Following a meeting of the Nepal-China border trade mechanism in Lhasa on March 29, the Rasuwagadhi-Kerung border point has finally come into full operation from April 1, after being closed for 38 months. China also resumed passengers' clearance at the Jilong (Rasuwa) dry port.

Nepali traders say they are encouraged by the opening of the borders but remain cautiously optimistic. They hope there will be no further obstacles from the Chinese side to the smooth import-export of goods.

“The Chinese commercial counsellor and the ambassador are positive about increasing the trade volume and recovering the losses faced by the traders in the past three years. We hope there will be no more trade obstructions from the Chinese side,” said Tribhuban Dhar Tuladhar, president of the Nepal-China Chamber of Commerce and Industry.

A Nepal government official said Tatopani border would also come into full operation from May 1, but people’s movement via the point is expected to be delayed. China is Nepal's second-largest trading partner after India.

Why was the Nepal-China border closed for 38 months?

China closed the border in early 2020 because of heavy snowfall and the Lhosar festival.

After the coronavirus outbreak was declared a pandemic by the World Health Organisation on March 11, 2020, countries were compelled to seal their borders, with some imposing lockdowns to prevent the disease from spreading.

After China put stringent measures in the wake of the Covid-19 pandemic, both border points were closed in late January, 2020 to prevent the possible spread of the coronavirus, which was first detected in Wuhan of Hubei province in December 2019.

Tatopani border was opened one-way on April 8, 2020, to bring medicines and health equipment only from China while Rasuwagadhi-Kerung re-opened in July 2020, but the cargo movement remained negligible.

Nepali traders even accused China of imposing an “undeclared trade blockade” as their merchandise-laden container trucks were not allowed to cross into Nepal for 16 months. But Nepali government officials denied any such deliberate obstruction.

Nepali traders suffered huge losses due to the disruption in cargo movement as hundreds of container trucks were barred from crossing the border into Nepal. The goods ordered for festivals like Dashain and Tihar did not arrive on time from the north as China sent only limited cargo to Nepal.

China allowed two-way trade via the Rasuwagadhi-Kerung border from December last year, but traders said Nepal’s customs allowed only 14 goods carriers to cross the border every fortnight.

The government negotiated with Chinese authorities time and again to allow more containers to pass into Nepal, but the trade problem remained unsolved for more than 38 months.

Officials from the Ministry of Foreign Affairs, and Ministry of Industry, Supply and Commerce and the Nepali embassy in Beijing regularly drew the attention of the Chinese side and communicated to them the problems faced by the Nepali traders.

But the Chinese side insisted that the trading points could not be opened until the Covid-19 pandemic was over. Also, the Chinese side paid little attention to the concerns raised at the bureaucratic level given the frequent changes in government and the ministerial leadership in Nepal in these years.

Besides Covid-19, poor infrastructure on the Nepali side and frequent landslides along the road posed obstacles to using the trading points to their full potential.

The major trade routes between Nepal and China

There are two key trade routes—Rasuwagadhi-Kerung and Tatopani-Zhangmu (also known as Khasa)—between Nepal and China.

Tatopani-Khasa border point re-opened on May 29, 2019 after being closed for four years following the 2015 earthquakes. Before the devastating quakes damaged infrastructure, the border point was a major overland route for trade with the northern neighbour, with the Tatopani Customs Office collecting more than Rs15 million in revenue daily. Tatopani-Khasa, 115 kilometres from Kathmandu, has historically been the main land route for trade with China.

The Rasuwagadhi-Kerung customs point, 190 kilometres from Kathmandu, which was being used as an alternative route after the closure of the Tatopani-Khasa point in 2015, started to get more attention. The Rasuwagadhi-Kerung customs point, which was elevated to an international checkpoint between Nepal and China, allows people from third countries to cross the border. It was re-opened in July 2020.

What is the trade status with China?

Nepal’s major imports from China in the first seven months of the current fiscal year were computers and their parts, electronic goods, machinery and parts, readymade garment, telecommunications equipment and parts, and textiles.

In the same period, Nepal exported handcrafted goods (metal and wooden) and pashmina to the northern neighbour.

According to the Department of Customs, imports from China to Nepal declined 21.68 percent to Rs145.78 billion in the first eight months of the current fiscal year that ended mid-March.

Nepal imported goods worth Rs264.78 billion in the last fiscal year 2021-22.

Nepal’s exports to China fell 4.85 percent to Rs519.36 million in the first eight months of the current fiscal year.

The country exported goods worth Rs808.75 million to China in the last fiscal year.

Nepal has a huge trade deficit with China, which reached Rs145.26 billion in the first eight months of the current fiscal year.

The imports from China increased 13.19 percent year-on-year to Rs264.78 billion in the last fiscal year. Nepal’s exports to China declined 20.4 percent on year to Rs808.75 million in the last fiscal year. Nepal’s trade deficit stood at Rs263.97 billion in the last fiscal year.

Nepali traders say China has re-opened trade at a time when the demand for goods is slow with no large orders for the Chinese goods because of high domestic bank interest rates and inflation in Nepal.

Business with China started booming after 2015 when the Nepal government removed duty while exporting goods to the northern neighbour.

In the fiscal year 2015-2016, when Nepal was hit by a devastating earthquake, imports from China stood at Rs116.11 billion, up from Rs99.28 billion in 2014-15.

Over the past seven years, imports from China have seen a threefold increase.

The Covid-19 pandemic pushed up freight costs globally. As a result, goods have become more expensive, resulting in a significant rise in inflation in countries like Nepal.

Not only this, the traders had to pay more to import goods during the pandemic as the Nepali containers were not allowed to go to Kerung to load goods like before. The cost of transporting goods over the 26-km distance from the Kerung point to the Nepali border has gone up from RMB 15,000 (Rs300,000) to RMB 60,000 (Rs1.2 million) per container, the traders said.

After facing trouble at the China border with ordered goods not coming on time, the traders opted for the sea route.

Tuladhar said that the full opening of the Rasuwagadhi-Kerung border has reduced the cost for domestic traders.

The construction of Rasuwa dry port being undertaken by the Chinese is not making much progress, said Tuladhar. Once complete, the port can facilitate seamless trade between Nepal and China.

The transport cost when bringing goods from the Tatopani border is Rs40,000 while it costs Rs80,000 to ferry imports from the Rasuwagadhi border point, Tuladhar said. “The government needs to prioritise trade from Tatopani.”

China is providing customs-free access to 8,000 Nepali goods. "The Nepal government should request China to provide a favourable policy on quarantine, and customs clearance," Tuladhar added.

Nepal signed a slew of agreements with Beijing in 2016, during KP Sharma Oli’s first stint as prime minister.

Increased bilateral trade with China was aimed at reducing Nepal’s almost-complete dependence on India. The agreements included one on trade and transit, which allowed Nepal to access seven Chinese sea and land ports for Nepal’s third-country trade.

But as China was not allowing cargo trucks to enter Nepal smoothly, it dampened the prospect of Nepal conducting third-country trade through its northern neighbour.