Geopolitics can be quirky, which begs the question whether the economic equation between Nepal and China is inching towards the reefs? Such trends are palpable not very long after the government preferred the earthquake relief package from Beijing to that from India. China is said to have declared what they call an “undeclared trade embargo” on Kathmandu and the reason proffered is to contain the spread of Covid-19.
The Himalayan country’s reliance on China as a trading partner is now under a cloud, and the deterioration in economic bonding has impinged on Nepal’s economy and traders in general. In 2017-18, imports from China were valued at Rs 159.98 billion, an increase from Rs 129.87 billion in fiscal 2016-17.
The expanded trade had not helped Nepal not the least because it contended with a huge deficit. China has now restricted the issue of visas to Nepali traders who have been forced to place orders virtually. Many traders have complained that they have been shortchanged in terms of quality as they had to place orders virtually.
Additionally, with the increase in freight costs, commodities have almost inevitably become more expensive. This has triggered a significant burgeoning of inflation. Unctad (United Nations Conference on Trade and Development) has advanced a caveat, to the effect that higher shipping costs will make goods more expensive in 2023 as well.
Furthermore, there are inconsistencies in imports from China. This has resulted in unprecedented monetary losses to traders; especially Nepali citizens who live in districts alongside the northern border, and who depend on supplies from China. As a result, Nepalis have faced a shortage of daily essentials ~ including food items ~ and these have been linked to China’s restrictions. China’s unreliability and allegedly “underhand trade practices” have raised concern in Nepal over Chinese investments in Kathmandu and further afield.
There has been a rapid increase in Chinese investment in Nepal ever since 2008. This has raised concern as such investment in Nepal cannot be possible without strategic interests being impacted. China will never be able to extract economic returns on its investments in the Himalayan country, at least in the foreseeable future. In 2021, China’s share of total FDI in Nepal increased to more than 70 per cent ~ with a commitment of $188 million out of a total FDI of $268 million.
The track record of Chinese investments in Nepal’s projects has been less than satisfactory. This is clear from the vast gap between commitment and realization of investment, slow growth in the process of implementation, cost overruns due to delays, poor feasibility studies, and rehabilitation of people who are threatened with displacement.
Two major examples are the hydropower projects and the industrial park projects that have been undertaken in Nepal by Chinese firms. As Nepal has had to contend with frequent bouts of political instability, it is direly imperative that the economic situation is stable. But as Kathmandu is learning, the dragon’s embrace can be suffocating