RDCY research report series No.24

Trans Himalaya Research Report on the Feasibility of - Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

Li Wei Associate Professor of School of International Studies, Research Fellow of the Chongyang Institute for Financial Studies, Renmin University of China

May 5, 2017

Chongyang Institute for Financial Studies, Renmin University of China (RDCY) was established on January 19, 2013. It is the main program supported by the 200 million RMB donation from Mr. Qiu Guogen, an alumni of Renmin University of China, and now Chairman of Shanghai Chongyang Investment Co. Ltd., a private equity fund based in Shanghai.

RDCY is a new-style think tank with Chinese characteristics. We have hired over 82 former politicians, bankers, and preeminet scholars as senior fellows. We also maintain cooperation with think tanks from nearly 30 countries. RDCY's stated mission is to advise the govenment and serve the public by focusing on finance and academics, while grounded in reality.

In 2014, RDCY was listed the 106 of "150 top think tanks in the world", in the most internationally recognized 2014 Global Go To Think Tank Index Report, launched by the university of Pennsylvania. Together with Chinese Academy of Social Sciences and Development Research Center of the Stare Council, RDCY is among the seven selected Chinese think tanks.

Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

Li Wei Associate Professor of School of International Studies, Research Fellow of the Chongyang Institute for Financial Studies, Renmin University of China

Core tips

On March 27, 2017, Chinese President Xi Jinping met Prachanda, Prime Minister of

Nepal; they reconfirmed to solidly promote interconnection, free trade agreement and other economic measures with “The Belt and Road” co-building as the opportunity. Thereinto, considering the various strategic values, sound feasibility for implementation and basically mature line selection scheme of China-Nepal Railway, China shall advance this project as soon as possible. Investigators carried out field research on operation of Qinghai-

Tibet Railway and visited many people concerned; they analyzed the meaning, feasibility, line selection scheme of China-Nepal Railway and gave some policy proposals on the construction.

※ In terms of economy, China-Nepal Railway can help drive the development of southern region of , staff exchanges and goods transportation between China and

Nepal, Chinese tourists to Nepal and the surrounding usage of RMB.

※ In terms of diplomacy, China-Nepal Railway can help push development of China-

Nepal relations and bring Nepal closer to China in strategy selection.

※ In terms of society, China-Nepal Railway can help strengthen cultural and educational exchanges between the two countries, and promote development of Chinese Buddhist culture.

※ In terms of geographical relationship, China-Nepal Railway can help propel “The Belt and Road” initiative and the construction of South Asia Economic Corridor, and open the

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portal of China to South Asia.

※ China’s experience and technology in plateau railway construction can fully meet the technical demand of China-Nepal Railway construction, and the operation of Qinghai-Tibet

Railway ensures China’s incomparable advantages in plateau railway construction.

※ China-Nepal Railway has considerable “spillover benefits”, with relatively low political risks.

※ The Nepalese is friendly to Chinese people and China-Nepal Railway will not bring substantially negative influence to China’s cultural and religious security.

※ The cost of China-Nepal Railway is quite high, so construction fund shall be collected in multiple ways, including seeking for loans of Multilateral Development Banks and Silk

Road Fund.

Preface Recently, China has conducted influential “railway diplomacy” and actively pushes railway construction in foreign countries. The foreign minister of China Wang Yi pointed out:

“where the railway reaches, where China’s influence can extend”. Obviously, railway construction has acted as important wings of China’s economy take-off; while it has also become the entry point of China’s great-power diplomacy to push railway construction in foreign countries. In history, the Tazara Railway built in 1960s and 1970s is significant for

China to win reputation among developing countries; currently, as “The Belt and Road” strategy advances, “railway diplomacy” has become the important means for China to improve reputation and create an amicable and prosperous neighborhood.

China’s “railway diplomacy” shall keep balance in economic value and strategic target, and center on specific regions and countries, instead of full covering. To be specific, besides countries cooperating in railway projects with China, China shall focus on surrounding countries to advance “railway diplomacy”. For Indo-China Peninsula, its geological conditions are simple and the low mountain terrain runs through south and north, which is suitable for long-distance south-north railway; moreover, this area is densely populated, the

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economy develops rapidly, which is of outstanding economic value; besides, its political order is basically stable and most of its countries have close diplomatic relations with China, thus, it takes priority for China to advance “railway diplomacy”. Besides accelerating the railway construction of Indo-China Peninsula, China shall connect to Katmandu (China-Nepal Railway) as soon as possible; this has positive significance not only to the economic and social development of China and Nepal, but also the important diplomatic and geopolitical value. Based on field investigation and related interview, this report is for reference by government departments or academic institutes.

I. The necessity to build China-Nepal Railway

China-Nepal Railway has various functions and values, with special meaning to both China and Nepal. Nepal is an important neighboring country bordering on China’s southwest.

Building China-Nepal Railway can greatly strengthen China and Nepal’s economic, political and social connections, and open up the communication of China and South Asia.

To be specific, the significance of China-Nepal Railway is mainly embodied in economy, diplomacy, society and geographical relationship.

1. Economic significance

As an important transportation means, the primary function of railway is reflected in economy. Without considerable economic benefits, it is difficult for railway construction and operation to continue. For the international railway construction guided by “The Belt and Road” initiative, the largest dispute lies in the difficulty in making ends meet for some countries. Some countries along “The Belt and Road” see laggard economy and small population, the railway construction, especially highway construction can hardly bring

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direct ticket income. However, the prospective earnings of China-Nepal Railway are not mainly reflected from the ticket income, but huge economic spillover effect.

