Posts Tagged ‘Chinese trade’

Donald Trump’s Asia trip shows that he is being played

November 14, 2017

By Will Gore
The Independent

The Chinese have rolled out the red carpet and thus avoided both tricky questions of the sort usually asked by Western leaders and any sort of confrontation over trade

Such is the paradoxical nature of Donald Trump’s Presidency that it should perhaps have come as no surprise that the man who swept to power on the promise of putting “America First” should undertake a lengthier tour of Asia than any of his three most recent predecessors.

Perhaps he decided that it is more pleasant to be feted as a foreign dignitary than hated as a divisive head of state. Certainly he enjoyed many warm words of welcome from those he visited during his trip – and he repaid the compliments by the bucketload. Yet it remains unclear whether Trump actually achieved a great deal during his 11 days away.

At the outset, he was said to have three objectives, according to General HR McMaster, the US National Security Adviser. First was the promotion of democratic freedom and openness; second was to press for ‘fair’ trade to boost America’s prosperity; third was to deal with North Korea.

In relation to the first aim, it might have been thought that the President would raise concerns over human rights abuses by China, or the large-scale killing of drug pushers in the Philippines, or the lack of media freedom in Vietnam. When it came to it, though, he evidently felt it was a little impertinent to be so rude. He is, after all, always wary of causing offence.

As for the second, he has regularly railed against Chinese trade policies, which he argues amount to an assault on America’s economy. Yet when he was actually in Beijing, he simply told President Xi what a “special man” he was (Xi, not Trump, though he probably feels the same about himself).

 Image result for Protesters burn Donald Trump effigy in the Philippines, photos
Protesters burn Donald Trump effigy in the Philippines

When it came to North Korea, Trump’s attempts to rally a co-ordinated regional response were undermined by his inability to resist a childish Twitter spat with Kim Jong-un.

Of course, Trump can point to a few macho statements – mostly made about China when he wasn’t in the country – which might convince his fans at home that he’s still fighting the good fight on behalf of US workers. But the evidence that he has come anywhere near achieving something concrete in the last week and a half is slim to say the least.

What’s more, he also gave a good impression of furthering his cosy relationship with Vladimir Putin, infuriating America’s intelligence community by explaining that he’d – yet again – asked the Russian President whether he had interfered in the US election and had been reassured by his answer in the negative. Not only that, complained Trump, but poor old Vlad felt insulted by the constant impugning of his reputation by suggestions to the contrary.

As ever with Trump, it is hard to know whether his apparent missteps are intentional – an extension simply of his dismissal of the US establishment and the way things have been done by his predecessors – or whether he is acting on the hoof, pulling punches when flattered and throwing them when riled.

Increasingly however it feels as if Trump – the great entertainer-President – is being played. The Chinese roll out the red carpet and thus avoid both tricky questions of the sort usually asked by Western leaders and any sort of confrontation over trade. Putin, meanwhile, appeals to Trump’s own inflated notion of ego by complaining that claims of Russian meddling in America’s democratic process amount to a personal slight. Trump responds by defending his fellow strongman leader and attacking the conclusions of his own intelligence agencies.

In the South Korean leg of his tour, Trump gloried in being introduced to the National Assembly as the “leader of the world”. But the truth is almost the diametric opposite: Trump is being led, quite often in ways that appear at odds with American national interests, which is a remarkable state of affairs.

The counter-argument deployed by the President is that America’s foreign policy in many arenas has been a failure over many years and his approach will, at some stage, pay dividends. Yet, such an argument pre-supposes that different policies in the past – towards Chinese trade for instance, or Russian diplomacy, or the Middle East – would have had alternative outcomes. It also relies on Trump’s bluster turning into something demonstrable. That is a dangerous game indeed.

But maybe that is the central problem – that to Trump, the Presidency is simply a game, in which beating losers and vying for personal glory are the key aspects. Worse still, while Trump thinks it’s a game for single players, Russia, China and others understand that it’s all about teams. And in the last few days they have benefitted from a series of Trump own goals. 

