CHINA AND BANGLADESH
On a Transformational Journey
China has been taken a strong place in the global economic landscape with its large GDP and rapid economic growth. Although in the last three decades, the growth of the Chinese economy has slowed down from a rate of 10 percent GDP growth to 6.9 percent in 2015, it was the largest economy in the world in terms of purchasing power parity last year. In 2015, China's contribution to global economic growth was 51.3 percent compared to 30.9 percent of the USA.
The impressive economic growth of China, one of Bangladesh's large Southern neighbours, has important implications for our development. Bangladesh can advance further through connecting with China through trade, investment, foreign aid, and exchange of people and intellectual pursuits. China is now Bangladesh's largest trading partner. In 2015, Chinese export to Bangladesh was USD 13.9 billion. Foreign direct investment from China and Hong Kong together stood at USD 859 million in the same year.
Economic ties between China and Bangladesh have been strengthened in the last four decades. However, there are many more opportunities for China to contribute towards the development of Bangladesh. China is a minor export destination for Bangladesh, making bilateral trade deficit between Bangladesh and China very high. In 2015, Bangladesh's export to China was USD 804 million, which was equivalent to only about 3 percent of Bangladesh's total exports to the global market. To address the growing trade imbalance, China offered duty-free access to 4,788 products from Bangladesh under the Asia-Pacific Trade Agreement. However, because of non-diversified export basket and supply side constraints, Bangladesh cannot take full advantage of this offer. Bangladesh also needs more favorable rules of origin (RoO) for increasing its exports to China.
The size of China's investment across the globe is increasing steadily towards making it a leading economic power. In Africa, Latin America and Asia, China is investing tens of billions of dollars. This is not only on infrastructure, but also on several other sectors, including natural resource extraction, financial service, power generation, textiles, home appliances and real estate. In Bangladesh, Chinese investment has not been particularly noteworthy yet. Until 2010, Bangladesh did not get much priority from China for investment in Bangladesh. Of course, significant increase of Chinese FDI in Bangladesh was observed from 2010 onward. China's contribution to Bangladesh's FDI profile has been growing faster than that of India over the last couple of years. Low investment indicates that Chinese investment in Bangladesh has not been linked to its trade with the country.
Traditionally, Chinese investment projects involved infrastructure and service sectors. In recent times, the focus of Chinese investment in Bangladesh has shifted towards the manufacturing sector, specifically to the ready- made garments sector. It has also expressed interest in making investment in priority sectors such as commerce, agriculture, industry, energy and infrastructure. Higher investment from China can in fact help reduce bi-lateral trade deficit.
Given the large and growing domestic market of China, Bangladesh has the potential to increase its exports to the country. With rising wages in the country, China may take advantage of competitive wage by shifting some of its sunset industries to Bangladesh. This will create employment here and the opportunity to increase exports. This requires massive improvement in infrastructure including power and energy, and also availability of land. The Bangladesh government is planning to have land bank to facilitate large investments. Large Chinese investments can be an opportunity for technology transfer which can contribute to productivity improvement through upgrading of skills.
Chinese contribution, as development assistance to Bangladesh, was negligible till the recent past. Chinese assistance has been mainly for infrastructure development. The Asian Infrastructure Investment Bank (AIIB), established with the initiative of China in 2015, has created opportunities for Bangladesh. Indeed, Bangladesh has already received loans from AIIB for its power sector development. At a time when there is huge finance gap to meet the need of countries, AIIB has the potential to bridge at least a part of this gap. Asian countries can request AIIB for funds to build infrastructure such as roads, railways, power and telecommunications. This initiative is also a complementary to the New Silk Road initiative of China, which seeks to improve infrastructure and connectivity in Asia.
China's transformational journey during the last three decades with high economic growth has made it an economic powerhouse, not only in the region but across the globe. Through several rounds of reforms since 1978 and following its membership in the World Trade Organisation in 2001, China has gone through major structural change as well. As a result, China has achieved the power to influence the course of development of other countries.