Firstly, construction of China-Nepal Railway will advance economic development of south of . The overall length of China-Nepal Railway is predicted to be over 700 kilometers, nearly four-fifths of which lies within Chinese territory; after this railway is built, Tibetan residents along this line will mainly benefit from it. As the important passage connecting County, County and to the third largest city of Tibet, Shigatse, this railway can effectively promote staff and goods transportation of the regions above. It must be pointed out that Shigatse is a leading city in population, border, foreign trade, agriculture and culture of Tibet. China-Nepal Railway, once completed, will further strengthen Shigatse’s sub-center status in Tibet, enhance its radiation to the surrounding regions and bring the economic development of the three counties above. Qinghai-Tibet Railway has brought active influence to Tibetan economic society and it is predicted that China-Nepal Railway will cause similar effects. For one thing, Qinghai- Tibet Railway directly changes the transportation pattern of Tibetan areas; it undertakes three quarters of the goods volume in this region and greatly reduces the transportation and trade cost. For another, Qinghai-Tibet Railway carries 10 million passengers in annual average, which meets the increasing staff transportation demand, especially releases the transportation pressure of passengers to Tibet and greatly impels development of local tourism. In addition, Qinghai-Tibet Railway also encourages remodeling of local industrial pattern and employment. Similarly, Tibet-Nepal can not only solve the goods and staff transportation problem of south of Tibet, but also exert an active effect on industrial pattern and employment along the line. Secondly, China-Nepal Railway will improve the economic connection of China and Nepal, especially Chinese tourists’ visit to Nepal. In history, Nepal and Tibet had very

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close business relations, even far closer than that of Chinese mainland and Tibet. Currently, restricted by Himalayas and nearly saturated highway transportation, the economic and trade cooperation between Tibet and Nepal is tough to breakthrough. The only two highways of China and Nepal work as main passageways of goods and staff transportation; while these two highways suffer bad road conditions and are easily hit by natural disasters such as landslide and debris flow; moreover, the transport capacity is nearly saturated and they are unable to meet the demands on economic and trade development, materials transportation and staff travel between the two countries. So a brand-new railway passageway is mostly needed.

Specifically, the main value of China-Nepal Railway to China-Nepal economic relations is reflected below: in terms of trade and investment, the trade volume of China and Nepal in recent years has kept rising; in 2015, the bilateral trade volume was 865 million dollars (see Table 1) and direct non-financial investment to Nepal from China was 32.03 million dollars; although China has become Nepal’s second largest trade partner and a main investor, these two data are barely satisfactory. In recent years, the total global trade volume and China’s total foreign trade volume have declined for various factors, while the trade relations between China and Nepal rise against the trend, which shows the great development potential in China and Nepal’s trade relations; so the construction of China- Nepal Railway will greatly advance the trade of China and Nepal, and China’s direct investment in Nepal.

Table 1: Bilateral trade volume of China-Nepal in recent 10 years Unit: 100 million dollars Year Bilateral trade volume Year Bilateral trade volume 2007 2.59 2012 7.24 2008 3.96 2013 7.41 2009 4.45 2014 8.37 2010 5.75 2015 8.65 2011 7.00 2016 8.88 Data source: UNCTAD database

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In terms of tourism, it is Nepal’s pillar industry, while China is its second largest tourist source. China-Nepal Railway will contribute to land and air interconnection of Chinese and Nepalese staff, and thus improves Nepal’s tourism economy. According to statistical data of Nepal’s Ministry of Culture, Tourist Administration and Civil Aviation Authority, China’s tourists to Nepal have increased rapidly since 2002; the tourist number broke through 100000 for the first time in 2013; in 2014, the number gradually grew and China became the second largest tourist importing country only less than India (see Table 2). It is predicted that the number of Chinese tourists to Nepal will further rise; current aviation and highway can no longer meet the demands of passenger transport, so railway becomes the best choice to undertake passenger’s transportation. The construction of China-Nepal Railway will further promote Chinese tourists to Nepal.

Table 2: The number of Chinese tourists to Nepal in recent years

Year Tourist number (proportion in Year Tourist number (proportion all the tourists) in all the tourists) 2002 8715 (3.2%) 2010 46360 (7.7%) 2003 7562 (2.2%) 2011 61917 (8.4%) 2004 13326 (3.5%) 2012 71861 (8.9%) 2005 22377 (6.0%) 2013 113173 (12.4%) 2006 17538 (4.6%) 2014 101454 (12.8%) 2007 28618 (5.4%) 2015 60872 (10.9%) 2008 35166 (7.0%) 2016 104005 (13.8%) 2009 32272 (6.3%) —— ———— Data source: Government of Nepal Ministry of Culture, Tourism & Civil Aviation, Nepal Tourism Statistics.

In addition, China-Nepal Railway meets Chinese Buddhists’ demand to Nepal, and China will possibly become the largest tourist source of Nepal replacing India and also become the largest trade partner; Nepal will keep benefiting from China’s rapidly developing economy. Thirdly, the economic exchanges driven by China-Nepal Railway will help push the usage of Renminbi in Nepal, raising its surrounding usage correspondingly. Renminbi’s internationalization is China’s important economic strategy for a long time in the future;

6 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations besides relying on several important “supporting monetary countries”, acceptance and usage by surrounding countries are essential to realize RMB’s internationalization.

