Widening Trade Deficit Worries Nepal and China

Consider the figures. Nepal´s trade deficit with China, including Hong Kong, soared by 36 percent last year and, in fact, it has almost doubled in the last two years to touch Rs 22.48 billion last year. While skimming Nepal´s trade statistics with its northern neighbor, it takes no time to find one more alarming trend. Nepal´s exports to China tumbled to less than half of what it was in 2004/05 while Nepal´s imports went up by over 65 percent during the same period.

It is not surprising Chinese imports are growing at a fast pace, as this has been a global phenomenon. China has demonstrated its tremendous capacity as the world´s factory, producing everything from toys and canvas shoes, to high-tech civilian and military aircraft.

But what is disturbing is the fact that Nepal´s export to China is continuously shrinking, and has lately been squeezed down to less than a billion rupees compared with over two billion rupees´ worth of exports recorded in 2004/05.

What went wrong? Instead of expanding its exports to China, why is Nepal losing its market in the world´s third largest economy? The answer is simple. Nepal doesn´t produce exportable products. It is no longer competitive in the rapidly modernizing Chinese consumer market. Currently, Nepal has almost no commodities that have a secure market in China, says Rajesh Kaji Shrestha, chairman of Nepal China Chamber of Commerce and Industry.

In addition, the railway connection between Tibet´s autonomous region and China´s big cities has played an important role in squeezing Nepal´s export to China. The railway enabled Chinese goods to be more cost effective in the booming cities of Tibet than those goods imported from Nepal, thus almost removing the market for once thriving exports of construction materials completely.

Vegetable ghee, once exported to Tibet for lighting, was a dominant item on the export list to China just a couple of years back. But the product suffered a similarly painful demise when Chinese factories supplied cheaper, non-edible ghee.

Not only Nepal officials are worried with the situation. The rapidly widening trade deficit has also sparked concern among Chinese officials. Talking to myrepublica.com in Beijing recently, Liang Wentao, deputy director general of the Ministry of Commerce of China, said that the Chinese government is ´very much concerned´ with its increasing trade surplus with a small and friendly country like Nepal. Wentao added that the Chinese government is ready to extend all necessary support to boost imports from Nepal, and that it is working with Nepali officials to explore various ways to initiate policies to help increase Nepal´s export to China.

Commerce Secretary of Nepal Purushottam Ojha is optimistic the widening trade deficit will start to decline once both countries finalize proposed duty-free access for Nepali products into the Chinese market. China is ready to provide the duty-free facility on 278 tariff lines, a facility it has been providing to LDCs across the board. However, Nepal has pushed for a different list containing 497 items, as the original list of commodities does not include items of Nepal´s export interest. "We have included potential export items like food and vegetable products, forest-based herbs, beer, flour, noodles and construction materials," Ojha said.

In addition, officials from each country stress that enhancing competitiveness of Nepal´s exportable products is the most sustainable way to deal with the ballooning trade deficit. How can this be done? Wentao advises to Nepal to lure foreign investment, which will not only provide much-needed capital but newer technology as well, as China has been doing since it adopted the policy of reforms and liberalization of economy.