Much more of this and America will find that it is very far from being first in the modern world order.

http://www.independent.co.uk/voices/donald-trump-asia-china-north-korea-putin-being-played-a8052261.html

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New North Korea Sanctions Are in a Race With Pyongyang’s Missile Development

August 7, 2017

U.N. Security Council action aims to close loopholes, but many Asian nations have ties to Pyongyang

Image may contain: 2 people, suit

© POOL/AFP | US Secretary of State Rex Tillerson said Chinese Foreign Minister Wang Yi supported a tough stance on Pyongyang’s arsenal

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Updated Aug. 6, 2017 9:42 p.m. ET

MANILA—The United Nations Security Council passed the toughest-ever economic sanctions against North Korea over the weekend. Now comes the hard part: making them stick, and fast.

U.S. Secretary of State Rex Tillerson met here Sunday with counterparts from China, Russia, and a host of Asian countries as he sought to build momentum to isolate North Korea. He described the sanctions as “a good outcome.”

 

Chinese Foreign Minister Wang Yi, who met Sunday in Manila with his North Korean counterpart, said Beijing has urged Pyongyang “to stop the missile tests and even nuclear research which violate U.N. Security Council resolutions and the wishes of the international community.”

There is one major obstacle, however: Time is running out. The most recent missile launched by the regime at the end of July would be able to fly more than 6,400 miles, according to one analysis, putting Los Angeles, Denver and Chicago within range. Some experts believe North Korea could develop a nuclear missile capable of handling atmospheric re-entry as early as next year.

“The problem with sanctions alone is that we don’t have that kind of time,” said Leon Sigal, director of the New York-based Northeast Asia Cooperative Security Project, pointing to lags between when sanctions are implemented and enforced and when the economic effects are felt. “They’re very close to an ICBM.”

The Security Council has passed eight rounds of sanctions since 2006, when North Korea performed its first nuclear test. The sanctions hurt the secretive regime economically but failed to deter Pyongyang from working to become a nuclear power.

The latest sanctions, passed unanimously with the support of China, North Korea’s biggest economic partner, are meant to close loopholes around the world that have allowed the rogue regime to cultivate trade, financing and labor ties to support its nuclear programs.

China in a statement Sunday called the sanctions necessary. Beijing accounts for 90% of the North Korean regime’s trade, according to various estimates.

In the meeting with China on Sunday, North Korea’s foreign minister, Ri Yong Ho, restated Pyongyang’s position on nuclear policy, said Mr. Wang, the Chinese foreign minister, without elaborating. North Korea has previously refused to disarm, arguing that its nuclear capability is a deterrent to protect it from foreign aggression.

North Korean officials were unavailable for comment. Mr. Ri will have a chance to speak Monday to the 27 members of the Asean Regional Forum gathered in Manila for the security meetings.

R.C. Hammond, Tillerson’s communications adviser, told reporters that the Chinese meeting made clear to the North Koreans “what they need to do to demonstrate to the world they understand and would like to discuss a new role for North Korea in the global community.”

The new sanctions ban trade in coal with North Korea and bar countries from employing North Korean laborers and entering into joint ventures with Pyongyang. U.S. officials say the sanctions could cut a third, or $1 billion, from North Korea’s foreign revenue.

“I think the efforts to isolate [North Korea] are already working, even with the previous sanctions in place. The problem is that they have not brought the ‘desired effect’ — which should be progress in the denuclearization,” said Oh Joon, a professor at Kyung Hee University in Seoul and a former South Korean ambassador to the U.N.

The U.S. faces resistance in Asia, where countries have business ties with North Korea dating back decades and experts say that many companies and individuals profit from hard-to-detect financing of trade. The biggest challenge is China, experts say, which hasn’t fully enforced past sanctions, chiefly because it is concerned that if the Pyongyang regime collapses a conflict could draw U.S. troops near the Chinese border or send droves of North Korean refugees across its border.

China has said in the past it complies fully with U.N. sanctions on North Korea but opposes U.S. unilateral sanctions.

China’s trade with North Korea rose 10.5% in the first half of this year as part of its normal economic relationship not covered by sanctions, Chinese trade data show.

“Beijing’s reluctance to implement U.N. sanctions is further enabling Pyongyang to sprint down the weapons path,” said Duyeon Kim, a visiting senior fellow at the Korean Peninsula Future Forum in Seoul. “China knows it can squeeze the North enough without the collapse that it fears, but Beijing chooses not to because of its own strategic interests.”