Currently, Renminbi is widely circulated and used on private market of countries in Indo-

China Peninsula, and tourism vitally pushes the rapid development of Renminbi in these regions. China has become the most important tourism country worldwide, whose tourist destinations mainly include Europe, Southeast Asia, Hongkong, Korea, Japan and America.

The consumption amount of Chinese tourists abroad was only 43.7 billion dollars in 2009, but reached 164.9 billion dollars in 2014; in 2015, it even set a new record and came to 215 billion dollars (see Table 3). Using UnionPay card overseas by Chinese tourists has become an important way of Renminbi internationalization and the consumption ability mainly pushes Renminbi to overseas markets.

Table 3 Chinese tourists’ consumption overseas Unit: 100 million dollars Year Consumption amount Year Consumption amount 2008 361 2012 1020 2009 437 2013 1290 2010 540 2014 1649 2011 981 2015 2150 Data source: database of World Travel & Tourism Council

At present, although Nepal’s economic aggregate and the economy and trade scale of

Nepal and China are insufficient to drive the inter-governmental cooperation on monetary exchange, domestic currency settlement and monetary settlement, etc., once China-Nepal

Railway is completed, a large number of Chinese tourists go to Nepal and this will extend the application scope and influence of Renminbi, promote the development of Chinese- funded financial institutes in Nepal and thus bring along “Renminbi economy” in Nepal.

2. Diplomatic significance China-Nepal Railway is also of diplomatic significance. Since China and Nepal established diplomatic relations over 60 years ago, the relations has remained unshakable and will

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become even firmer. In each historical period, Sino-Nepal relations kept sustainable, stable and healthy. On one hand, there are no disputes on major problems; on the other hand, great potential exists in Sino-Nepal cooperation, they have deep friendship and need each other. In March 2015, Chinese President Xi Jinping met President of Nepal Yadav and pointed out: “China and Nepal are friendly neighboring countries of close interdependence, the example of peaceful coexistence and mutual beneficial cooperation among big and small countries”. The former Chinese ambassador to Nepal Wu Chuntai ever appraised Sino-Nepal relations with 16 characters: “treat each other equally, get along harmoniously, friendship from generation to generation, all-around cooperation”. With “The Belt and Road” strategy, China will develop more close cooperation with Nepal in trade, investment, agriculture, infrastructure construction, science and technology, interconnection, tourism, humanity and safety law-executing. The construction of China-Nepal Railway will further consolidate Sino-Nepal diplomatic relations. China-Nepal Railway can not only help facilitate development of Sino-Nepal diplomatic relations, but also build Nepal into the strategic supporting country of China to South Asia. South Asia is the important geopolitics sector surrounding China, while due to India’s influence, rejection and doubt on China (for example, India has always refused China to join in SAARC), it is difficult for China to win worthy international influence (including economy, politics and culture) in South Asia. Now, China mainly regards Pakistan as the strategic supporting country to South Asia and strives to build China-Pakistan Economic Corridor. However, there is serious radicalism in Pakistan, which may cause negative influence to China’s national security. Nepal is one of the most important countries of South Asia and most of its people believe in Hinduism, no rejection to Buddhism, with rich and healthy religious ties with Tibet, so Nepal can act as the second strategic supporting country of China to expand influence in South Asia. China, with China-Nepal Railway as the opportunity, builds Sino-Nepal strategic relations while forging Sino-Nepal strategic framework. Thus, China wins two stable strategic supporting countries in South Asia, which enlarges China’s influence in South Asia..

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The diplomatic strategy of Nepal aims to keep balance in China and India. New York Times described Nepal as “a poor and mountainous country caught between India and China”, “the sweet potato between two huge stones”, which accurately summarized current relations of China, India and Nepal. The former Prime Minister of Nepal, Prachanda put forward the “trilateral relationship” idea, “equally close” to both India and China in 2010. Chinese Prime Minister Wang Yi appealed to keep “mutual promotion, benign interaction” among China, India and Nepal. While since 2015, relations of India and Nepal have gradually cooled; in that October, India locked the main border ports to Nepal with national problem as the excuse, which caused Nepal’s oil and gas shortage. To release this problem, China provided 1000-ton oil to Nepal in emergency. Later, China signed long- term oil products purchasing memo with Nepal, which provides full guarantee for Nepal to import oil, diesel and other oil products from China. Although in that December, Nepal was forced to respond to India and India opened the ports again, the “oil and gas crisis” brought insecurity to Nepal for economic overdependence on India, and Nepal started to draw closer to China. Since then, Sino-Nepal cooperation has kept warming. When Nepal’s Prime Minister Ollie then visited China in 2016, China and Nepal signed ten cooperation agreements covering traffic, trade, energy and finance, etc., among which the plan on international railway construction is regarded as an important strategic measure for Nepal to get rid of dependence on Indian ports. In addition, China and Nepal carried out research on bilateral free-trade agreements. While Sino-Nepal relations kept warming, Nepal-India relations suffered further deterioration. In May 2016, Prime Minister Ollie recalled its ambassador to India and cancelled Nepal President’s journey to India; later, Indian Prime Minister Modi refused to attend one religious activity in Nepal. Prachanda, who succeeded to Prime Minister of Nepal has declared publicly that the new government will persist in the friendly cooperation and implement the agreements reached by the previous government with China. Accordingly, it will provide new development impetus for Sino-Nepal diplomatic relations to accelerate China-Nepal Railway construction, and thus drive Nepal more close

9 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations to China among China-India-Nepal relations.

