China noses ahead of India in FDI pledge
KATHMANDU, JUL 22 - With Chinese investors aggressively eyeing the energy sector, the northern neighbour has become the largest foreign direct investment (FDI) contributor to Nepal.
While Chinese investors were only interested in hotels and restaurants earlier, their focus has now shifted to infrastructure, mainly hydropower. The rise in Chinese FDI last fiscal year was mainly due to their commitments of Rs 4.23 billion in the energy sector.
With a whopping 164 percent surge in FDI commitments, China has also overtaken India in the chart. Last year, Chinese investors pledged investment commitments worth Rs 7.31 billion against Rs 2.77 billion for the fiscal 2012-13.
India, which has historically been the biggest FDI contributor to Nepal, made a commitment of Rs 6.54 billion in the fiscal. Interestingly, India has overtaken China when it comes to investments in energy with Rs 5.94 billion commitments.
According to the Department of Industry, FDI commitments from only three countries—China, India and South Korea—crossed the billion-mark in the period.
While investors from the two neighbours—India and China—put their most money in hydropower, South Korean investors’ priority was the service sector.
In the past few years, Chinese investment in Nepal is growing along with a surge in Chinese tourist arrival. And, Chinese companies are emerging as major players in the country’s energy sector, with the China Three Gorges International Corporation developing the 750-MW West Seti Project.
Along with investment in Upper Madi and smaller hydropower projects, Chinese investors are also coming into the construction sector through a joint venture with a Nepali company and are involved in real estate projects.
In most hydropower projects, the civil works, hydro-mechanical and electronic contracts belong to the Chinese companies. Chinese telecom equipment vendors—Huawei and ZTE—enjoy near monopoly in the telecommunications infrastructure sector.
For Nepali tourism, China is the second largest source market after India. Chinese tourist arrivals to Nepal have doubled in the past three years and are expected to grow further due to improved air connectivity between the two countries.
With world’s second largest economy increasingly looking to expand its influence in South Asia, economists say the country could benefit from the Chinese interest. Former Finance Secretary Rameshore Khanal said Nepal should attract Chinese investments in manufacturing.
“They are still not coming into manufacturing sector where we can bring them by ensuring a better investment environment,” said Khanal.
According to Khanal, with Chinese investors moving their factories, particularly garment plants to countries like Sri Lanka and Vietnam due to increased wages in China, there is a scope for relocating such factories to Nepal. “But we should ensure that there will be no bandas and strikes,” he said.
Despite a surge in Chinese investments, India is still the largest FDI contributor to Nepal. Until last fiscal, FDI from India stood at Rs 44.15 billion compared to Rs 17.96 billion coming from China.
Pradeep Jung Pandey, president of the Federation of Nepalese Chambers of Commerce and Industry, said Indian investments would surge once the power development agreement is sealed.
Commitments
Fiscal Year China India
2012-13 Rs 2.77b Rs 2.80b
2013-14 Rs 7.31b Rs 6.54b
Source: The Kathmandu Post