U.S. presidents have implored China to crack down on North Korea. Former President Barack Obama called on China to put pressure on the regime to abandon its nuclear missile program, while President Donald Trump has accused China of not doing enough.

On Sunday, Susan Thornton, acting assistant secretary for the State Department Bureau of East Asian and Pacific Affairs, said in Manila that the U.S. would focus on China’s implementation to keep measures from “slipping back,” as she said they had in the past.

Elsewhere in the region, the U.S. faces other diplomatic challenges reining in Pyongyang, in part because policing sanctions is expensive.

“Very rigorously enforcing sanctions has significant costs for the enforcer, and Southeast Asian countries are not generally willing to bear those costs,” said Justin Hastings, professor of international relations at the University of Sydney.

In addition, some nations say they prefer to engage diplomatically with North Korea rather than isolate the regime as the U.S. has argued for.

A Japanese foreign ministry spokesman said Sunday that “now is not the time for dialogue but the time to increase effective pressure on North Korea, so that they will take concrete actions toward denuclearization.”

Others took a different tack. “I think it’s better that people talk,” Philippine foreign secretary Alan Peter Cayetano said Friday. “The less we talk, the more grave the situation can become.”

Several countries in Southeast Asia, such as Thailand, Malaysia and Indonesia, host North Korean embassies and some ties will be hard to unravel. Thailand was North Korea’s third-largest import partner in 2015.

Malaysia has historically close ties to North Korea and until early this year was one of only a handful of nations to allow North Koreans to travel visa-free. That relationship deteriorated in February after the half-brother of North Korean leader Kim Jong Un was killed in a Kuala Lumpur airport in an operation that South Korean officials believe was orchestrated by Pyongyang. North Korea has denied any connection with the killing.

–Jonathan Cheng in Hong Kong, Patrick McDowell in Jakarta and Eva Dou in Beijing contributed to this article.

Write to Jake Maxwell Watts at jake.watts@wsj.com and Ben Otto at ben.otto@wsj.com

https://www.wsj.com/articles/enforcing-new-north-korea-sanctions-poses-challenge-1502050649

China’s One Belt, One Road Runs Into a Few Hiccups

March 11, 2017

China Stock Down On Monday Trade Report

May 9, 2016

AFP

© AFP/File | Shanghai stocks sank on May 9, 2016, on another weak Chinese trade report

HONG KONG (AFP) – Shanghai stocks sank on Monday on another weak Chinese trade report, but Tokyo was boosted by a weaker yen after US jobs data reinforced expectations for more interest rate hikes this year.Beijing at the weekend released figures showing exports fell almost two percent last month while imports plunged nearly 11 percent, stoking fresh fears about the state of the world’s number two economy.

The figures were a disappointment after a March report showing a surge in overseas shipments had raised hopes that a growth slowdown in China was finally bottoming out.

In morning trade Shanghai tumbled 1.5 percent while Sydney — where several firms that rely on Chinese trade are listed — fell 0.4 percent. Seoul was 0.6 percent lower.

However, Hong Kong was up 0.6 percent and Tokyo added 0.5 percent by the break thanks to a dip in the yen against the dollar, which helps exporters.

The greenback built on last week’s gains after the US Labor Department said fewer jobs were created last month than were forecast but that wages grew a healthy 2.5 percent on-year.

Analysts also said the headline jobs figure was skewed by weakness in the construction and retail sectors, which had enjoyed strong gains earlier in the year.

While a weak jobs reading would usually lower expectations for another rate hike, analysts said the readings suggested another rise could come but would be small and gradual.

The dollar rose to 107.51 yen in Asian trade from 107.14 yen in New York at the end of last week.

– Greece returns –

“The yen has more scope for losses against the dollar if Fed officials keep their hawkish tone,” Masafumi Yamamoto, chief currency strategist in Tokyo at Mizuho Securities, wrote in a note to clients, according to Bloomberg News.

“Against the dollar, the yen seems to have priced in both positive and negative aspects of the jobs report.”

Last week two regional Fed presidents suggested another increase could come as soon as June.