3. Social significance Cultural and educational exchanges are key link to maintain sound international relations and it is the essential requirement of China’s diplomacy activity to consolidate the social basis of host country. As the world famous Buddhist holy land, Nepal was the important transfer station of Tibetan Buddhism in history and the linking of China-Nepal Railway will further encourage communication among Buddhists of the two countries. Since Tubo Dynasty, Nepal has kept close political, economic, cultural and military relations with Tibet, especially Nepal’s culture and religion have exerted profound effect on development of Tibetan culture and religion. About the famous event that Tibetan king Srongtsen Gampo marrying Nepalese princess, this was recorded in several Tibetan historical documents. As a far-sighted monarch of rich military strategy, Srongtsen Gampo actively absorbed culture of China and Nepal by marriage. He was accepted by the ministers by appearing in their dreams; he sent outstanding minister Blon-stong-btsan to Nepal and China successively, and married princess Chizun of Nepal and princess Wencheng of Tang Dynasty. With the historical development of hundreds of years, close relations have been formed between Nepal and each nationality of Tibet in language, religion and culture, etc. As Buddha was born in Lumbini of Nepal and went to heaven in Bodh Gaya of India, the development and propagation of Buddhist culture in Tibet are closely related to these two countries. In terms of communication between Nepal and Tibet, Buddhism propagation acts as the media. Buddhism has a long history in Tibet with deep and lasting influence in Tibetan society and the initial phase when its life style was formed. In March 2016, Premier of the State Council Li Keqiang met Nepal’s Prime Minister Ollie then and emphasized to “expand cultural and educational exchanges, non-governmental contact of the two countries”. China-Nepal Railway, once completed, will greatly promote staff communication of China and Nepal, thus the cultural and educational exchanges. Good cultural and educational exchanges and social basis will effectively push economic and trade cooperation in various fields such as trade and energy, cut exchange cost

10 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations and policy misjudgment, which is of special meaning. The author has deep feeling on strengthening cultural and educational exchanges through this investigation; during the journey to Shigatse, the author noticed that the train had become an important place for Chinese and Tibetan people to talk. Passengers who came from different nationalities and believed in different religions got along harmoniously and talked warmly, which closed the barrier of different nationalities and religions. The author had extensive and deep communication with Tibetan compatriots during the 3-hour trip, covering family, education, environmental protection, etc. Qinghai-Tibet Railway strengthens the communication of Tibetan and Chinese people; likewise, China-Nepal Railway will enhance the non- governmental exchange of Chinese and Nepalese people. Far wider than the train itself, the communication space will radiate lines along the railway and anywhere it can reach. Despite high economic cost of China-Nepal Railway construction, the overflowing social value is inestimable. Various complicated technical problems such as frozen earth of plateau, cold climate and complex geology, etc. shall be solved; also, many long tunnels need to be built, whose construction difficulty and cost are quite high, and the expenses are predicted to reach RMB238.3 billion. Considering the operation cost and earnings of China-Nepal Railway, it will take 40 years to recover the construction cost at the soonest. Obviously, the typical problem of “high cost, low earnings” exists for China- Nepal Railway. However, with a view to the great spillover value of international railway in promoting non-governmental exchange, cultural and educational exchanges of two countries, China-Nepal Railway has huge social effect, unable to be measured by monetary figures.

4. Geographical significance China-Nepal Railway is of great significance to boost “The Belt and Road” strategic plan, and strengthen geographical contact of China and South Asia. On one hand, China-Nepal Railway can assist the long-term cooperation of China and South Asia. In future years, the cooperation between China and South Asian countries will see further breakthrough. China will increase the trade amount to South Asia to 150 billion dollars; the investment to South

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Asia is predicted to reach 30 billion dollars; moreover, 10000 scholarships will be provided for South Asia. Nepal lies between China and India, with special geographical location and is the link to develop Sino-Indian relations. Meanwhile, Nepal is where the SAARC’s secretariat locates, and also the window and bridge of China to develop cooperation with South Asian countries. By way of Nepal, China can expand the economic and trade contact with South Asian countries. As the modern channel of China to South Asia, China-Nepal Railway will play important role in deepening Sino-Nepal relations and cooperation of China with South Asia. On the other, China-Nepal Railway is of great significance to accelerate the construction of South Asia Economic Corridor in “The Belt and Road” strategic plan. “The Belt and Road” strategy plans six economic corridors, Eurasian Land Bridge, China-Mongolia-Russia Economic Corridor, China-Central Asia-West Asia Economic Corridor, China-Indo China Peninsula Economic Corridor, China-Pakistan Economic Corridor and Bangladesh-China- India-Myanmar Economic Corridor. Although “The Belt and Road” plan covers South Asia, an economic corridor from China’s Qinghai-Tibet Plateau to India is lacked. China- Nepal Railway will lay foundation for China-India Railway construction in the future to realize market linkage of China and India. Then, China-India Railway will link “world factory (China)” and “world office (India)” and thus achieve complementary advantages of China and India, aiming at building the “most competitive production base, most attractive consumer market and growth engine of the largest traction force”. What’s more important, China-India Railway and the subsequent international railways will forcefully drive the “five connections” of China and South Asia, namely policy communicated, facilities linked, trade unblocked, capital financed and popular support uncut, which is of great importance to all-round development of China and South Asian countries.

