65 Years Of Nepal-China Diplomatic Ties Investment Prospects From China

By Leela Mani Paudyal  (KATHMANDU, 1 August 2020) – For an investor, an investment decision is subject to the factual and perceptual environment. The factual environment can be objectively concluded if the published or inquired figures are reliable and track record of investment regime is credible. But the predictability of perceptual environment for foreign direct investment is a subjective parameter mostly analysed and evaluated on the basis of political trust and confidence between the governments. Therefore, good political relation boosts the confidence of the investor and vice versa.
The year 2020/21 is the 65th anniversary of the establishment of diplomatic relations between Nepal and China. If we look at Nepal-China relations of past 65 years from investors’ perspective, Chinese investors are seen recently more confident for putting their money, technology and expertise in Nepal. The rise of confidence is a result of deep-rooted cultural and people-to-people link from time immemorial and the cultivation of bilateral relations based on trust, good neighbourliness and enhanced understanding between the leaders from both countries.
Owing to the COVID-19 pandemic, the global economy has suffered the greatest shock since the World War II. Experts from China and abroad have been expressing quite often that Chinese economy is expected to rebound soon while the Chinese government has also highlighted continued economic progress in 2020. Recent statistics released by the Chinese government indicate that Chinese economy grew by more than 3 per cent in May 2020. China is the only big economy that is recovering quickly after relatively controlling the pandemic. China is the largest source for outbound tourists, the largest trading partner of more than 130 countries and one of the major sources as well as receiver of foreign direct investment in the world. Therefore, the recovery of Chinese economy is of paramount importance for global economic recovery.
Nepali economy is highly linked with Chinese economy. Today, China is the largest source country for foreign investment that has accounted for about two-thirds of total receipt as direct investment over the last four years. Further, China is one of the largest development partners, second largest trade partner and second largest source of tourists for Nepal. Against this backdrop, a close collaboration with China is of critical importance to rescue and revive Nepali economy battered by coronavirus-induced lockdown and other restrictive measures adopted to rein in the virus’s spread.
We normally organise conferences and symposiums for delivering investment policies, procedures but less often on viability of the projects. The list of projects which we have offered is a mere wish list than projects ready to invest in. We are not very clear on procedures for getting into the project. That makes investors confused. Some of the projects we have listed with some preparation too lack clarity on funding modalities and procedures. Predictability or consistency on what is written in legal or procedural format and what is delivered or interpreted by the officials at the counter matters more than in advocacy on policy issues through conferences. One window service should not be one more window and additional cost centre. The service fee charged by Investment Board of Nepal is not justified with its service provided to the clients. It is neither effective nor competent enough to provide one window service to the investors.
The conflict between concerned ministries and the Investment Board of Nepal has put some of the projects in limbo for a decade. Projects and investors are sometimes victimised due to the tussle between the line ministry and the Board after the project is awarded. Therefore, it is recommended to establish professional consultancies which can provide a range of services from project preparation, data analysis, registration and licensing to the land acquisition, tax, legal, procedural matters to the investors in a transparent manner. Leadership requires avoiding negotiations through middleman sans the track record of professional competency, transparency and accountability of such agents. The government should come out with the list of ready to invest projects, with clear and explicit procedures to involve in the project, legal and financial obligations of support to be provided to the investors in early years for establishment, land acquisition, power connectivity, transport connectivity and visa procedures to start business.
President Bidya Devi Bhandari paid the first ever state visit to China in March 2019 while Chinese President Xi Jinping arrived in Nepal in October last year after a gap of 23 years. During the visit of both Presidents, agreements on development cooperation, trade, investment, industrial development, transit transport, agriculture, railway and border cooperation were signed. Those agreements and understandings have opened up new avenues for potential investors. However, the understanding and agreements are waiting for speedy implementation with time bound action plans to produce tangible results.
Nepal’s economy is in downward spiral due to the COVID-19 pandemic. Government revenue, development assistance, inward foreign investments and remittances inflows are all shrinking. Tourism, a backbone of Nepali economy and the most promising sector for economic development, has been paralysed. Nepal is highly a resource deficit country for development and prosperity, a long cherished goal of Nepali people. Therefore, Nepal needs to tap every opportunity for development finance with better terms.
China has leverage of having different windows for outbound investment. It has the largest contributor to the Asian Infrastructure Investment Bank and BRICS bank. President Xi had announced 100 billion of funds during second International Belt and Road Cooperation Forum in April 2019 which is channelised through the BRI mechanism. Chinese Exim Bank is one of the largest Exim banks and several private investment funds are available in China. Out of world’s 10 largest banks by total assets, five banks are from China. China has capability as well as willingness to support development financing for countries like Nepal. Against this backdrop, China’s support in development cooperation, investment and tourism for the revival of economy in the post-COVID-19 era is critically important for Nepal.
Nepal can and should improve investment governance by simplifying procedures, making environment more predictable and preparing ready to invest projects bank to be financed from direct investment. There are several mechanisms and platforms constituted during the recent high level visits for implementing the agreements signed and exploring the potential areas of cooperation. The platforms thus created can be activated with mandate for identifying and developing potential projects for creating employment opportunities and reducing economic vulnerabilities. A competent interdisciplinary team can be set up to finalise the projects ready for funding from private investment and to set standard guidelines for negotiation in order to ensure better terms and conditions for sustainable financing to the projects. It requires concerted efforts to bring about the fruition of those high prospects.

(Paudyal is the former ambassador of Nepal to China.) 

This article first appeared in The Rising Nepal

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