The dollar also edged up against the euro, despite news that Greece had adopted a package of strict pension cuts and tax hikes to qualify for its next tranche of EU-IMF bailout cash. Dealers are now nervously awaiting a meeting of eurozone finance ministers to review the country’s progress before deciding whether to release the much-needed cash.

On crude markets both key contracts rose after Canadian oil sands producers cut back output as huge wildfires continue to spread in Alberta. While the blaze has not directly damaged mining sites, the evacuation of more than 100,000 people has forced companies to slash production.

Dealers are also keeping tabs on Saudi Arabia, the world’s biggest producer, which at the weekend sacked its long-serving oil minister in a major government overhaul.

West Texas Intermediate climbed two percent while Brent was up 1.4 percent.

– Key figures around 0230 GMT –

Tokyo: Nikkei 225: UP 0.5 percent at 16,193.47 (break)

Shanghai: DOWN 1.5 percent at 2,870.78

Hong Kong: UP 0.6 percent at 20,234.14

Euro/dollar: DOWN at $1.1390 from $1.1403 Friday

Dollar/yen: UP at 107.51 yen from 107.14 yen

New York – Dow: UP 0.5 percent at 17,740.63 (close)

London – FTSE 100: UP 0.1 percent to 6,125.70 (close)

China explainer: How global markets were sent into a tailspin

August 27, 2015

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By Christopher Thompson, Global Economy News Editor
Financial Times (FT)

©Bloomberg; EPA; AFP

China’s stock market rout has sent global markets into a tailspin, hammered the currencies of resource-rich developing countries and potentially delayed a US Federal Reserve rate rise originally expected later this year.

Below is a visual summary of how the world’s second largest economy hit the buffers.

CHINA’S SLOWING GROWTH

Here are China’s official growth figures (GDP) compared to other measurements that show significantly lower economic activity.

AS DEBT GROWS …

One reason for investors’ worry is China’s enormous increase in debt.

SHANGHAI STOCKS ON THE SLIDE

Part of that debt was invested in the local stock market, which rallied spectacularly at the beginning of the year, then started to drop.

RENMINBI DEVALUED

Things started to get really volatile when the government allowed a surprise devaluation of the RMB earlier this month, the biggest one-day currency move since 1993.

RATE CUT

So far, China’s central bank has responded to the economic slowdown by cutting interest rates to try and boost lending and stimulate more economic growth. It cut a key one-year lending rate by 0.25 percentage points to 4.6 per cent this week.

COMMODITIES HIT

The moves have spooked commodity prices, whose prices have been left reeling by falling Chinese demand.

… AND THE CURRENCIES OF COMMODITY EXPORTERS

That in turn has hit the currencies of big resource-rich countries — including South Africa, Brazil, Indonesia and Russia — reliant on Chinese trade.

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 (Contains links to several previous articles on China’s economy)
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Time To Renew Alliances in South China Sea

February 1, 2015

By Josh Gelernter

The geopolitically inclined will remember NATO’s impotent cousin SEATO, the South East Asia Treaty Organization. It was assembled in 1954 to deal with the threat of Communist insurgency in the countries around Communist China; it never really got off the ground, because so many of the members hated each other. It was dissolved in 1977.

This week, satellite photos showed that Communist China has built a new helicopter base on an island near an island chain claimed by both China and Japan. This is part of a military buildup designed to support China’s claim over the entire South China Sea, which lies west of the islands in question, the Senkakus — and which has always been part of international waters. According to a senior fellow at the International Assessment and Strategy Center, “China’s new heli-base . . . demonstrates that the PLA [People’s Liberation Army] is preparing for an offensive military operation against the Senkaku/Daiyoutai Islands.”

© CNES (2014), Distribution Airbus DS / Spot Image / IHS

Intelligence officials say this photo shows China is adding military capability near the disputed Senkaku/Diaoyu Islands in the East China sea. Spot Image / IHS

So, it’s time to bring back SEATO. And this time, a functional SEATO.

Old SEATO squabbled itself to death. According to a paper written at the Army War College, SEATO member France — having been humiliated at Dien Bien Phu — refused to join in SEATO’s support of South Vietnam: “As a means of dramatizing her disapproval of U.S. policy in Vietnam, France . . . ceased to actively participate in SEATO affairs.” Bangladesh belonged to Pakistan, which meant Pakistan was allowed to belong to SEATO, and Pakistan was furious with the United States — also a member of SEATO — because the U.S. was lending support to (non-member) India.