II. The feasibility to build China-Nepal Railway

Despite the technical challenges and other difficulties, the construction of China-Nepal

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Railway is feasible. Firstly, the accumulated experience in building Qinghai-Tibet

Railway on plateaus and more mature technology can fully meet the technical demand of

China-Nepal Railway construction. Secondly, China-Nepal Railway is predicted to have considerable operation capability and can meet the staff and goods transportation need of

China and Nepal. Thirdly, its construction has low risk in political aspect, with no negative effect on China’s religion security.

1. Technical base of China-Nepal Railway The completion of Qinghai-Tibet Railway and its extending line -Shigatse Railway has laid solid technical foundation for construction of China-Nepal Railway. Completed in 2006, Qinghai-Tibet Railway stretched 1956 kilometers and was the plateau railway of highest altitude and longest distance on permafrost in the world; it was awarded as

“global century-old project” and indeed a monument in global railway construction history.

In August 2014, the Qinghai-Tibet Railway extension, 253-kilometer Lhasa-Shigatse

Railway was put into operation, which realized the interconnection of Lhasa and the key city of southern Tibet Shigatse. It’s notable that this railway was built on plateaus 3600-

4000 meters high, the bridge and tunnel mileage accounted for 46.69% of the whole line.

Furthermore, the Lhasa-Nyingchi Railway is in construction and predicted to officially open in 2020. The construction of plateau railways above provides technical basis and makes it possible for China-Nepal Railway.

In details, Qinghai-Tibet Railway construction has conquered the worldwide difficulty of “plateau permafrost” and created feasibility for China-Nepal Railway. “Plateau permafrost” was the problem to be solved for all railways over 3000 meters high, its major threat to plateau railway was geological sedimentation (thaw collapse). The permafrost was buried shallowly and may thaw due to natural factor or human activities, which caused geological sedimentation and damages railroad bed. Accordingly, China’s railway researchers has carried out long-term research and implemented the solution to permafrost for Qinghai-Tibet Railway. Qinghai-Tibet Railway adopted “bridge replacing roads”,

13 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations thermal conductive bar, permafrost thermal insulation and other measures and engineering technology, which effectively solved the sedimentation problem and thoroughly eliminated the potential safety hazard of permafrost to railway roads, with the operation speed of

100km/h guaranteed. The construction of China-Nepal Railway shall inevitably solve the permafrost problem and the technical experience in Qinghai-Tibet Railway can help handle this easily.

Besides, other technical breakthroughs also laid foundation for China-Nepal Railway; in addition to permafrost, Qinghai-Tibet Railway and Lhasa-Shigatse Railway faced other challenges such as cold and dry climate, thin air, hypobaric hypoxia and fragile ecology.

The engineering technicians of China have conquered them all and made important breakthroughs in electricity transmission and communication technologies. For example, there are strong lightning activities along Qinghai-Tibet Railway and the soil electric resistance of permafrost is hundreds of times than that in normal conditions, electricity transmission is a severe challenge. The engineering technicians tested repeatedly and mastered the technology of 110Kw electricity transmission of high altitude and long distance. In a word, various key technologies about plateau railway construction have been mastered by China’s engineering technicians and obstacles of Tibet-Nepal engineering can be well solved later.

Moreover, China’s entire and high-efficient railway construction system has become the vital guarantee for China-Nepal Railway construction. Design, construction and supervision systems are three backbones of railway construction; in terms of China-

Nepal Railway construction, from the aspect of design and scientific research, Chinese

Academy of Sciences, Northwest Research Institute Co., Ltd of C.R.E.C, China Railway

First Survey & Design Institute Group Co., Ltd. and so on have outstanding scientific and tackling ability in key technologies; from the perspective of construction, China Railway

Group Limited, China Railway Construction Corporation Limited and their subordinating engineering bureaus all have rich plateau railway construction experience; from the view of supervision level, independent supervision system can guarantee the engineering quality.

Although the construction of China-Nepal Railway faces various technical difficulties such

14 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations as complex geological conditions, high relative elevation and frequent geological disasters, China’s engineering technicians are able to handle them effectively, and complete the task safely and efficiently.

2. The operation revenue of China-Nepal Railway Although the predicted operation revenue of China-Nepal Railway is ideal, substantial external economic and social benefits will be created per completion; thus, construction of this railway has sound feasibility in economic and social levels. 1) China-Nepal Railway will greatly promote the economic and social development of southern regions of Tibet. Firstly, this railway will be an important channel connecting Lhatse County, and Nyalam County to the third largest city of Tibet, Shigatse, and can effectively promote staff and goods transportation of the regions above. Also, this railway will further strengthen Shigatse’s sub-center status in the south of Tibet, enhance its radiation to surrounding regions and the economic development of the three counties above. Secondly, China-Nepal Railway can basically solve the staff and goods transportation problem of southern regions of Tibet, and bring about active influence to industrial structure and employment along the railway. Lastly, China-Nepal Railway will accelerate local economic development, especially mineral exploitation, tourism and husbandry, which is of great significance to drive the economic society development of Tibet and increase national unity. To promote the development of southern regions of Tibet alone, it is a must to build China-Nepal Railway. 2) China-Nepal Railway can largely increase the bilateral passenger and goods transportation. The World Bank evaluated the international logistics conditions (including customs clearance efficiency, port infrastructure, international transportation, logistics capability, cargo tracking and cargo delivery timeliness, etc.) of 155 countries and regions in 2012 and measured the Logistics Performance Index of each country and region; Nepal ranked No. 151 only among all contestants. It can be inferred that the logistics cost of Nepal is extremely high. The goods transportation of China and Nepal mainly replies on China-Nepal highway; while this highway suffers poor road conditions and may be easily

