China to look at free trade, rail deal with Nepal

BEIJING (Reuters) - China agreed on Monday to consider building a railway into Nepal and to start a feasibility study for a free trade agreement with the impoverished, landlocked country, which has been trying to lessen its dependence on its big neighbour to the south, India.

The Himalayan nation, that serves as a natural buffer between China and India, adopted its first post-monarchy constitution in September hoping this would usher in peace and stability after years of conflict.

But protesters blocked trucks coming in from India, leading to acute shortages of fuel and medicine. Nepal blamed New Delhi for siding with the protesters, a charge India denied.

The border blockade ended last month but supply of oil and cooking gas is far from normal.

Meeting in Beijing's Great Hall of the People, Nepali Prime Minister K.P. Oli told Chinese Premier Li Keqiang he had "come to China with a special mission" when it came to strengthening relations. He did not elaborate in front of reporters.

Hou Yanqi, deputy head of the Chinese Foreign Ministry's Asia Division, said Oli raised the possibility of two rail lines, one connecting three of Nepal's most important cities and two other crossing the border from China into Nepal.

Hou said the government would encourage Chinese firms to look at the internal rail plan, and that China was already planning to extend the railway from the Tibetan city of Shigatse to Gyirong on the Nepal border.

"Of course, a further extension from Gyirong is an even longer-term plan. It's up to geographic and technical conditions, financing ability. We believe that far in the future the two will countries be connected by rail," she said.

The two countries signed a total of 10 agreements, including on the feasibility plan for a free trade agreement, as well a concessional loan for a new airport in Nepal's Pokhara and a feasibility study for oil and gas survey projects.

No details were given.

Kathmandu says it wants to import 33 percent of the annual demand of 1.8 million tonnes of petroleum products from Beijing but trade officials say absence of connectivity - logistics, cost and transportation through difficult Himalayan terrain - poses a challenge to any fuel trade between the two countries.

(Reporting by Ben Blanchard; Additional reporting by Gopal Sharma in KATHMANDU)