VZCZCXRO4911
PP RUEHGH RUEHVC
DE RUEHCN #0283/01 3360746
ZNR UUUUU ZZH
P 020746Z DEC 09
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC PRIORITY 3590
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHKT/AMEMBASSY KATHMANDU PRIORITY 0243
RUEHCN/AMCONSUL CHENGDU 4301

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? 
 
--------------------------------------------- -------- 
 
 
 
¶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 
 
---------------------------------------- 
 
 
 
¶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 
 
--------------------------------------- 
 
 
 
¶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 
 
--------------------------------------------- ---- 
 
 
 
¶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