Even at a phase when Chinese growth has slowed down, it is trying to consolidate its progress through modernization and reforms. The inclusion of Chinese currency Renminbi in the Special Drawing Right (SDR) valuation basket of the International Monetary Fund indicates progress in reforms in China. It is also an attempt to deepen its integration with the global economy. The quality of growth has now caught the attention of Chinese policymakers. It is also investing heavily on green economy, as at the G20 meeting in Hangzhou in September 2016, China highlighted the issue of green financing.
The future growth prospect and reorientation of growth pattern within China will shape the development path of its partners to a large extent. Despite challenges, there will be newer opportunities for developing countries which are directly linked with Chinese prosperity. As a long term economic partner, Bangladesh will have to prepare itself to benefit from this opportunity.
The writer is Research Director at the Centre for Policy Dialogue.
Expanding the Bangladesh-China trade frontier
Bangladesh Prime Minister Sheikh Hasina with Chinese President Xi Jinping. PHOTO: AFP
Chinese President Xi Jinping will be visiting Dhaka for an official visit on October 15, 2016. This is happening three decades after Chinese President Li Xiannian visited Bangladesh in March 1986. This high-profile visit has already triggered considerable optimism in all quarters due to the fact that China is the biggest trade partner and one of the most trusted friends of Bangladesh since formal diplomatic relations were established in mid-1970s. Both the countries are ready with a number of agreements worth billions, covering trade, investment and developmental cooperation, to sign during President Xi Jinping's visit.
Bangladesh-China bilateral trade has been increasing significantly over the years, both in terms of absolute amount and percentage change among Bangladesh's top trade partners. As per the statistics of Export Promotion Bureau of Bangladesh, the country's total merchandised export to China was USD 808.14 million in the year 2015-16, which was only USD 319.66 million in 2010-11. Thus, Bangladesh's export to China grew at an annual average of 30 percent in the last five years. Nevertheless, the recent export growth has been quite slow, only 6 and 2.2 percent in 2014-15 and 2015-16, respectively. The share of exports to China was merely 2.4 percent of the total export in the immediate past fiscal year.
On the other hand, merchandised imports from China have been the highest for quite some time. The extrapolated data of Bangladesh Bank shows that import from China was worth about USD 9.8 billion in 2015-16, which was USD 5.9 billion in 2010-11. However, the growth of import was considerably lower than export during this period, on average 13 percent per annum. Conversely, the share of imports of China is growing quite well; from 20.7 percent in 2013-14, it has become about 24.1 percent of the total merchandised imports from the country in 2015-16 as per Bangladesh Bank data. Together, Bangladesh's trade with China is now about 26.5 percent of its total trade with the world, which is the highest with a rising trend. If this rate prevails, the total bilateral trade would be USD18 billion in 2021, when the country would celebrate its 50th anniversary.
Bangladesh mainly imports raw materials for its textiles and clothing from China, such as cotton, yarn, fabrics, staple fibers and accessories for its readymade garments (RMG) industry, which is nearly 35 percent of total imports. The latest data of Bangladesh Bank reveals that the country imported cotton, cotton yarn/thread and cotton fabrics (19.6 percent); man-made staple fibres and knitted or crocheted fabrics (10.1 percent); man-made filaments, strip and the like of manmade textile materials (3.8 percent); and other fabrics and apparel accessories (2.8 percent). The other notable import items are boilers, machinery, mechanical appliances and their parts (16.4 percent); electrical machinery and equipment and parts (12.2 percent); and fertiliser, plastic, chemicals, and iron and steel (13.1 percent). The country also imports some food items from China.
On the export side, the top five items constituted about 80 percent of total exports in 2015-16, of which 42.2 percent is woven and knit garments as per the double-digit harmonised code. The main items are woven garments (24.5 percent), leather products and travel items (17.9 percent), knitwear (17.8 percent), paper yarn and woven fabric (12.6 percent), and raw leather (6.5 percent). Fish and footwear are also getting prominence (8.5 percent) in the export basket. Thus, a complementarity is evident in the export and import items, which is believed to create synergy especially in Bangladesh's export-oriented RMG industry. Bangladesh is basically sourcing raw materials and machinery for its textiles and clothing sector.
