Nepal’s trade with China faces tough times

From January 2020, when the coronavirus pandemic started to spread, there was a virtual halt in the arrival of cargo containers from China to Nepal. Trade has still not fully resumed, with the northern neighbor imposing strict border restrictions. Even then, imports from China swelled in the last fiscal year ending in mid-July 2021.

According to the Customs Department, imports from China in the financial year 2020-21 increased by 28.58% year-on-year to reach 233.92 billion rupees.

Before Covid in the financial year 2018-19, imports stood at Rs 205.51 billion. In 2017-2018, imports were valued at 159.98 billion rupees, compared to 129.87 billion rupees in the financial year 2016-2017.

Nepal suffers from a huge trade deficit with China. While Nepal imported 233.92 billion rupees worth of goods from the northern neighbor in 2020-2021, its exports through the Himalayas were only valued at 1 billion rupees.

This translates into a trade deficit of Rs 232.90 billion, which accounted for 14% of Nepal’s total trade deficit in the financial year 2020-21.

Business with China began to boom after 2015, when the Nepalese government removed export duties.

In fiscal year 2015-16, when Nepal was hit by a devastating earthquake, imports from China amounted to Rs 116.11 billion compared to Rs 99.28 billion in 2014- 15.

Over the past seven years, imports from China have tripled.

Sunil Kumar Dhanuka, chairman of the Nepal Foreign Trade Association, says transport costs have risen exorbitantly after the pandemic. It currently costs $6,000 to $6,500 to ship a 20ft container from China to Nepal, and $10,500 to $11,500 to ship a 40ft container.

Before the pandemic, fees were $1,800 to $2,000 for a 20-foot container and $2,800 for a 40-foot container.

An increase in transport costs means an increase in the price of goods by more than 20-25% for traders, which is obviously passed on to the consumer. Shipping costs are a key component of food and non-food prices in countries like Nepal.

China is Nepal’s second largest trading partner after India.

Nepal’s major imports from China in the last fiscal year consisted of electrical products (worth Rs. 16.70 billion), machinery and spare parts (Rs. 21.17 billion), ready-made garments (17.96 billion rupees) and telecommunications equipment and parts (31.55 billion rupees). ), according to Nepal Rastra Bank.

In the last fiscal year, the country exported handicrafts, mainly metal and wool, worth Rs 141.9 million, other handicrafts worth Rs 165.9 million and wool carpets worth 222.8 million rupees to China.

The pandemic has driven up transportation costs around the world. As a result, goods became more expensive, causing inflation to rise significantly for countries like Nepal.

The United Nations Conference on Trade and Development (UNCTAD) has predicted that higher shipping costs will make goods more expensive over the next year.

Soaring global container shipping rates could raise consumer prices by 2.2% in least developed countries over the next year, according to an UNCTAD report released on November 18, based on an 8.7% increase in import prices.

Container freight rates soared amid rising demand for freight transport, shortages of shipping containers, limited capacity and congestion at ports, the report said, adding that the impact was generally more important in smaller economies.

Ashok Kumar Shrestha, president of the Nepal Trans Himalayan Border Commerce Association, said transport costs from Kerung to the Nepalese border, a distance of 30 kilometers, have increased sixfold to around 600,000 rupees per container from 100 000 rupees before the pandemic. .

More than 100 cargo containers passed through Tatopani daily before the earthquake.

Nowadays, according to Shrestha, about eight containers leave Kerung daily for Nepal.

Most of the goods imported from China are for festival sales during Dashain and Tihar. But for the past two years, ordered shipments have come in so late that they’ve missed the festival’s shopping season.

Shrestha said that China does not issue visas to Nepali traders hence they are cheated on the quality as they have to place orders virtually.

The lack of infrastructure on the Nepal side is also one of the reasons for the low number of containers coming through here.

“The customs yard is very small,” Shrestha said. “From Liping to Barhabise, the road is not very good, and this problem occurs every year during the rainy season.”

Many importers re-route their inbound freight through southern border points to avoid loss and uncertainty.

It normally takes two months for goods ordered from China to reach Nepal by sea freight, and two weeks by container truck overland across the northern border.

The traders informed the Ministry of Industry, Trade and Supplies, the Ministry of Finance and the Ministry of Foreign Affairs, the Chinese Embassy and the private sector apex body, the Federation of Chambers of Commerce and Industry. Nepalese industry (FNCCI), about their problems.

The government negotiated with the Chinese authorities to allow more containers through Nepal, but the trade problem remains the same.

Customs data shows that exports to China fell to 1 billion rupees in the last fiscal year from 1.19 billion rupees in 2019-20. This is almost half of the figure for the financial year 2018-2019, when shipments totaled 2.10 billion rupees.

Concerns have also increased over an undeclared blockade on the Nepal-China border as Nepalese traders have been unable to import goods resulting in losses of millions of rupees.

“China has failed to be a good neighbor in terms of trade,” said trade economist Posh Raj Pandey. Government officials say trade between Nepal and China continues under certain health protocols. “In this context, China has failed to maintain good relations with Nepal.”

According to Pandey, although traders in Nepal have suffered losses due to the restrictions, China may face long-term damage in terms of trade relations.

Nepal turned to its northern border to diversify its trade after India’s border blockade in 2015.

A series of agreements were signed, including one on trade and transit, which gave Nepal access to seven Chinese sea and land ports for Nepal’s trade with a third country. Trade with third countries via China has also raised hopes that Nepal will finally emerge from its total dependence on India.

But with China not allowing cargo trucks to enter Nepal smoothly, concerns have grown whether Nepal can indeed trade with third countries through its northern neighbour.

“Traders who pre-ordered goods in China lost billions,” Pandey said.

There are two key trade routes – Rasuwagadhi-Kerung and Tatopani-Zhangmu (also known as Khasa) – between Nepal and China.

Kerung is located at a distance of 190 km from Kathmandu while the distance between Tatopani and Kathmandu is 115 km.

The Tatopani-Khasa border post reopened on May 29, 2019, after being closed for four years following the 2015 earthquakes. The border point was a major land route for trade with the northern neighbor.

The Rasuwagadhi-Kerung customs point, which was upgraded to an international checkpoint between Nepal and China allowing people from third countries to cross the border, reopened in July 2020.

Nepal’s foreign trade has increased over the past five years, except for a decline in the financial year 2019-2020. Nepal’s total trade declined by 14.59% to Rs 1,294.50 billion in FY 2019-20 from Rs 1,515.64 billion in FY 2018-19 due to restrictions trade related to Covid-19 and a disruption in the global supply chain.

However, in 2020-2021, Nepal’s foreign trade reached a new record by increasing by 29.9% to reach 1,680.96 billion rupees. The total trade deficit increased by 27.3% to reach Rs 1,398.71 billion in 2020-21.

India accounted for 64.1% of Nepal’s total foreign trade in the 2020-21 financial year ending mid-July 2021. China is Nepal’s second largest trading partner, accounting for 14% of Nepal’s total trade. However, China is not Nepal’s second largest export trading partner.

“China’s indifference towards Nepal sends the message that we cannot trust China. Nepal needs to diversify its market,” Pandey said.

(This report is produced as part of a fellowship program Media Research Center-Nepal)

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