India Intelligence Report

   India, China to Open Nathu-la



  • India, China Open Nathua-la pass in Sikkim

  • India says it is a great step forward, China says it is good business

  • China wants shortcut to sell its manufactured goods and import raw materials

India and China have agreed to open the old silk route through Nathu-la pass in Sikkim for trade after 44 years and re-establish direct trade links to trade 28 items including blankets, agro-chemicals, dry fruits, beverages, canned food, and farm implements. These were the items covered in the border trade agreements of 1991, 1992, and 2003 by the two nations. Nathu-la is located 4545 meter above sea level and is located 460 km from Lhasa and 550 km from Calcutta.

While the border trade will immediately benefit the local economies of Tibet and Sikkim, it is also considered an implicit acceptance by China of Sikkim as being part of India. This is a fruition of a process started in 2003 by former Prime Minister Atal Bihari Vajpayee’s visit to China in 2003.

Historically, the Nathu-la accounted for 80 per cent of the border trade between India and China at the start of the previous century but was shut down after the 1962 border war although trade had traditionally been through sea as was the case after the pass was closed.

The Indian official who negotiated the deal with China said that “The resumption of (Sino-Indian) border trade is a great historic event, not only for enlarging trade, but also for greater relations between the two great countries.” The Chinese official who led negotiations did not have such lofty conclusions. He said that “The reopening of border trade will help end economic isolation in this area and play a key role in boosting market economy there. It will also boost the transportation, construction and service industries, paving the way for a major trade route that connects China and South Asia.” The official said that given that the foreign trade volume of Tibet was only USD 200 million, “If only 10% of Sino-Indian trade goes through the pass it means at least more than $1bn.” However, Beijing-based Qinghua University Institute of International studies Professor Liu Jiangyong said “The reopening of the Nathu La Pass is a key move in strengthening economic and trade ties, which will also enhance mutual political trust.” India and China are celebrating 2006 as year of friendship.

China and India signed a memorandum of understanding on the resumption of border trade at the Nathu La Pass in 2004 and The State Council, Chinese cabinet, approved the plan on the construction of border trade markets at Dongginggang in Yadong in 2005.

Reports in the Indian press glorified the decision using adjectives such as “historic” and that reopening the Nathu La border trade route, the two neighbors have attempted to discard their diplomatic mistrust. Some even say that “weighty addition to a series of confidence building measures” and that this has contributed to “collectively ensured a steady warming of bilateral ties despite complicating issues such as China's continued military support to Pakistan.”

Chinese Ministry of Commerce says that the two countries recorded USD18.73 billion in trade 2005, up 37.5% from the previous year and is expected to exceed USD20 billion this year. With this pass being opened and after the construction of the market, border businessmen are showing more interest.

However, what China really wants is a short cut to have raw materials from India and finished products from China to India. The Chinese delegation leader said the reopened Nathu La Pass will allow iron ore and livestock products from India and wool, herbs and electric appliances from China can be transported into the other country through the short cut.