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The Opportunity of the Yam

May 3, 2009

By: Sujeev Shakya
Himal Southasian
May 2009

Nepal needs to view its two massive neighbours
not from the perspective of outdated
power-balance geopolitics, but through the lens of economics.


Nepal’s relationship with its northern neighbour,
Tibet, was cemented when the Nepali princess
Bhrikuti Devi married the king of Tibet, Songtsan
Gampo, in the seventh century AD and earned the
divine title White Tara. Thereafter, hundreds of
Nepali artisans visited Tibet to build
monasteries; and trade in bronze, gold and silver
idols of Tara and other deities became one of the
cornerstones of commerce between the two
countries. For Nepal, Tibet was a more immediate
entity than China, for thinking of distant
Shanghai as a city with which to do business was farfetched.

During the mid-16th century, a treaty was signed
between Nepal and Tibet that made Kathmandu the
sole entrepot for the latter. In a fairly short
timeframe, this allowed the ethnic Newar
merchants of the Kathmandu Valley to build a
roaring business with Tibet, trading with goods
to and from India. However, defeat to a Chinese
expedition force in 1792 changed Nepal’s fortunes
till trade was restored in 1856, when Nepal
invaded Tibet and forced the trade routes to
re-open. The Newar merchants again began to set
up businesses in Lhasa, where they could trade
goods from India and other parts of the world for gold and silver.

Newly communist China invaded Tibet in 1950, the
same year that Nepal’s first flirtation with
democracy began after the end of the autocratic
Rana regime and the reinstatement of the Shah
kings. The relationship with Tibet quickly came
under review, particularly in the context of an
India that was at the time attempting to play a
dominant role in Nepal, while King Mahendra
attempted to play Nepal’s ‘equidistance’ card
between India and China. Kathmandu subsequently
agreed to Tibet being a part of China by
substituting an ambassador in Lhasa with a
consul-general. Nepal signed a comprehensive
friendship treaty with China in 1960, and the
following year construction began on a highway
connecting Kathmandu with Lhasa, though this did
not see commercial use for long. The 1962
India-China war changed the equation again,
however, as India became increasingly concerned
about Nepal’s position vis-à-vis China, leading
to New Delhi’s agreement to a more flexible
trade-and-transit treaty with Nepal. In turn, by
1964, Beijing agreed to unfreeze the bank
accounts of Nepali traders in Lhasa, leading
again to a resumption of trade relations between Lhasa and Kathmandu.

Yet over time, India’s role in Nepal’s
geopolitical scheme remained dominant, despite
Kathmandu’s attempts to prop up the Beijing
relationship as a counterbalance. While China
supported King Birendra’s Zone of Peace proposal
for Nepal during the 1970s and 1980s, India saw
it as an attempt by Nepal to wriggle out of its
sphere of influence. India rejected the concept
and Nepal itself dumped the proposal after
democracy’s second coming, in 1990. India’s
geopolitical supremacy vis-à-vis Nepal was thus
confirmed, yet again. In 1989, the import of arms
by Nepal from China without the knowledge of the
Indians led to the imposition of a trade embargo
by New Delhi. While this action sparked
international condemnation of India, it did
weaken King Birendra’s authoritarian power,
giving way to a constitutional monarchy. In the
democratic era after 1990, India continued in its
privileged place in Kathmandu’s radarscope. The
rush of Indian multinationals investing in Nepal
further consolidated its position. It was only in
1994, after the Communist Party of Nepal (Unified
Marxist-Leninist) won general elections that the
relationship with China was revisited. The recent
electoral success by the former Maoist rebels is
a further extension of this, as the comrades just
out of the jungle have sought rather desperately to woo Beijing.

As noted previously, however, Nepal’s
relationship was long mostly with Tibet, not with
China. Goods and services that were imported from
or exported to mainland China always had to go
through Calcutta, by sea to either Shanghai or
Guangzhou. But Nepal was seen as a haven for
Chinese goods by Indian customers, at least until
India liberalised and reduced import duties
during the early 1990s. Chinese goods would
arrive in Kathmandu from Shanghai via Calcutta,
and then be smuggled into India. This is the only
explanation as to why, for instance, Nepal
imported more than 25 million Chinese umbrellas
every year during the late 1980s, at a time when
the country’s total population was less than 22 million.

These Chinese goods found their way to India via
many of the border towns of Nepal. But an
especially large centre emerged in Dhulabari, in
eastern Nepal, just seven kilometres from the
Indian border. These items were bought largely by
Tibetan businesspeople, to be sold in Darjeeling
and Kalimpong, as well as in a full-fledged grey
market in Siliguri, from an area popularly known
as the Hongkong Market. One always used to wonder
about the fact that, apart from raising their
collective voice every year on 10 March (the
annual Uprising Day, commemorating the attempt to
evict the newly arrived Chinese soldiers from the
plateau), these Tibetan traders seemed happy
enough to make a good living trading Chinese goods.

During the modern era, Tibet and the Tibetan
people have been the only issues about which both
the Nepali and Chinese state seem jointly
concerned. Whenever the Kathmandu government felt
the need to appease its Chinese counterpart, it
would simply ensure that it curtailed the
activities of ‘Free Tibet activists’ from among
the roughly 25,000 Tibetans living in Nepal. This
would take the form of, for instance, the royal
regime shutting down the Dalai Lama’s
representatives’ office or, most recently, the
Maoist-led government trying its best to ensure
that no Tibetan protestors showed up in front of
the Chinese embassy during the days surrounding Uprising Day in March.

