NEPAL: VISIT OF CHINESE DEPUTY FOREIGN MINISTER

C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 002098

SIPDIS

STATE FOR SA/INS
LONDON FOR GURNEY
NSC FOR MILLARD

E.O. 12958: DECL: 10/23/2013
TAGS: PREL EAID PGOV CH NP
SUBJECT: NEPAL: VISIT OF CHINESE DEPUTY FOREIGN MINISTER


Classified By: CDA ROBERT K. BOGGS. REASON: 1.5 (B,D).

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SUMMARY
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1. (C) The October 16-18 visit to Kathmandu of Chinese Vice
Foreign Minister Wang Yi focused primarily on preparations
for the upcoming Dec. 2-3 visit of Chinese People's Political
Consultative Conference Chairman Jia Qing Lin. According to
the head of the Political Section of the Chinese Embassy in
Kathmandu, the Chinese delegation sought and received
assurances that the embattled Government of Nepal (GON) would
be able to provide adequate security for the visit. Although
"politically there is no problem" in bilateral relations
between the two nations, he expressed frustration at GON
slowness in implementing Chinese assistance projects and
noted that the comparatively poor quality of Nepali
products--and thus their noncompetitiveness in Chinese
markets--makes improvement in the trade imbalance between the
two countries unlikely in the near term. An official visit
for Crown Prince Paras to Beijing is being planned for 2004.
End summary.

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CPPCC Chairman's Visit in Works
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2. (SBU) On October 21 Poloff met with Cheng Ji, Chief of
the Chinese Embassy's Political and Press Section, to discuss
the October 16-18 visit to Kathmandu of Chinese Vice Foreign
Minister Wang Yi. Cheng said although Wang's visit was
officially characterized as part of regular bilateral
consultations between the two nations (which are supposed to
be held annually, but which in practice often slip a year),
its main purpose this time was to prepare for the upcoming
visit of Chinese People's Political Consultative Conference
Chairman Jia Qinglin to Kathmandu December 2-3. (Note: This
visit, which will include other South Asian countries, marks
his first official trip as Chairman. End note.) Cheng said
the Vice FM sought and received assurances from his
interlocutors that the Government of Nepal (GON) could
provide adequate security for the Chairman's visit. Wang's
visit coincided with a much-hyped Nepal-Tibet trade fair in
Kathmandu and followed closely the October 15 official visit
to Beijing of Royal Nepal Army Chief of General Staff Lt.
Gen. Victory Rana.

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BILATERAL RELATIONS: "NO PROBLEM"
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3. (C) Politically there is "no problem" in bilateral
relations between the two nations, Cheng declared. An
official visit by Crown Prince Paras to Beijing is being
planned for 2004. The official Chinese position regarding
the seven-year insurgency waged by Maoist rebels--whom the
Chinese Embassy prefers to call "anti-government
activists"--is that the conflict is purely an internal affair
which the GON is fully capable of resolving on its own. When
pressed to elaborate on this position, Cheng explained
patiently, "This is what we always say. We never change it,"
regardless of what may be happening in the field. When asked
for his government's views on recent speculation in the local
press that the Maoists may seek another ceasefire, Cheng
said, the GON should continue to "take action militarily
against the Maoists" in the near term but that ultimately the
conflict must be resolved through negotiations.


4. (SBU) The main "deliverable" during Wang's visit,
according to Cheng, was an agreement between the two
governments to open two additional trading points on the
Nepal-Tibet border. Recently, Cheng noted,the GON has been
pressing the Chinese government to grant greater economic and
trade concessions to help it reap some of the benefits of
China's economic boom and to redress the trade imbalance
between the two governments (about USD 58 million in China's
favor in FY 02, not including a substantial trade in smuggled
Chinese goods). Since China is unlikely to increase its
imports from Nepal significantly in the near term (the local
press quoted an unnamed Chinese official in Wang's entourage
as attributing the trade imbalance to the inferior quality of
Nepali goods),Cheng said the delegation proposed expanding
Chinese tourism to Nepal as a way of reducing the trade
surplus. He enumerated several steps already taken to this
end. Since the end of 2001, when the Chinese government
included Nepal as one of a number of officially approved
tourist designations, tourist arrivals from China have
increased by 13 percent. The GON has exempted Chinese
tourists from visa fees and now allows them to apply for
visas upon arrival. The two governments signed a bilateral
air services agreement earlier this year, which has doubled
the number of flights between China and Nepal (from 7 to 14).
Finally, since June Chinese tourists have been able to use
yuan to pay for expenses incurred while traveling in Nepal.
(Comment: The GON views progress thus far in increasing
revenues from Chinese tourism as disappointing. The local
press covering Wang's visit, referring to Chinese pledges to
promote tourism to Nepal, commented, "a positive outcome of
this development is yet to be realized." End comment.)

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ECONOMIC AID: YOU CAN'T GIVE IT AWAY
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5. (C) Although the GON has pressed for increased Chinese
economic assistance, it has been notoriously slow in moving
to implement bilateral aid projects, Cheng complained. Each
year the Chinese government advises the GON it can offer
about USD 10 million in (tied) aid, generally for
infrastructure projects, and asks the GON to list priorities
for the funding. Cheng lamented the GON's slow response to
these offers, noting that often the full USD 10 million
remains unspent. Only one of three projects agreed to at the
last bilateral consultation in 2001--construction of a new
building for the state-owned television station--has been
completed, Cheng said, and even then the GON repeatedly
delayed scheduling a hand-over ceremony for the completed
building. Only after the Chinese Ambassador complained
directly to the King did the ceremony take place. Other
pending projects include construction of a hospital for civil
servants, a polytechnic institute, and a 22-km highway in
Rasuwa District that will link with a highway in Tibet.

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COMMENT
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6. (C) Landlocked and underdeveloped, Nepal runs substantial
trade deficits with both of its powerhouse neighbors.
Nepal's trade relations with India have historically been
contentious, and the GON is obviously hoping to develop more
robust relations with China to counterbalance the tremendous
influence of its southern neighbor. Nepalese planners are
excited by the construction of a railroad from the Chinese
heartland to Lhasa, hoping the Chinese government can be
persuaded to extend it toward the main Sino-Nepal border
crossing point at Kodari. China's polite but tepid response
to GON overtures regarding trade expansion--parrying requests
for concessions in the present with hypothetical benefits
from an as yet unrealized tourism boom--will likely do little
in the near term to meet Nepalese aspirations.

BOGGS