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Member Thailand was angry at the United States because it thought the U.S. favored non-member Cambodia in a Thai–Cambodian border dispute. The Philippines, a SEATO member, was angry at fellow member Britain for supporting the creation of independent Malaysia on territory claimed (in part) by the Philippines. Taiwan — seat of anti-Communist China — was still in a standoff with the Mainland; South Korea was recovering from the Korean War, and Japan was recovering from World War II. None was in a position to join the treaty. And anyway, at-risk countries believed that, as it had in Korea, the U.N. would stand up to Communist aggression. So no one was in the mood to work together on anything. East Asia was a mess.

A China Coast Guard ship rams a Vietnamese vessel during the Summer 2014 stand-off between China and Vietnam near China’s oil rig in Vietnamese waters

Now, though, things are different. Russia got away with stealing Crimea. And Russia’s global influence is waning as China’s waxes. Imperialist Red China wants the South China Sea for the energy reserves beneath it and the trade routes that run through it. In the last few years — in the interests of its SCS claim — Chinese ships have fired at Philippine and Vietnamese fishing boats, killing nine. They’ve cut survey cables laid by a Vietnamese petro-exploration ship, and then cut the cables of a Norwegian ship Vietnam had hired.

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An Indian naval ship sailing through the South China Sea was shadowed by a Chinese frigate; soon afterward, China established a garrison on the South China Sea’s Spratly Islands — which it doesn’t own. Last year, China announced that anyone who wanted to fish the South China Sea would have to obtain a Chinese permit; soon after, the Chinese Coast Guard expelled two Philippine-flagged ships, set up an oil rig in Vietnamese waters, and rammed a Vietnamese naval vessel.

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This picture taken on June 2, 2014 shows the Vietnamese fishing boat "DNA 90152", which was reportedly sunk by a Chinese ship, at a shipyard in the central coastal city of Danang
A photo taken Monday, June 2, 2014, shows a Vietnamese fishing boat, which reportedly was sunk by a Chinese ship after an intentional ramming by the Chinese. The Fishing boat is being lifted out of the water at a shipyard in the central coastal city of Danang. Vietnamese TV has reported another ship was also  rammed by a Chinese vessel in waters off the disputed Paracel Islands. AFP/Getty Images

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Soon after that, a Chinese ship rammed a Vietnamese fishing boat, which sank; watch the exciting footage on YouTube. In August of last year an American surveillance plane in international airspace over the South China Sea was intercepted by a fully armed Chinese fighter jet, which came within 20 feet of the Americans’ wingtip. A Pentagon spokesman said it wasn’t the first time this had happened, and a Chinese admiral called for Chinese fighters to “fly even closer to U.S. surveillance aircraft.”

China often encounters maritime patrol aircraft from the U.S. and Japan with Chinese fighter jets. This Chinese J-11 aircraft was photographed by a U.S. Navy P-8 crew over international waters in the South China Sea on August 19, 2014. The U.S. protested the “dangerous airmanship” of the pilot.

China has just turned an SCS ocean reef into an airbase, to go with the new helicopter base adjacent to the Senkakus. The lesson of Ukraine is that, without a formal treaty, the world won’t lift a finger to defend another country’s territory; as a British TV show once said of the British Foreign Office, they “will offer every support short of help.” Now, the countries of Southeast Asia have a clear and present reason to unify themselves in defense of their common interests: national sovereignty and international non-sovereignty, free from Chinese aggression. Needless to say, with free navigation and free trade on the line, we have a clear and present reason too.

And cooperation among the Southeast Asian powers could help solve some of the area’s other arguments. South Korea and Japan, two of the world’s ascendant free nations, hate each other, because of Japan’s imperialist past. And neither recognizes Taiwan, for the same Red-China reasons that we don’t recognize Taiwan. Singapore is sufficiently small and isolated that it explicitly modeled its military on Israel’s. And ultimately, thousands of years of wars, dynasties, and colonies mean that no Southeast Asian country is really crazy about any other Southeast Asian country. But here’s a chance to unite against a common enemy. After all, it’s not too long ago that the idea of Britain and France on the same side of a fight would have seemed absurd. To say nothing of the NATO partnership of Britain, France, and Germany.