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affected by natural disasters; what’s more, its transport capacity is nearly saturated. In terms of air transport, the marginal cost is quite high with limited transport capacity. By contrast, China-Nepal Railway can sharply increase the bilateral passenger and goods transportation, which can meet both current and future transportation demand. If China-Nepal Railway is extended into India, the passenger and goods transportation demand of China and India can be realized, actively facilitating Sino-Indian interconnection. 3) Despite its own limited profitability, China-Nepal Railway has outstanding positive externality. After Qinghai-Tibet Railway was completed, the operation income with ticket revenue as priority is lower than its operation cost and far from repaying the investment; however, it has brought important externality with its “public resources” attribute and its positive externality can fully make up the construction and operation cost. Similarly, it takes at least 40 years for China-Nepal Railway to recover all the construction cost in optimistic case, while its positive externality is of active significance to humanity communication, trade investment and bilateral relations of the two countries, which is unable to be measured by money. In a word, although the construction and operation cost of China-Nepal Railway is high and no direct economic earnings can be created in short time, it can bring sound economic and social value, with good feasibility in economic society level.

3. The political safeguard of China-Nepal Railway The construction of China-Nepal Railway has solid political safeguard, which is mainly reflected from three aspects: 1) There is no violent conflict in Nepal and it has sound bilateral relations with China; the railway construction has no political risk. For one thing, since Nepal abolished monarchy in 2008, there are contradictions among different parties, without any collapse and obvious violent conflict among nations. For the other, Sino-Nepal friendship is long standing and their relations has improved further since late Jin Dynasty. In March 2015, Chinese President Xi Jinping met President of Nepal Yadav and pointed out: “China and Nepal are friendly neighboring countries of close

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interdependence, the example of peaceful coexistence and mutual beneficial cooperation among big and small countries. China is willing to be good friend of mutual respect and mutual support to Nepal in politics, good partner of co-development and co-prosperity in economy and good neighbor of mutual dependence in security.” Currently, China and Nepal work closely in politics and China always seeks to provide necessary help for the development of Nepal; while Nepal also assists in pushing “The Belt and Road” strategy and supports strengthening the cooperation between China and SAARC. On March 27, Chinese President Xi Jinping met Prachanda, Prime Minister of Nepal successively; they reconfirmed to solidly promote interconnection, free trade agreement and other economic measures with “The Belt and Road” co-building as the opportunity. Close political relations and extensive political cooperation lay solid political foundation for the construction of China-Nepal Railway and provide strong political guarantee. 2) The interreligious relations in Nepal are relatively tolerant. Although Hinduism is the largest religion of Nepal (believers account for 86%), it is inclusive to Buddhism. Buddhism also has believers in Nepal and the number is increasing. More exchanges between China and Nepal will not cause any adverse effect to China’s religion security. In the era of globalization, transmission path, expression form and influence scope of the religion present transnational and trans-regional features, which brings new challenges to security and stabilization of China’s some religious border regions. Religion greatly affects religious believers’ national identity, political identity and cultural identity, and some hostile forces try to incite believers by religion to achieve the political goal; thus, religion provides validity for violence, secession and external interference, and causes huge threat to China’s religious and political security. At present, “The Belt and Road” strategy is facing more prominent religious risks; while strengthening interconnection with West Asian and South Asian countries, China may open the channel of Islamic extreme forces to China, which deepens the religious security risk of China’s Xinjiang region. In comparison, Nepalese people believe in Hinduism and are inclusive to other religions, it is moderate overall in politics and religious orientation, and the construction of China-Nepal Railway

17 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations will not cause threat from religious extremist forces. 3) Persisting in fostering an amicable, secure and prosperous neighborly environment, China is striving to drive “The Belt and Road” strategy and the construction of China-Nepal Railway conforms to the two strategies. At Central Meeting on Foreign Affairs Work in 2014, Xi Jinping said: “build surrounding community of destiny, adhere to diplomatic concept of amiableness, sincerity, mutual benefit and inclusiveness, build a good-neighborly relationship and partnership with its neighbors, stick to foster an amicable, secure and prosperous neighborly environment and deepen the mutual beneficial cooperation and interconnection with surrounding countries”. Nepal is one of the least developed countries and its economy stays at “pre-modern level”, so Nepal urgently needs China’s help to get rid of the backward situation. The construction of China-Nepal Railway, for one thing, can practice China’s “fostering an amicable, secure and prosperous neighborly environment” strategy and for the other, can help Nepal with its economic development and modernization construction, so it will get full support of Chinese and Nepalese governments. Furthermore, China is accelerating “The Belt and Road” strategy and construction of China to South Asia Economic Corridor, so China-Nepal Railway is far meaningful to them, and Chinese government will pay special attention. China-Nepal Railway well conforms to China’s strategy of “fostering an amicable, secure and prosperous neighborly environment” and “The Belt and Road” strategy, which is of positive significance to economic development of Nepal and will be greatly supported by China and Nepal.

III. The line selection and budget of China-Nepal Railway

There are three line schemes for international railway from Shigatse to Katmandu, of which “west line scheme” has obvious advantages. The project cost of “west line scheme” is about RMB 200 billion and China and Nepal may collect the construction expenses by national debt, railway construction fund and the World Bank (as well as Asian Development Bank, Asian Infrastructure Investment Bank).

