[China this year overtook India as Nepal’s
biggest foreign investor, funding power plants, noodle factories and meat-processing units in
one of the world’s poorest countries. Trade is also booming: Nepal’s commerce
with China has outpaced that with India by 17 times since 2006, eroding the
influence of New Delhi’s leaders.]
By Natalie Obiko Pearson
 |
Photographer: Sumit Dayal/ Bloomberg.
People walk past Chinese construction workers supervising work on
an eight-lane highway in Kathmandu, on Dec. 4, 2014
|
The $45
million upgrade of a road circling the Nepalese capital is one of dozens of
projects helping China challenge India’s dominance in a country that is
sandwiched between them. Until recently, the Himalayas served as a natural
barrier that prompted Nepal to trade more across its flat border with India.
“China is
growing in importance,” Ram Sharan Mahat, Nepal’s Finance Minister, said in a
Dec. 4 interview in Kathmandu. “Because of new trade horizons and the cheap
pricing of Chinese goods, Chinese trade vis-a-vis Nepal is growing.”
China this
year overtook India as Nepal’s biggest foreign investor, funding power
plants, noodle factories and meat-processing units in one of the
world’s poorest countries. Trade is also booming: Nepal’s commerce with China
has outpaced that with India by 17 times since 2006, eroding the influence of New
Delhi’s leaders.
Signs of
China’s growing presence are visible throughout Kathmandu, including the flags
that wave about the construction site, Mandarin announcements at the
international airport and a Chinese-language book shop that popped up in the
capital last month. Local markets are flooded with China-made goods such as
Hindu idols once sourced from India.
“China
looks to Nepal as a gateway to South Asia,” Akshay Mathur, head of research at
Mumbai-based Gateway House, said by phone. “It’s part of a broader strategy to
extend its sphere of influence.”
India Complacent
China is
already seeking a land route through ally Pakistan to
the Arabian Sea as President Xi Jinping
pledges $40 billion in investments along the Silk Road trading route. China in
August completed a railway link near the Nepal border, the official Xinhua News
Agency reported,
which could divert Chinese goods from India’s Kolkata port.
“India and
Indian businesses had been complacent,” Mathur said, in reference to China’s
moves in Nepal. “They’ll have to sit up and take notice.”
India
accounted for 53 percent of Nepal’s trade last year, down from 60 percent in
2006, when a Maoist insurgency ended. China’s share of Nepal’s commerce has
risen to 31 percent from 3 percent in that time, data compiled by Bloomberg
show.
Surrounded by Billions
China’s
competition with India is a boon for Nepal, whose remittances-dependent economy
is smaller than all 50 U.S. states. Its 28 million people have the lowest
spending power of any Asian country apart from Afghanistan,
International Monetary Fund statistics show.
“We’re in
between the two fastest-growing major economies in the world,” Yuba Raj
Khatiwada, Nepal’s central bank governor, said in a Dec. 3 interview at his
Kathmandu office. “No other country has such an opportunity, a market of
billions of middle-class populations on both borders.”
Nepal is
boosting yuan holdings to 15 percent of
foreign-exchange reserves, equivalent to its stocks of the Indian
rupee, Khatiwada said. While the Nepalese currency’s peg to the
rupee is working for now, it might be reevaluated if India’s economy sees high volatility
in the future, he said.
Even though
China has made inroads, India is still poised to gain as Nepal expands. An
India-Nepal power trading pact signed in August could be a “turning point” in
solving South Asia’s energy woes, Johannes Zutt,
the World Bank’s country director for Nepal,
said by phone Dec. 5.
Power Sales
Some 6,000
rivers fed by Himalayan glaciers could be harnessed for more than 80 gigawatts
of capacity, according to Nepal’s
Investment Board, enough to power a third of India.
It has tapped less than 1 percent of that potential while suffering blackouts
for as many as 16 hours a day.
Exporting
electricity to India rather than China is easier because its rivers flow south
off the Himalayas toward India’s most populous states, while China’s biggest
cities and industries are far to the east.
“Nepal can
become a rich country by selling electricity to India,” Narendra
Modi told Nepal’s parliament in August during the first
visit by an Indian prime minister in 17 years, while offering a $1 billion credit
line to fund development. “We do not want free electricity;
we want to buy.”
‘Balancing Act’
In the
biggest deal ever from an overseas investor, Bengaluru-based GMR Group said Sept.
22 it would build a 900-megawatt hydropower plant, estimated to cost $1.4
billion, to export electricity to India. State-run SJVN Ltd. (SJVN) signed an agreement
this month for another plant on
the same river, which is estimated to generate more than $3 billion over 25
years.
Mahat,
Nepal’s finance minister, said blackouts will end in three years as new
projects come on line, boosting growth in the $20 billion economy by as much as
2 percentage points each year from 4.5 percent now.
While it’s
too early to say if Chinese trade will reach parity with India -- particularly
with only one all-weather road between the countries -- the signs are
promising, Mahat said. The number of Chinese visitors has tripled in recent
years, he said.
In
Kathmandu, workers with the Shanghai Construction Group Co. (600170) are
widening lanes, reinforcing bridges and building bus stops. A nearby compound
housing employees has a basketball court, a vegetable patch growing Chinese
cabbage and a dining hall where cooks from the mainland make noodles and tea.
“All these
developments unsettle India quite a bit,” said Purnendra Jain, professor at the
University of Adelaide’s Centre for Asian Studies. “The Nepalese government is
aware India and China are competing for influence and it doesn’t want to put
one party off. That’s a huge balancing act.”
To contact
the reporter on this story: Natalie Obiko Pearson in New Delhi atnpearson7@bloomberg.net
To contact
the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.netJeanette Rodrigues