Besides the obvious military threat of China’s (so-called) People’s Liberation Army, new China wields an enormous economy — a nominal GDP of about 10 trillion. But — take the GDPs of Japan, India, South Korea, Taiwan, Thailand, Malaysia, Singapore, Indonesia, and the Philippines, and you get a combined GDP of about 10.5 trillion. Add Australia and New Zealand, both members of original SEATO, and it goes up to about 12 trillion; add the U.S., and it goes up to 29 trillion. So a strong defensive/economic union could defend itself while withstanding Chinese trade threats.

A runway is believed to be among what China will build at the reclaimed Kagitingan (Fiery Cross) Reef off the coast of Palawan. Photo obtained by Rappler

China can be stopped — peacefully — with a united front. Southeast Asia has to whip itself into shape, and we have to help. Freedom of the seas is sacrosanct; if we (the brotherhood of nations) lose the South China Sea, the Strait of Hormuz will be next, and then the northern passage over Russia. Plus, a little harmony in the Asia–Pacific would be good for everyone. Hell, we might even be able to start democratizing Vietnam.

— Josh Gelernter writes weekly for NRO and is a regular contributor to The Weekly Standard.

http://www.nationalreview.com/article/397611/seato-power-josh-Gelernter

Related:

Above: A before and after picture of China’s reclamation work on one islet in the South China Sea. Vietnam, Taiwan, Malaysia, the Philippines claim many of the islands now claimed by China. The United States has called on China to stop the land reclamation project that could be large enough to accommodate an airstrip. Beijing has called those remarks “irresponsible”, signaling that it would firmly reject proposals by any country to freeze any activity that may raise tension.

Reclamation: China has already turned a worthless piece of coral into an island big enough for an airstrip at Fiery Cross reef in the South China Sea

China says it owns all the South China Sea north of the “nine dash line” shown above

China claims ownership of about 90% of the South China Sea. Most of China’s neighbors believe otherwise.

The chart below shows the area declared by China on 1 January 2014 as “an area under China’s jurisdiction.” China says “foreign fishing vessels” can only enter and work in this area with prior approval from China. Vietnam, the Philippines and others have said they will not comply with China’s law. Experts say, this could be the geographic area that China could declare an air defense identification zone (ADIZ).

 

China Breaks India Monopoly on Nepal Economy as Investment Grows

December 15, 2014

By Natalie Obiko Pearson
Bloomberg

In the dusty outskirts of Kathmandu, south of the Himalayan mountain range that holds the world’s highest peaks, Chinese engineers in orange hard hats oversee construction of Nepal’s first eight-lane highway.

The $45 million upgrade of a road circling the Nepalese capital is one of dozens of projects helping China challenge India’s dominance in a country that is sandwiched between them. Until recently, the Himalayas served as a natural barrier that prompted Nepal to trade more across its flat border with India.

“China is growing in importance,” Ram Sharan Mahat, Nepal’s Finance Minister, said in a Dec. 4 interview in Kathmandu. “Because of new trade horizons and the cheap pricing of Chinese goods, Chinese trade vis-a-vis Nepal is growing.”

People walk past Chinese construction workers supervising work on an eight-lane highway in Kathmandu, on Dec. 4, 2014. China this year overtook India as Nepal’s biggest foreign investor, funding power plants, noodle factories and meat-processing units in one of the world’s poorest countries.  Photographer: Sumit Dayal/ Bloomberg.

China this year overtook India as Nepal’s biggest foreign investor, funding power plants, noodle factories and meat-processing units in one of the world’s poorest countries. Trade is also booming: Nepal’s commerce with China has outpaced that with India by 17 times since 2006, eroding the influence of New Delhi’s leaders.

Signs of China’s growing presence are visible throughout Kathmandu, including the flags that wave about the construction site, Mandarin announcements at the international airport and a Chinese-language book shop that popped up in the capital last month. Local markets are flooded with China-made goods such as Hindu idols once sourced from India.

