Nepal has maintained social and economic linkages with the Tibet Autonomous Region of China, with which it shares a common border more than 1,440 km long, for a long time in history. Historical accounts tell of a great saint, Maha Manjushree from China who created the valley of Kathmandu by draining out the water from what was then a massive lake. During the early periods of history, Chinese travellers and Buddhist monks passed through Nepal while making their trip to India and returning from there. In the annals of Nepal-China relations, two milestones are considered to be important in consolidating bilateral ties. One of them is the nuptial linkage of Bhrikuti, daughter of Nepal's King Amshuverma, with Tibetan King Srongsten Gampo in the seventh century. The second relates with the contribution of Nepali craftsman Araniko who visited and stayed in China during 13th century and helped in the construction of various stupas including the White Pagoda in Beijing.

Formal economic engagements between Nepal and Tibet dates back to 1650 AD when Malla king Pratap Malla concluded a deal with the Tibetan government that gave privileged status to Nepali traders in Lhasa, achieved the right to mint silver coins for Tibet, and recognised Kathmandu as a centre for entrepôt trade between India and China passing through the southern Tarai plains. This transit trade remained in practice till the Chumbi Valley corridor in southwest Tibet was opened by British India at the beginning of the last century. However, Nepal remained the single largest trading partner of Tibet for a long time in history. In addition to the international trade between Kathmandu and Lhasa, a significant volume of trade takes place in the borderlands that is traditionally done on barter basis.

Trade partner

Bilateral economic cooperation between Nepal and China gained momentum after the establishment of diplomatic relations in 1955. China provided grant assistance to Nepal to develop some key infrastructures like the Araniko, Prithvi and Pokhara-Baglung highways and the Narayangarh-Gorkha road, among others. Some important industries were also established in the public sector with Chinese assistance. Over the last three decades or so, China has also become a major source of cheap consumer goods reaching a large number of people in the country that has led to the replacement of indigenous products and abandonment of domestic industries.

As a neighbour, China has become an important trading partner for the import of goods and some services (mostly construction), and counts as an important partner in the export of tourism services. In 2019, Chinese tourists made up almost 17 percent of total arrivals to take the second place after India. In terms of foreign direct investment, China has topped India with commitments totalling Rs173 billion for 1,876 projects in mid-2021.

Several bilateral agreements show the growing trade and economic engagement between Nepal and China. Such agreements include deals providing zero tariff preference to Nepali goods, transport and trade facilitation agreements, cooperation agreements for the improvement of and harmonisation of standards, test and certification of commercial goods, transit transport agreements and several memorandums of understanding. Nine such memorandums were signed recently during the visit of Chinese Foreign Minister Wang Yi to Kathmandu; most of them are reaffirmations of previous agreements and memorandums rather than new pacts.

There is a dilemma in bilateral engagement which is associated with the implementation of arrangements, plans and programmes that lack visible results on the ground. The plan to phase in zero tariff preference to Nepali goods in the Chinese market is hindered by the presence of several non-tariff barriers and lack of overland connectivity. Nepal's trade deficit with China has been growing at an unprecedented rate over the past decade. The latest figure published by the Department of Customs shows that China's share in Nepal's imports is 14 percent while it is less than 0.4 percent in exports.

Bilateral trade has been facing several hassles over the past seven years due to limited opening of the Tatopani and Rasuwagadhi border posts on the Chinese side of the border. On the other side, the much-touted transit transport agreement signed in 2016 and its protocol in 2019 has landed in uncharted territory. Not even a single trial run of transit transportation has been carried out, which means that the cost, time and processes of transit movement of third country goods through Chinese territory is yet unknown. Thus, the diversification of transit corridors with the idea of opening northern corridors has turned merely into a subject of political rumbling and a fallacy of disenchanted aspiration.

Nepal and China concluded a bilateral transport agreement in 1994. This agreement, if implemented, could facilitate movement of goods and passenger traffic between Lhasa and Kathmandu. Efforts were made to introduce bus services between the two cities in 2004, but this could not continue due to visa problems for travellers who wish to visit Lhasa from Kathmandu. Even today, goods-laden trucks with Chinese and Nepali registration can only ply up to the borderlands despite the inter-country movement allowed in the transport agreement.

Many meetings

A two-tier mechanism for resolving issues in cross-border movement of traded goods were formed by an agreement signed in 2009. Several meetings of the Nepal-China Tibet Trade Facilitation Committee have been held over the past years, but the traders and business communities cannot find any useful decisions and facilitative actions to resolve the issues being faced by them at the Tatopani and Rasuwagadhi border points.

It is obvious that agreements concluded by Nepal with the neighbouring countries in general, and China in particular are fraught with implementation issues. Negotiations are held, agreements are concluded, and the contracting parties seem to be ebullient about the achievements they have made in taking up the issues. The issues, thereafter, are either forgotten or there is lack of will and commitment for implementation. As a small economy partnering with big neighbours, Nepal should be able to persuade and get things done. For this to happen, there should be a strong and robust monitoring mechanism to oversee the implementation status of the agreements, plans and programmes agreed upon. Agreements should be implemented in their true spirit. It is important to note that any future agreements should be supported by an implementation schedule so that both sides understand their responsibilities in realising the objectives of such pacts.