18 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

1. The line planning of China-Nepal Railway China-Nepal Railway had three line schemes, west line, middle line and east line. For one thing, the three lines had different geological conditions. China-Nepal Railway will run through the Himalayas, including over 8000-meters high peak and the altitude difference between the starting station and terminal station exceeds 3000 meters, so the line and engineering plan of “tunnel along valleys” shall be adopted. There are four valley choices from Shigatse to Katmandu, Gyirong Valley, Zhangmu Valley (China-Nepal Railway runs through this valley), Chentang Valley and Yadong Valley. Due to the long detour distance of Chentang Valley and Yadong Valley, the construction cost is quite high, so Gyirong Valley and Zhangmu Valley are more advantageous in line selection (see Fig. 1). Based on the technical standard on railway line selection, China-Nepal Railway preliminarily chooses three schemes, west line, middle line and east line. The three schemes all include a common section from Shigatse to Xiamude. From Xiamude, the line is divided into three parts: the west line passes through Peikucuo Lake and then Gyirong Valley; the middle line passes Nielamu and then Zhangmu Valley, while the altitude difference of middle line is high and many winding mountain railways shall be built; the east line also goes through Zhangmu Valley, but a 130km tunnel is required (see Fig. 2). See Table 4 for the tunnel length, load and total length of the three schemes.

Fig. 1 Sketch map of line selection of China-Nepal Railway

19 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

Fig. 2 Sketch map of three line selection schemes of China-Nepal Railway

Table 4 Bridge and tunnel data of three line selection schemes of China-Nepal Railway

The Tunnel The longest maximum Bridge Total line Line name number tunnel/km burial depth/ number length/km meter Common 20 23.02 1282 20 344.7 section West line 18 28.01 2263 22 388.4 Middle line 53 17.88 2049 48 309.6 East line 3 136.30 2716 3 172.2 Supplement line to middle 2 6.04 706 1 12.5 line

On the other hand, the project costs of the three lines are different. Various factors affect the construction cost of China-Nepal Railway, including basic factors (such as the

20 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

geological conditions, length and excavation diameter of the line), construction factors

(such as excavation equipment, infrastructure near the line) and additional factors (such as environmental protection expenses), etc. As predicted by technical experts, the average cost of China-Nepal Railway is RMB250 million/km, so cost of the common section is

RMB86.2 billion, the west line RMB97.1 billion, the middle line RMB77.4 billion and the west line RMB43.1 billion. In general case, the actual construction expenses are likely to be higher than expected.

Taking various factors into consideration, west line scheme is selected. Engineers from

School of Architecture and Construction, Tongji University ever analyzed the line selection of China-Nepal Railway in details (see Table 5). According to their research results, from technical level alone (constructability, economic benefit, reliability, operation efficiency and environmental influence, etc.), the west line is superior to the middle line and the east line (the west line wins the highest score). Finally, China-Nepal Railway selects the west line scheme.

Table 5 Comprehensive comparison on three line selection schemes of China-Nepal Railway Supplement Indicator Weight West line Middle line East line line to middle line

Constructability 0.40 4 2 1 3

Economic benefit 0.20 3 2 4 1

Reliability 0.10 1 2 4 3 Operation 0.15 3 1 4 2 efficiency Environmental 0.15 2 1 4 3 influence

Total score 3.05 1.7 2.8 2.45

21 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

2. Construction budget of China-Nepal Railway About the budget plan and fund raising way, Qinghai-Tibet Railway provides reference for

China-Nepal Railway. Engineers ever argued in details the technical obstacles and project cost of different lines to Tibet, of which Qinghai-Tibet line was superior to other lines to

Tibet. The investment volume of Gansu-Tibet was predicted to be RMB63.84 billion, the

Sichuan-Tibet RMB76.79 billion, the Yunnan-Tibet RMB65.38 billion, while Qinghai-

Tibet line only RMB13.92 billion. Later, the budget arrangement of Qinghai-Tibet Railway was adjusted several times: the State Council approved the construction starting report of

Qinghai-Tibet Railway in 2001 and the State Development Planning Commission approved the total investment of RMB26.21 billion; while in 2005, according to the actual project conditions, the total investment was adjusted to RMB33.09 billion per approval by the State

Council and report by National Development and Reform Commission. Total investment of

Qinghai-Tibet Railway was provided by the state, of which 75% was collected by national debt and the rest 25% was from railway construction fund.

According to line selection scheme of China-Nepal Railway, total investment of the railway will exceed RMB200 billion. The cost of common sections and the west line is about

RMB183.3 billion; while considering the data uncertainty of the project feasibility stage, contingency coefficient shall be considered during cost estimation (about 30%), so the total cost may rise by 30% based on the RMB183.3 billion budget, and the final cost of China-

Nepal Railway may reach RMB238.3 billion.