“China looks to Nepal as a gateway to South Asia,” Akshay Mathur, head of research at Mumbai-based Gateway House, said by phone. “It’s part of a broader strategy to extend its sphere of influence.”

India Complacent

China is already seeking a land route through ally Pakistan to the Arabian Sea as President Xi Jinping pledges $40 billion in investments along the Silk Road trading route. China in August completed a railway link near the Nepal border, the official Xinhua News Agency reported, which could divert Chinese goods from India’s Kolkata port.

“India and Indian businesses had been complacent,” Mathur said, in reference to China’s moves in Nepal. “They’ll have to sit up and take notice.”

India accounted for 53 percent of Nepal’s trade last year, down from 60 percent in 2006, when a Maoist insurgency ended. China’s share of Nepal’s commerce has risen to 31 percent from 3 percent in that time, data compiled by Bloomberg show.

China’s investment pledges worth 7.3 billion Nepali rupees ($73 million) outstripped India’s 6.5 billion for the first time in the year through July. They are projected to do so again this year, according to data from Nepal’s Department of Industry.

Surrounded by Billions

China’s competition with India is a boon for Nepal, whose remittances-dependent economy is smaller than all 50 U.S. states. Its 28 million people have the lowest spending power of any Asian country apart from Afghanistan, International Monetary Fund statistics show.

“We’re in between the two fastest-growing major economies in the world,” Yuba Raj Khatiwada, Nepal’s central bank governor, said in a Dec. 3 interview at his Kathmandu office. “No other country has such an opportunity, a market of billions of middle-class populations on both borders.”

Nepal is boosting yuan holdings to 15 percent of foreign-exchange reserves, equivalent to its stocks of the Indian rupee, Khatiwada said. While the Nepalese currency’s peg to the rupee is working for now, it might be reevaluated if India’s economy sees high volatility in the future, he said.

Even though China has made inroads, India is still poised to gain as Nepal expands. An India-Nepal power trading pact signed in August could be a “turning point” in solving South Asia’s energy woes, Johannes Zutt, the World Bank’s country director for Nepal, said by phone Dec. 5.

Power Sales

Some 6,000 rivers fed by Himalayan glaciers could be harnessed for more than 80 gigawatts of capacity, according to Nepal’s Investment Board, enough to power a third of India. It has tapped less than 1 percent of that potential while suffering blackouts for as many as 16 hours a day.

Exporting electricity to India rather than China is easier because its rivers flow south off the Himalayas toward India’s most populous states, while China’s biggest cities and industries are far to the east.

“Nepal can become a rich country by selling electricity to India,” Narendra Modi told Nepal’s parliament in August during the first visit by an Indian prime minister in 17 years, while offering a $1 billion credit line to fund development. “We do not want free electricity; we want to buy.”

‘Balancing Act’

In the biggest deal ever from an overseas investor, Bengaluru-based GMR Group said Sept. 22 it would build a 900-megawatt hydropower plant, estimated to cost $1.4 billion, to export electricity to India. State-run SJVN Ltd. (SJVN) signed an agreement this month for another plant on the same river, which is estimated to generate more than $3 billion over 25 years.

Mahat, Nepal’s finance minister, said blackouts will end in three years as new projects come on line, boosting growth in the $20 billion economy by as much as 2 percentage points each year from 4.5 percent now.

While it’s too early to say if Chinese trade will reach parity with India — particularly with only one all-weather road between the countries — the signs are promising, Mahat said. The number of Chinese visitors has tripled in recent years, he said.

In Kathmandu, workers with the Shanghai Construction Group Co. (600170) are widening lanes, reinforcing bridges and building bus stops. A nearby compound housing employees has a basketball court, a vegetable patch growing Chinese cabbage and a dining hall where cooks from the mainland make noodles and tea.

“All these developments unsettle India quite a bit,” said Purnendra Jain, professor at the University of Adelaide’s Centre for Asian Studies. “The Nepalese government is aware India and China are competing for influence and it doesn’t want to put one party off. That’s a huge balancing act.”

To contact the reporter on this story: Natalie Obiko Pearson in New Delhi at npearson7@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Jeanette Rodrigues

http://www.bloomberg.com/news/2014-12-14/china-breaks-india-monopoly-on-nepal-economy-as-investment-grows.html