Nepal's China Exports Tumble as Carpet Sales Collapse

Nepal's export performance shows a stark divergence between its two largest neighbors, with shipments to China collapsing while those to India surge. The country's exports to China fell by 41.71% year-on-year in the first 10 months of the current fiscal year, largely driven by a dramatic drop in carpet sales.

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the sharp decline in carpet exports was the main factor behind the overall drop in exports to China.

This downturn contrasts sharply with Nepal's 16% export growth to India, which has been significantly boosted by the re-export of edible oils. Nepal benefits from a substantial tariff differential under the South Asian Free Trade Area (SAFTA) agreement, allowing traders to import crude oils, process them, and re-export them to India duty-free, thereby avoiding high Indian tariffs.

The once-thriving hand-knotted woollen carpet industry, a flagship export product for Nepal, is struggling in the Chinese market. Exporters cite rising production costs, increased competition from cheaper machine-made alternatives, labor shortages, and logistical disruptions as key factors. The imposition of value-added tax (VAT) on both carpets and raw materials has further increased costs, making Nepali carpets less competitive.

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Since Nepal imposed VAT on carpet exports a few years ago, our products have become costlier. As a result, orders from China have declined significantly.

Krishna Raj Bajgain, an information officer at the Trade and Export Promotion Centre, identified the sharp decline in carpet exports as the primary reason for the overall drop in trade with China. Carpet exports to China plunged by 75.63% during the review period. Bharat Kumar Shrestha, proprietor of Ganapati Rug House, noted that his company's exports to China have halved in recent years due to these factors.

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Raw materials are also taxed, which further raises production costs.