Various collection ways are available for railway construction fund and China-Nepal

Railway may adopt combined fund collection ways. The collection ways of railway construction fund includes fiscal appropriation (including fiscal appropriation by the central government and local governments; fiscal appropriation by local government mainly refers to land assignment fund), commercial loan (commercial banks form bank consortium and provide large loans), national debt, railway construction fund and international loan (such as the construction loan from the World Bank), etc. It is difficult for China-Nepal Railway

22 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

to collect huge fund just in single way, so China-Nepal Railway may adopt combined fund collection ways. The fund collection channels above are different for different railway constructions, so it is unable to infer the weight of different channels in China-Nepal Railway fund collection. Different from railways of other countries, Nepal’s basic conditions shall also be considered for fund collection of China-Nepal Railway. For one hand, China’s Nepal Railway is unable to gain profit once completed and no considerable economic value can be created; for the other hand, Nepal is one of the least-developed countries of Asia listed by UNCTAD; with small financial scale, it can’t provide impressive fund for the construction of China-Nepal Railway. In consideration of this, most of, even all of the expenses will be undertaken by

China in advance (China provides all the construction fund in short term, while for the fund Nepal shall undertake, China may offers low interest or interest-free loan and Nepal pays back gradually later).It shall be pointed out that for fund collection of China-Nepal Railway (especially Nepal section), “Silk Road Fund” or Multilateral Development Banks (the World Bank and Asian Development Bank) can be taken into consideration, so is Asian Infrastructure Investment Bank, whose establishment is led by China.

IV. Policy suggestions on China-Nepal Railway

Based on materials, field investigation and interviews, the author deeply feels that construction of China-Nepal Railway is of significance and good feasibility. For one thing, Nepal is an important neighboring country bordering on China’s southwest. Building China-Nepal Railway can greatly strengthen China and Nepal’s economic, political and social connections, and open up the communication between China and South Asia. For the other, despite the technical challenges and other difficulties, China has rich technical reserve and outstanding ability in plateau railway construction; moreover, the political risk of China-Nepal Railway is low, so the construction is feasible. Thus, the author gives the following policy suggestions.

23 Trans Himalaya Research Report on the Feasibility of China-Nepal Railway and the Collaborative Construction of “The Belt and Road” by the Two Nations

1) The construction of railway from Shigatse of Tibet to capital of Nepal, Katmandu shall be accelerated as important project of “The Belt and Road” initiative. A joint working group is suggested to establish including Ministry of Foreign Affairs, Ministry of Commerce, National Development and Reform Commission, Ministry of Finance, Ministry of Communications and government of Tibet Autonomous Region. This group should dialogue with related departments and institutes of Nepal to accelerate the research on China-Nepal Railway implementation and cause early commencement of the railway construction. 2) As most of the railway sections lie within China territory, so construction of the west extension of Shigatse can start first before China and Nepal decide all the details. Once conditions are ripe, the west extension of Shigatse can directly reach Katmandu. 3) For fund collection of China-Nepal Railway (especially Nepal section), China Development Bank, “Silk Road Fund” or Multilateral Development Banks (the World Bank and the Asian Development Bank) can be taken into consideration, so is the Asian Infrastructure Investment Bank, whose establishment is led by China. 4) Keep close relations with Nepal about China-Nepal Railway construction, improve the institutional level of bilateral cooperation, strive to establish regular economic and trade dialogue mechanism of vice-premier level to provide solid political guarantee for railway construction. 5) Talk to India and well placate it, try to gain forgiveness and support from India on building this railway; establish cooperation committee with India and Nepal if necessary to study the feasibility of extending China-Nepal Railway to India, and thus to quell India’s discontent.

24 人大重阳研究报告

第 1 期 走向核心国家——中国大金融战略与发展路径 第 2 期 大金融理论背景下的金融统合监管报告 第 3 期 人民币国际化动态与展望 第 4 期 建设丝绸之路经济带——愿景与路径 第 5 期 重塑全球金融治理：G20 面临的挑战及应对 ——在“大金融与综合增长的世界：第二届 G20 智库论坛”发布的研究报告 第 6 期 设立战略新兴产业板的探讨和政策建议 第 7 期 A Summit of Significant, Selective Success:Prospects for the Brisbane G20 第 8 期 2016 年 G20 峰会筹备风险评估报告 第 9 期 “一带一路”国际贸易支点城市研究报告 第 10 期 为增长而合作：构建全球经济协调体系 ——在 G20 智库论坛 (2015) 发布的研究报告 第 11 期 中国金融改革与中小企业发展：以创业创新激发增长潜力 第 12 期 经济金融化与均衡杠杆率：美国经验与中国启示 第 13 期 保障大众民生：行动前瞻 第 14 期 绿色金融理论、技术研究与实践进展及前景分析 第 15 期 坚持规划引领 有序务实推进——“一带一路”建设三周年进展报告 第 16 期 供应链金融技术的标准定义 第 17 期 促进互联互通 共建贸易繁荣 ——在“丝绸之路经济带”城市国际论坛（2016）上的发布报告 第 18 期 全球治理新格局——2016 年 G20 总结及 2017 年展望 第 19 期 中巴经济走廊实地调研报告 第 20 期 大相变：世界变局与中国应策 第 21 期 2016 年版《ICC/ESOMAR 市场、观点、社会调查和数据分析国际准则》 第 22 期 特朗普财产评估报告 第 23 期 “造血”金融 :“一带一路”升级非洲发展方式 第 24 期 穿越喜马拉雅——中尼铁路可行性与中尼共建“一带一路”调研报告

人大重阳国际惯例研究系列报告

人大重阳国际惯例研究系列报告之一：“走出去”：国际商务反腐败规则研究 人大重阳国际惯例研究系列报告之二：供应链金融技术的标准定义 人大重阳国际惯例研究系列报告之三：2016 年版《ICC/ESOMAR 市场、观点、社 会调查和数据分析国际准则》 人大重阳“中国财税研究报告”

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