreement will give the landlocked Himalayan country access to the sea via the Chinese port of Tianjin.

Although Nepal has transit treaties with India and Nepal, it is with India that the bulk (98%) of its trade with third countries is conducted. Transit trade takes in all business tied to the passage of goods through a country to their destination.

Its extreme dependence on trade with and via India has left Nepal vulnerable to pressure from India. An economic blockade imposed by India in 1989 caused severe fuel and other shortages and crippled the Nepali economy as did last year’s five-month-long “unofficial Indian blockade” during the Madhesi protests.

Nepal PM KP Oli meets to Chinese President Xi in Beijing

Nepal PM KP Sharma Oli meets with Chinese President Xi in Beijing

To ease the hardship caused by the 2015 blockade, the Nepali government reached out to China for fuel. However, China was able to meet only a tiny fraction of Nepal’s fuel needs. Yet the Chinese fuel sale to Nepal was significant. It marked the end of India’s decades-old monopoly over fuel sales to Nepal.

Nepalis support trade pact

And now, the Sino-Nepal transit trade agreement signed during Oli’s visit to China will end India’s monopoly over Nepal’s transit trade. It has been widely welcomed in Nepal.

“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. Republica described the transit agreement as “a major geo-political shift.”

India and China have competed for influence in Nepal for decades. And while China’s influence in Nepal has been expanding in recent decades, it is nowhere near matching India’s influence there. The India-Nepal Treaty of Peace and Friendship of 1950 strengthened a historically close interaction between the two countries. India’s “age-old ties with Nepal” which Indian officials often describe as “unique and special,” geographic terrain, ethnic and cultural similarities, etc. have contributed to India’s considerable influence in Nepal.

Tianjin: distant port option

Port of Tianjin

Port of Tianjin

So how will China’s offer of Tianjin port for Nepal’s transit trade affect India? It does seem that Tianjin can at best provide Nepal with another option to conduct trade with third parties. However, it cannot replace or even undermine seriously the importance of Indian ports in Nepal’s trade.

Consider this. Tianjin port is located 3,000 km away from Nepal while Haldia port is just 1,000 km away from the Indo-Nepal border. Also, India has offered Nepal use of its Visakhapatnam port.

India also has a strong transport infrastructure already in place that facilitates Nepal’s trade with and through India. In addition to the Raxaul-Birgunj railway, which has been operational since 2005, two other rail lines linking the two countries are under construction and more are in the pipeline. India and Nepal already have 25 border crossing points and two integrated checkpoints. Two more checkpoints are under construction.

Of course, China has formidable capacity, expertise and experience in infrastructure building, especially in the Himalayan region. Roads and rails linking China with Tibet have expanded enormously over the last couple of decades and Beijing is considering extending its Tibet railway up to the Nepal border. And Nepal is eyeing multiple train routes to Chinese manufacturing hubs.

This is bound to boost the volume of Nepal’s trade with and via China.

Mountain hurdles

However, as mentioned earlier treacherous terrain and hostile weather do not favor China’s trans-Himalayan ambitions.

China may have mastered the technology for building roads and rails in the Tibetan plateau but the Himalayas pose an even more difficult challenge. The mountains between China and Nepal are of an average height of 6,100 meters. Building rails here will not be easy. Also most of the mountain passes between the two countries are snow-bound throughout the year. The financial cost of hauling cargo across the Himalayas will not be small.

Himalayan mountain peaks in Nepal

Himalayan mountain peaks in Nepal

In contrast, routes from Nepal to India run seamlessly across plains. In addition to a less daunting terrain, travel and trade between India and Nepal is facilitated by a porous India-Nepal border.

Thus, the advantage is still with India and is likely to remain so in the foreseeable future.

However, India would be foolish to ignore the long-term implications of the transit agreement. China is chipping away at India’s influence in Nepal and Kathmandu is welcoming it.

Like India, China too has its advantages. One is its deep pockets which India cannot match when it comes to investing in projects. The second is that unlike India, China does not face hostile sentiment among the Nepali masses. Of course, much of the anti-India sentiment in Nepal is stirred and kept alive by vested interests in that country. Still, this severely undermines India’s influence in Nepal. China’s relations with Nepal, in contrast, are less tempestuous.

The transit agreement is an important milestone in Sino-Nepal relations. It should serve as a wake-up call for India.

Dr. Sudha Ramachandran is an independent journalist/researcher based in Bangalore, India who writes on South Asian political and security issues. She can be reached at sudha.ramachandran@live.in

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