TIBET: NEPAL SEEKS INCREASED PRC TRADE/AID/TRANSPORT LINKS

UNCLAS SECTION 01 OF 02 CHENGDU 000283

SENSITIVE
SIPDIS

DEPT FOR EAP/CM

E.O. 12958: N/A
TAGS: PREL PHUM ECON ETRD EAID EINV ELTN SOCI NP CH
SUBJECT: TIBET: NEPAL SEEKS INCREASED PRC TRADE/AID/TRANSPORT LINKS

CHENGDU 00000283 001.2 OF 002



1. (SBU) Summary: Nepal seeks to be a transit point between
India and China and hopes to see increased development
assistance and investment from the PRC, Nepalese Consul General
in Lhasa told CG recently during a visit to the Tibetan
Autonomous Region (TAR). Nepal seeks lower content requirements
for exports to the PRC, and reported that Chinese businesses are
interested in investing in hydropower in Nepal. Improving road
links should expand trade, but Nepal's request for China to
extend the Qinghai-Tibet railroad to the border has not yet made
it into PRC planning, he said. Comment: While Upadhaya was
enthusiastic on the prospects for increased trade and aid links,
a PRC official in a separate meeting called this just a
"beautiful dream in Nepalese hearts." Embassy Kathmandu noted
that despite Nepalese ideas of a broad bilateral relationship,
the PRC's real interest is preventing Tibetans in Nepal from
causing unrest in China. End Summary and Comment.



Close 'Trilateral' Relations: For Trade or Security?

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2. (SBU) The "Nepal-Tibet-China relationship" is
multidimensional and relations are very close, Nepalese Consul
General Naindra Upadhaya said. (Note: Upadhaya, who is from
Nepal's Ministry of Commerce, was joined by Consul Tej Chhetri
of the Ministry of Foreign Affairs. End Note.) Being
sandwiched between the giants of India and China, Nepal
maintains balanced relations with both; "We want to be a transit
point," Upadhaya said. Among various bilateral mechanisms
between Kathmandu and Beijing, two specific agreements exist
regarding tourism and trade with the TAR. Meetings for the
latter agreement rotate between Lhasa and Kathmandu, he said.



Nepal Seeking to Increase Trade to Tibet

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3. (SBU) Nepal runs a significant trade deficit with the PRC,
Upadhaya noted. Of Nepal's exports to China, the majority go to
Tibet. (Comment: We expect that many of these products are
being transshipped to other Chinese provinces, for example
Nepalese products can be seen in Chengdu's Tibet Town. End
Comment.) China's rules of origin require that Nepalese exports
have a minimum of 40 percent Nepalese content, but Nepal hopes
to have this lowered to 30 percent to boost exports. While
China has assured Nepal it will grant a concession allowing for
preferential access for Nepalese products, the PRC has yet to
actually do so, Upadhaya said. (Note: Nepal news reports
following Foreign Minister Upendra Yadav's April 2009 visit to
China said PRC officials agreed to provide duty free access to
497 Nepalese exports. End Note.)



Upgrading Road Links, and Possibly Rail

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4. (SBU) The PRC side of the highway connecting Kathmandu to
Lhasa is currently being upgraded and is expected to be
completed in October, Upadhaya continued. While container
trucks travel smoothly the 11-12 hour stretch of road from the
border to Lhasa, the four-hour stretch on the Nepal side is
passable but difficult, since it is not up to the international
standard for roads on which container trucks travel.




5. (SBU) Upadhaya confirmed to CG that Nepal has asked China to
extend the Qinghai-Tibet railroad line to the border in order to
facilitate trade and transportation. This is not yet in China's
plans, however, he lamented. (Comment: Upadhaya opined on
possible routes the train route could follow, including tracking
the current China-Nepal Highway or adding a new line along the
Xinjiang-Tibet Highway in the west, but we have heard no such
plans from PRC officials. In a separate meeting, TAR Executive
Vice Governor Wu Yingjie said this idea is just a "beautiful
dream in Nepalese hearts." Embassy Kathmandu notes that only
passing references to further transportation links with the TAR

CHENGDU 00000283 002.2 OF 002


have been made in the local press and that they are aware of no
concrete proposals. End Comment.)



Increasing PRC Investment, Development Assistance

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6. (SBU) Chinese companies are attracted by Nepal's foreign
investment law, Upadhaya said, which provides a nominal tax rate
(though no tax holidays). Nepal still seeks additional PRC
investment, however. PRC development assistance is increasing,
he added, though not very rapidly, rising from an average of RMB
80 (USD 11.7 million) per year through the earlier part of the
decade, up to RMB 100 million (USD 14.6 million) last year, now
to RMB 150 million (USD 22 million). It is "not like China's
investment in Africa," however, he added.




7. (SBU) Chinese companies interested in doing business in Nepal
include those in the cement, minerals (particularly gold),
agriculture, forestry, and medicine industries. The Nepalese
traditional pharmaceutical industry is very good, he said, being
of higher quality than its Chinese counterpart. China also
wants to invest in hydropower in Nepal, he added, arguing that
there are good prospects to eventually export electricity to
India. (Note: Online news reports suggest Kathmandu plans to
generate 25,000 megawatts of hydroelectric power over the next
20 years and that Nepal and India have agreed to expedite
construction of a cross-border transmission line. End Note.)




8. (U) This cable has been cleared by Embassy Kathmandu.
BROWN