For Nepal, the show of proximity and friendship
to China came to be judged by the extent to which
it went to curtail the movement of Tibetans
within Nepal, and the nationalist way in which
the ‘One China’ policy was supported, almost by
rote. With the West taking the Tibet issue as
something of a boutique cause associated with
Nepal, there has never been a dearth of Tibetan
sympathisers, from the diplomatic community to
the legions of tourists visiting the country,
many of them using Kathmandu as an entry point to
Lhasa. To this day, US senators write
sporadically to protest the Kathmandu
government’s actions in interdicting and
accosting Tibetans. To Kathmandu’s dismay,
continuous streams of ‘pilgrim-refugees’ continue
to flee across the high passes into Nepal, en route to Dharamsala in India.

Anchoring the axis

Nepal’s unifying figure, Prithvi Narayan Shah,
famously referred to the new state of Nepal as "a
yam between two boulders”. He was mostly pointing
to the danger of being crushed between two
empires; but in the modern day, with evolving
transport and easier access, there are vast
opportunities as well. With the emergence of
China and India as potential leaders of the next
global economic order, and as international
economic visioning slowly shifts to the
Bombay-Shanghai axis, Nepal is suddenly in an
ideal position to take advantage of the emerging reality.

The situation has certainly changed quickly.
While Kathmandu still believes that it should
play the China card every time it engages in
deal-making with India, the reality is that
Beijing and New Delhi have closer ties than ever
before -- working together on myriad economic
issues, and leaving only a few border issues to
be sorted out later. With Indian companies now
manufacturing goods in China for the Indian
market, and Chinese companies beginning to set up
companies in India for the global market, Nepal
stands the chance of soon losing its relevance.
Gone are the days of smuggling through the Nepali
Tarai, with Chinese goods now being directly
redistributed in Indian markets after they
arrives in port at Calcutta. While Tibetan
traders still peddle Chinese goods in Kalimpong
and Darjeeling, these have been imported by Indian traders in Siliguri.

At the same time, new opportunities could well
arise as China and India squeeze closer together.
Nepal is now faced with the possibility of
engaging in some longer-term, not to mention
strategic, thinking in terms of gaining from the
increased business activity between India and
China, and legitimately benefiting from the same.
The rail link from Beijing to Lhasa via Golmud is
currently slated to be extended to near Khasa,
the border town 120 km northeast of Kathmandu. In
turn, this could lead to an extension of that
rail-and-road link to the Indian border town of
Raxaul, only another 200 km. Nepal’s strategic
location as a transit link could subsequently be
augmented by industries that would take advantage
of the location. There would be income from links
and through-transit. Indeed, a compelling
business opportunity exists merely in
transferring containers from trucks coming from
China – which are left-hand-drive – to those
coming from India, which are right-hand. To be
sure, there are also many north-south road tracks
being pushed through right now between the
northern rimlands of Nepal and the midhills.
These are bound to grow as commerce grows, taking
advantage of the China trade as well as the
natural bounty of the Tibetan plateau as it comes up for exploitation.

As Nepal goes forward, tourism also holds a
potent opportunity for leverage. With more than
four million tourists (though the number dropped
dramatically after the protests on the plateau
last March) now visiting Tibet annually (many of
them from Mainland China), Kathmandu’s Tourism
Ministry has to find ways to get a fraction of
them to come south of the border. In this,
building a good transit road (and allowing for a
slightly more relaxed visa regime by the Chinese
authorities) could well facilitate young Chinese
and Tibetans to drive to enjoy Nepal’s unique
tourism and entertainment offerings, including
new ones yet to be established. If a million
Chinese citizens go to Macau for gaming and
entertainment every single day, then a small
fraction could certainly be lured into world-class centres in Nepal, too.

Similarly, two of the holiest places for Hindus
and Buddhists anywhere in the world are found in
Tibet, with both Mansarovar Lake and Mount
Kailash being must-visit pilgrimages for many.
Nepal has already being a transit point for
Indian tourists visiting this lake, though the
country has yet to figure out how to take a slice
of revenue from this tour. The Indians come via
Indian airlines and transit from Khasa in Chinese
vehicles, thus leaving Nepalis with only a bit of
the money spent on a few nights’ worth of hotels,
as well as the commission that Chinese tour
companies provide. This is only a small example
of Nepal being unable to charge a proper price for the vast offerings it has.

In the future, Nepal needs to focus intently on
the two T’s -- transit and tourism. In doing so,
it will vastly increase its ability to bridge
between the nearly two and a half billion people
of India and China. This would certainly be
preferable to the rote rendition of traditional
political equidistance voiced by every Nepali
prime minister on a visit to Beijing. Nepal needs
to view its two massive neighbours not from the
perspective of their geopolitics, but rather
through the lens of economics. The starting point
could be the forming of a China-India Economic
Council in Nepal, which could not only look at
Nepal’s economic position linking these two
countries, but could also be a serious
institution that could do much to anchor the
Bombay-Shanghai axis. Critical economic strategy
and research alike could flow from such an
institution, which could hold out the possibility
of not only redefining the next global economic
order, but also of finding and rooting Nepal’s place in that new paradigm.

Sujeev Shakya heads Beed Management, a
Kathmandu-based management consultancy.  He is
author of a forthcoming book Unleashing Nepal (Penguin).
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