Capitalize on Chinese Open Markets

By Kamal Raj Sigdel

JUNE 2006: Kathmandu

With the visit of the State Councilor of China, Tang Jiaxuan, Nepal has seen newer prospects for developing its export market in one of the world's fastest growing economies. Tang's visit remained meaningful in many respects.

In an economist's perspective, China granted duty free access for Nepalese commodities to its markets. This is an opportunity opened for Nepalese economy at a time of political unrest. Call it a coincidence, at a time when international community is not in the support of present government. The fact is that it came after more than five years of bargaining with China. However, boasting upon it as a political achievement and as a gimmick to gain public confidence, while making no headway ahead will make nothing out of it. Though it will have no immediate results visible in our economy, in the long term it will promote Nepal's export sector thereby recovering Nepal's balance of payments with China. It is up to us whether we could build on this new trade agreement. Both the public and private sectors should start thinking towards making strategies on how could the facility be best utilized before it is too late for us.

However, the situation is that Chinese markets are still largely incomprehensible to Nepalese entrepreneurs. There is a seer lack of knowledge on Chinese markets, which has been a great challenge for potential Nepalese exporters. Without a better knowledge base, scientifically tested studies and market research, it is for sure that Nepalese commodities will not be able to compete in the Chinese markets. At such scenario, if some concrete actions are not taken to address this basic problem, opening of Chinese markets to Nepalese products will make no difference however liberal may it be.

For a beleaguered economy like ours, opportunities in today's world of competition and liberalism come along with challenges. WTO came to us in much the same way. There were questions among debates when Nepal as a first LDC entered into WTO: "are we prepared enough"? The trade agreement signed between Nepal and China during Tang's visit for providing duty free access to Nepalese goods, brings to us opportunities (came out of the same WTO negotiations) that Nepal never had. But to our weakening economy, there are challenges too, i.e. to be able to fully capitalize on this opportunity.

The fact is that Nepal will not only be a player in Chinese markets, even in neighboring Tibet Autonomous Region. In a move to fulfill its commitments made at WTO, China is granting duty free access to other LDCs as well as. Besides, Chinese goods would appear as much daunting as rest of the challenges for Nepalese exporters in Chinese markets. Ignorance of Chinese market organization, structures, behaviors, demands, local competencies, cultures and systems will further add up to the challenges as these factors are always critical to exporters.

Addressing these issues, therefore, seem very critical for Nepalese business community that is willing to grab this opportunity at this time. Tapping up this opportunity is also very important for HMG Nepal, as it shows possibility of balancing Nepal's huge trade deficit that is still with majority of its trading countries including India and China. Compared to the situation of trade balance with India, which accounts for 61.28 % of Nepal's total trade, the situation with China is unfavorable. More than the mainland China, its Tibet Autonomous Region occupies most of the trade activities with Nepal, as it is the closest market for Nepal in the north. Compared to the Tibet, the possibilities of expanding Nepalese export to China's major markets seems daunting as the distance to major Chinese cities like Shanghai and Beijing is longer. With the same token, the Tibet Autonomous region faces some challenges in bringing goods and services from mainland China's central markets which stretch thousands kilometers away from Lasha, the capital of Tibet Autonomous Region.

At such scenario, regarding distance and other factors, Nepal will be better performing in promoting its export market in the north if major focus is given to Tibetan territory while we try to capitalize this recent trade agreement. As a part of our long-term plan, the first target market for Nepal in utilizing China's open market would, therefore, be the Tibet Autonomous region followed by Hong Kong and mainland China.

When we get start with Tibet as our first target, our strategy to make entry into Chinese Markets, should not be based on the past trade profiles. Rather we should explore new initiatives for trade diversification while thinking of ways to sustain competing-capacity of currently exporting items in the future competitions.

Currently, Nepal is exporting mainly woolen carpets, woolen garments, hides and skins, leather, sculptures, jewellery, and articles of plastics. Wee will soon be facing clear competition in these goods. Though other goods like live plants, black salt, handbags, bags, paper products, cotton garments, Gurkha knives, paintings etc. are also the items that are exported to Tibet, the amount is insignificant so as to contribute in balance of trade. There are several other products, both agricultural and non-agricultural, which have market in Tibet, but having done no studies in that sector, Nepal is lagging far behind in product diversification. As a result, statistics up to now show that Nepal's trade deficit is growing with China, practically, the Tibet Autonomous region.

Since the fiscal year 1998/99, trade deficit soared high up to Rs. 4.773 billion in the fiscal year 2000/01, which is four times grater compared to the figures in fiscal year 1998/99. However, slight decrease in import coupled with slight increase in export in the period between fiscal year 2000/01 and 2003/04, did show positive effect in decreasing trade deficit. But after the fiscal year 2003/04, the trade statistics show Nepal's trade deficit increasing rapidly, which has been further intensified by the increasing import and decreasing export scenario. Nepal's export to Tibet alone decreased by 17.73% during the fiscal years 2003/4 and 2004/5.


This reinforces the need of promoting Nepalese export market in Tibet. Tibet has been one of the major trading partners of Nepal from before the unification of Nepal (around 238 years ago). In recent days, markets in Tibet are growing as the population and development activities are growing simultaneously. China has already set out to develop infrastructures including transport and other facilities to link Tibet with major cities in China mainland. At this situation, Tibet is increasingly becoming one of the attractive markets for Nepalese goods. Nepal should act hard to make environment for maximum utilization of the facility provided by this long-term forged Nepal-China Trade Agreement. But most importantly this agreement should be made stable and trustworthy so as to let Nepalese entrepreneurs gain confidence in strategizing long-term business plans on its basis.

Sigdel a Nepali journalist currently working with Confederation of Nepalese Industry (CNI) can be reached at kamal.sigdel@gmail.com