Carpet slump dents Nepal’s China exports
In the first ten
months of the fiscal year, shipments to China decreased by over 41%, largely as
a result of a sharp decline in carpet exports in the face of rising costs,
labor shortages, and growing competition from machine-made products. Despite
steady growth in shipments to India, Nepal has seen a sharp decline in exports
to China. The country's growing trade gap with its two largest neighbors has
been made clear by this. According to trade officials and exporters, exports to
China decreased by 41.71 percent year-over-year during the first ten months of
the current fiscal year, which ended in the middle of May. This decline was
largely caused by a collapse in carpet exports.
However, exports to
India increased 16% to Rs204.37 billion. In contrast, Nepal's exports to India
have increased, largely thanks to re-exports of edible oil. While exports of
steel, iron, cement, tea, and edible oils continue to struggle, overall export
growth to the southern neighbor has been sustained. Under the South Asian Free
Trade Area (SAFTA) agreement and the India-Nepal Trade Treaty, Nepal's edible
oil trade benefits from a significant tariff differential. Crude oils from
non-SAARC nations like Argentina, Ukraine, and Indonesia are imported by
traders, processed or repackaged in Nepal, and then re-exported duty-free to
India, avoiding tariffs that can reach up to 45 percent. However, trade with
China tells a different story.
The Trade and Export Promotion Centre's information officer,
Krishna Raj Bajgain, stated that the primary cause of the overall decline in
exports to China was the sharp decline in carpet exports. During the first ten
months of the fiscal year, carpet exports to China decreased by 75.63 percent
to Rs214 million. In fiscal years 2023–2024, carpet accounted for Rs391 million
of Nepal's total exports to China, which totaled Rs2.58 billion. According to
exporters, the industry has steadily lost its competitive edge over time.
The owner of Ganapati Rug House in Jorpati, Bharat Kumar
Shrestha, claims that the Chinese market has increased the price of Nepali
carpets as a result of the value-added tax (VAT) placed on carpet exports and
raw materials. Our products have become more expensive since Nepal implemented
VAT on carpet exports a few years ago.
As a consequence of this, orders from China have
significantly decreased," he stated. Shrestha claims that in recent years,
his company's exports to China have decreased by half. He added, "Raw
materials are also taxed, which raises production costs even more."
According to a representative of one of the nation's largest carpet exporters
to China, another significant obstacle is the absence of skilled workers,
particularly handloom weavers. The official stated, "Machine-made carpets
have overtaken much of the market because they are cheaper and can be made
faster." "At the same time, taxes on exported goods and imported raw
materials have increased prices, making Nepali carpets less competitive,"
Everest Sherpa Carpet Industries' Nima Dorje Sherpa stated that he stopped
shipping carpets to China seven years ago. He stated, "Nepali carpets have
become too expensive, and buyers in China have virtually vanished."
Carpets aren't the only thing going down.
During the review
period, exports of copper goods decreased by 46.59 percent to Rs201.63 million,
while exports of apparel decreased by 4.32% to Rs155 million. Wadding, felt,
and nonwoven products, as well as special yarns, cordage, ropes, and cables,
were exported for Rs117.12 million, a decrease of 14.67 percent. Oilseed
exports decreased by 31.68 percent to Rs62.8 million, while textile fabric
exports decreased by 46.85 percent to Rs68.46 million. Nepal's exports to China
had been steadily growing in previous years, despite the recent setback. In the
most recent fiscal year, exports reached Rs2.63 billion, up from Rs2.58 billion
in 2023-2024. They stood at Rs1.76 billion in 2022-23, Rs808.8 million in
2021-22 and around Rs1 billion in 2020-21.
According to
Purushottam Ojha, a trade expert, Nepal's export prospects in China are still
harmed by a number of structural issues. He stated, "The competitiveness
of Nepali products has been eroding, while Nepal's limited production volume
and Chinese non-tariff barriers have further constrained exports." Ojha
pointed to the failure to operationalise agreements signed for the export of
oranges from Syangja and Sindhuli districts.
Nepal and China
signed export agreements in 2011–12 and 2021–22, but no commercial exports have
occurred. Quality assurance and certification are yet another unresolved
problem. China's certification authority was expected to help Nepal strengthen
its testing and certification systems and eventually move toward mutual recognition
as part of an agreement signed in 2005 between the two countries. Ojha stated,
"It has been more than two decades, but the implementation has been very
limited." "We still don't know how much support was actually given or
how much the agreement made trade easier." Connectivity is still a major
problem. The Tatopani and Rasuwagadhi border points are where the majority of
Nepal's exports to China pass through Tibet.
However, landslides, earthquakes, and other natural
disasters have frequently disrupted these trade routes. Cross-border
infrastructure was severely damaged by the earthquake in 2015, and both major
border points remained closed or partially operational for extended periods.
Ojha stated, "Our production capacity itself is weak." "We have
not increased manufacturing productivity as required. Additionally, we have
failed to concentrate on manufacturing exportable goods that are competitive on
the Chinese market.
Although Nepal's export performance has not significantly improved as a result of the concession, China currently grants duty-free access to approximately 8,700 Nepali goods. According to Ojha, several products, such as medicinal herbs, yarsagumba, chiraito, and bodhichitta, are exported informally in significant quantities, so their value is not fully reflected in official trade statistics. Also problematic are the weak financial ties that exist between Nepali and Chinese banks. Ojha stated, "Exporters face difficulties because letters of credit are still not widely used in Nepal-China trade." Additionally, he mentioned Nepal's trade negotiation capabilities as lacking.
The development
of institutional memory and expertise is impeded by bureaucrats involved in
trade discussions being transferred frequently. Specialized knowledge is lost
when officials are frequently transferred. He stated, "Nepal's negotiating
capacity remains weak in comparison to larger nations." Nepal is looking
for new opportunities in the Chinese market despite persistent challenges.
Exports of buffalo meat represent one of the most promising opportunities.
During then-prime minister KP Sharma Oli’s visit to China in December 2024,
Beijing agreed to allow imports of Nepali buffalo meat.
The private and
public sectors are currently preparing for massive exports, supported by an estimated Rs27 billion in investment from China. Buffalo meat exports alone,
according to officials, could eventually generate up to $1.5 billion annually.
According to them, the industry has the potential to become a brand-new pillar
of trade between Nepal and China and contribute to the reduction of the
nation's reliance on a small number of conventional export products.
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