Scrutinizing Nepal-China economic relation

According to Foreign Investment Opportunities 2009 Report, produced by Government of Nepal, Ministry of Industry and Ministry of Commerce and Supplies, the main objectives of Nepal economic diplomacy are to enhance the flow of foreign direct investments (FDIs) into the country, to promote Nepal’s export trade and attract greater number of tourists to Nepal. Therefore, there is a need to anatomize the Nepal-China economic relation and study to what extent Nepal has achieved in line with these objectives.

Scenario of Nepal-China Economic relation

The investment scenario of Nepal-China relation is marked by Foreign Aid and Foreign Direct investment (FDI). In the fiscal year 2011/12, Development Cooperation Report (DCR) suggests that China holds 12^th position out of more than 19 foreign partners contributing 2.8 percent of the total US$ 1.21 billion. In was 16^th in the chart with 1.7 percent share of US$ 1.21 billion in the fiscal year 2010/11.  

Today, China is the second largest country after India in FDI. The Industrial Statistics Report of the Fiscal Year 2010/11 says there were 69 Chinese industries with 1187.40 million rupees foreign investment creating 3066 jobs for Nepalese. In total, 209 foreign industries from 36 nations injected 10050.71 million rupees as FDI which collectively generated 10887 job opportunities. Chinese FDI, unlike other countries, are made in seven major Sectors (Industries) in Nepal which are Agriculture (10), Construction (1), Energy (1), Manufacturing (13), Mineral (2), Service (27) and Tourism (15).

Service sector is primary sector of investment for Chinese investors. 27 industries under this sector have been established so far creating 1143 job opportunities for Nepali labors. Manufacturing sector receives maximum foreign investment, 351.10 as compared to other sectors. Also, this sector is providing 666 job opportunities which is next big number after service sector.

                                                                                                                               

In agro-based sector, Chinese investors are investing more on organic vegetables and farming, tea and herbal medicines. Likewise, Chinese have also started two gold mines in Kathmandu giving off job opportunities to 223 people. None of the other nations, except India and UAE, have directed investments on mineral sector for the fiscal year 2010/11. China is ahead of India and UAE in terms of investment and job creation through mineral sector.

Nepal-China trade deficit since 2005 is accelerating. In recent years, Nepal earns an average of 2 billion rupees from exports to China while they earn more than 40 billion rupees from their exports to Nepal. Although Nepal now receives zero tariff facility to 7787 Nepali products to the Chinese markets, but the Nepalese exports is just dependent on 368 items. Increasing exports has been a subject of major debate and discussions lately.

Nepal is the first South Asian country listed by China as a tourist destination. According to Nepal Tourism Statistics 2011, 32,272 Chinese tourists have arrived Nepal in 2009, while the number increased to 46360 and 61917 in 2010 and 2011 respectively.

‘Travel/Visit’ ranks first by purpose of Chinese tourists’ visit to Nepal. 16752 out of 46360 and 40943 of 61917 Chinese visited Nepal mentioning this purpose in the year 2010 and 2011 respectively. ‘Pilgrimage’ ranked second in the list in 2010 which was 9103. However, in 2011, Pilgrimage dropped drastically to 1026 while ‘official’ purpose rose to 1086 in 2011 from 593 in 2010. Chinese have also started to make Nepal its destination for ‘study and research’. 249 tourists during 2011 came for that purpose. Similarly, 90 Chinese tourists came to Nepal for Rafting in 2010 which dropped to 76 in 2011.

Way ahead:

Considering all the progresses and gaps mentioned above, there are few major suggestions I now would like to reinstate. First is the need of improved aid assistance from China, especially focusing in energy (hydroelectricity) and infrastructure construction like airports, dry-ports and roads. Likewise, FDI on service sector is just limited to Language training institutes and Cargo handling services. Diversification in service sector is therefore required. Education and Information Technology (IT) can be new investment possibility and potential area. Agro-based industries holds good scope if promoted and is important in export sense too.

To reduce trade deficit, Nepal needs to produce and promote indigenous and unique local products that can penetrate the huge Chinese market. At the same time, these products should challenge and compete with exports from 40 other Least Developed Countries (LDC) to China like Cambodia and Bangladesh which have received similar zero-tariff facility like Nepal.

To attract more Chinese tourists, Nepal should provide wide range of diversified holiday/visit plans. For instance, recent growth of Chinese tourists for study visits in Nepal calls for the need of more institutions on Nepal-China Cultural studies, language centers, research centers, universities, etc. Nepal should develop credibility in terms of Chinese tourists’ personal safety and security on adventure tourism so as to attract more Chinese on adventures.

Nepal-China bilateral relation has opened up many prospects for Nepal’s economic development. Evidences from the Chinese investment and tourism sectors show positive growth and better hope for Nepal’s future. Increasing trade deficit needs domestic exercises on making nepalese exports qualititative and more competitive in Chinese markets. In order to rejuvenate from the narrow perspectives of being land-locked to wider perspective of being land-linked, Nepal should at first focus on strengthening its bilateral relation with China. Economic diplomacy with China requires a much serious homework on the home side.  Only a diplomatically sound Nepal can pave way for economic development and progress.