Prioritise Trade And Connectivity

In Kathmandu, a broad spectrum of political, economic, diplomatic, and journalistic circles has actively been engaged in both support and criticism of China’s Belt and Road Initiative (BRI), recognising its geopolitical strategy of economic growth and strengthening connectivity. As Prime Minister KP Sharma Oli prepares to visit China in the first week of coming December, this state visit should be perceived as a legitimate exercise of sovereign diplomacy. As the democratically elected head of state, PM Oli has the prerogative to pursue international relations that foster peace, economic prosperity, global dialogue, and cultural exchange. China has long been a strategic friend for Nepal and has played a significant role in global politics as a key member of the UN Security Council. The timing of this visit is particularly significant given the country's pronounced trade imbalance—an issue underscored by recent statistics from the Ministry of Finance.

In the first four months of fiscal year 2024/25, Nepal’s imports amounted to Rs. 513.39 billion, marking a slight 0.17 per cent increase over the previous year, while exports rose by 4.16 per cent to Rs. 52.67 billion. Despite this modest export growth, the trade deficit widened to Rs. 460.72 billion, with imports comprising 90.25 per cent of total trade value and exports only 9.75 per cent —a negligible improvement from last year’s figures. During the same period, Nepal imported goods from China valued at Rs. 103.18 billion, representing 20.1 per cent of the country's total imports. However, Nepal’s exports to China amounted to only Rs 0.682 billion—a mere 1.3 per cent of total exports.

Trade disparity

This persistent trade disparity underscores a pressing economic challenge that should prompt decisive intervention from the central government, which has thus far exhibited a limited sense of urgency in addressing the country’s growing economic vulnerabilities. It is essential for PM Oli to prioritise negotiations that expand market access for exports, particularly in high-potential sectors such as agriculture, which has traditionally attracted demand in regions like the Tibet Autonomous Region (TAR). It is imperative for the government to actively pursue policies aimed at reducing this deficit. The government should focus on expanding its export base with China, rather than seeking grants and loans. Strengthening trade opportunities would foster a healthier, mutually beneficial economic relationship with China, a historic partner with which the nation shares both cultural and historical ties.

Nepal is grappling with a limited understanding of the BRI and fails to fully recognize the potential benefits it could derive from it.  This includes not only infrastructure financing but also opportunities for economic cooperation, encompassing goods, services, and cultural exchanges. At its core, the BRI seeks to promote open economy restructuring and innovation-driven growth by confidence-building among participating nations. For Nepal, the BRI is not merely a source of grants and loans; it represents an opportunity to participate in China’s open economy, providing Nepali goods and services with access to the vast Chinese market. The BRI also addresses critical areas such as development, peace, and governance—pillars that align with the country's developmental aspirations. Furthermore, the BRI is built upon the historical legacy of the Silk Road, and Nepal has the potential to draw upon this legacy to achieve economic gains and development milestones.

Under the BRI, five thematic "roads" have been framed: the Road of Peace, the Road of Prosperity, the Road of Openness, the Road of Innovation, and the Road of Civilisational Connection. Nepal can strategically align its national goals with these themes to foster a vision of “Happy Nepali and Prosperous Nepal.” PM Oli's visit offers an opportunity for discussing Nepal’s fit within the BRI’s roadmap, allowing us to benefit from this global development model. Among the BRI's central aims are five types of connectivity essential for development: policy coordination, infrastructure connectivity, unimpeded trade, financial integration, and people-to-people linkages. Each form of connectivity holds unique strategic importance for Nepal, particularly regarding access to China's open economy. PM Oli should advocate for enhanced cross-border transport networks, which would streamline trade and strengthen economic ties between the two countries.

China’s development model, which has lifted 800 million people out of poverty, holds valuable lessons for Nepal. Since launching economic reforms and opening up in 1979, China has pursued a path of continuous structural adjustments and proactive global engagement. Over the last four decades, this model has transformed China into a global economic powerhouse. The trade sector alone has created approximately 180 million jobs. China’s experience with reform and opening up demonstrates how an economy can achieve resilience and prosperity through targeted, innovative economic policies. Nepal has already tested positive impacts from China’s cooperative initiatives like Bhirkuti Paper Mills, Tripureshwor-Suryabinayak Trolley Bus, and the International Convention Centre (formerly Birendra International Convention Centre), etc. PM Oli’s upcoming visit could open doors for further collaboration, particularly in areas where our country could benefit from China’s expertise in economic transformation.

In bilateral discussions with Chinese leaders, PM Oli should emphasise Nepal’s strategic interest in securing unimpeded trade access, with particular focus on facilitating the entry of Nepali agricultural products—including dairy products—into Chinese markets such as Tibet. Historically, Nepal has enjoyed a trade surplus with Tibet, driven by agricultural exports; however, it now faces a trade deficit, in part due to administrative barriers. Re-establishing and expanding exports of agricultural products, including meat and animal feed like silage and haylage, would cater to Tibet’s substantial demand, especially given its climatic limitations for local production.

Furthermore, Nepal stands to benefit significantly from the establishment of innovation and development centres through collaboration with Chinese innovation firms. 

Across Asia, Europe, and Africa, innovation hubs initiated by Chinese companies have spurred advancements in sectors like electric vehicles—accessories, batteries, information technology, sustainable cities, water management, and cloud computing. By fostering similar partnerships in Nepal, China could support employment generation and high-end skill development, equipping Nepal to respond to regional demand for high-tech services and products.

Countries such as Vietnam, Thailand, and various African nations have successfully leveraged their BRI partnerships to drive economic growth, and Nepal could similarly benefit from a tailored engagement that aligns with its development priorities. The Nepali side might also raise the possibility of a power purchase agreement (PPA) with China. Nepal’s hydropower projects, primarily situated in the mountainous northern regions, face significant logistical and political challenges when exporting electricity to South Asian neighbours. Establishing a PPA with China could bypass these constraints and serve as a transformative economic strategy for Nepal.

Quality infrastructure

In the context of Nepal’s engagement with the BRI, concerns have emerged regarding the quality and punctuality of infrastructure projects executed by Chinese contractors. Issues surrounding delays and substandard project outcomes have contributed to growing public scepticism toward contractors. 

PM Oli should diplomatically address these concerns, advocating for robust quality control mechanisms to guarantee that all projects adhere to stipulated standards and are completed within set timelines.

PM Oli’s upcoming visit to China represents a pivotal moment for Nepal to solidify its place within the BRI framework and cultivate a trade and innovation-centric relationship with China. This visit offers an invaluable opportunity to negotiate terms that prioritise economic self-sufficiency through trade and innovations rather than asking for loans or grants. By emphasising trade connectivity, infrastructure development, and innovation partnerships, Nepal can work towards a resilient, self-reliant economy that benefits both neighbours. With a strong and strategic engagement in the BRI, Nepal could take meaningful strides towards its vision of a “Happy Nepali, Prosperous Nepal.”

(Neupane is affiliated with Baya Himalaya, a firm specialising in research, development studies, and knowledge management.)