Despite these positive developments in bilateral trade, there are certain gray areas and constraining factors disfavouring Bangladesh in optimising mutual gains from trade. The first and foremost is very high amount of negative trade balance of Bangladesh, which is currently 85 percent of total bilateral trade. It is mainly due to low export value and its very slow growth in recent years. A slightly encouraging fact is that relative trade deficit has been on the decline — it was 90 percent of total bilateral trade in 2010-11. The declining ratio of trade deficit is perhaps due to duty-free access of around 5,000 Bangladeshi items to the Chinese market under the Asia Pacific Trade Agreement (APTA). Bangladesh, however, needs zero-tariff access of 99 percent items, including RMG products. If China grants this concession, it would significantly help reduce gigantic trade deficit, and bilateral trade would be much larger in the foreseeable future.
Further strengthening of value chain is imperative to benefit the textiles and clothing sector of Bangladesh. China is a cheap source of raw materials, which is being utilised to maintain trade surplus with the European and North American countries. Cost of importing garment inputs from China could be reduced in two ways: reducing time of clearance in sea ports by improving capacity of Chittagong port and extending Chinese production base of non-cotton RMG inputs by constructing relevant factories in Bangladesh. Though the earlier option is immediately required, the latter would help China's costly and declining industries to locate a gainful place and strengthen the bilateral value chain.
Finally, Chinese involvement in Bangladesh's two special economic zones (SEZs) and establishing a dedicated export processing zone (EPZ) for China would help boost bilateral trade and increase Bangladesh's exports to the global market. Even though the SEZ Authority is on the fast track in offering China's desired SEZs in Chittagong and Mongla, the sites have been far from ready in the last two years. There will also likely be complications in constructing EPZ as can be inferred from the experience of the Korean EPZ. Therefore, both parties should come together to assess the ground reality and expedite the process to operationalise the SEZ. The joint communiqué of Prime Minister Sheikh Hasina and President Xi Jinping should cover these issues.
The writer is Acting Research Director at Bangladesh Institute of International and Strategic Studies (BIISS).
Govt eyes big investment from China
Staff Correspondent
The government looks to tap Chinese investment into Bangladesh by awarding them a special economic zone as well as availing loans at cheap rates from Beijing, said Commerce Minister Tofail Ahmed yesterday.
He made the comment at a discussion on “Bangladesh-China Relation: Achievement and Expectation” organised by the Economic Reporters' Forum (ERF) at the CIRDAP auditorium in Dhaka.
The discussion came days ahead of Chinese President Xi Jinping's upcoming visit to Dhaka.
“He also visited Bangladesh when he was the vice-president of his country. He is now coming to Bangladesh as the president. This only proves how deep relations are between the two nations,” the minister observed.
Tofail said many countries have problems with other countries. “But Bangladesh has good relations with China, India, Russia and the US. This proves the diplomatic farsightedness of our prime minister.”
He added that the government has decided to set up 100 special economic zones across the country. Work for around 20 such zones has already started. The government plans to award one of those SEZs to China to attract Chinese investment, he said.
He further said China is gradually moving away from garment manufacturing and many Chinese business-people believe Chinese manufacturers have the opportunity to relocate their businesses to Bangladesh.
“So, we will give them an SEZ to bring in Chinese investment,” he said, adding that both the countries have expressed their willingness to that end.
Currently, China is Bangladesh's largest trading partner, although the trade balance is heavily tilted in favour of the Asian giant.
Bangladesh imports products worth $10 billion from China and exports products worth $800 million, said the commerce minister quoting data from the Export Promotion Bureau.
Export to China grew by 25 percent in the first quarter of the current fiscal year, whereas total export went up by only 4 percent, he added.
He said export to China would soon surpass the $1 billion mark and Bangladesh' overseas sales would stand at $2 billion to the world's second-largest country within two to three years as China has offered Bangladesh duty-free benefits for more than 5,000 items.
Talking about trade deficit, the minister said Bangladesh's trade deficit with India is debated more compared to that with China.
Tofail said India has granted Bangladesh duty and quota-free access to all of its products except alcohol and tobacco. But the Bangladeshi exporters have not yet attained capability to utilize the export opportunity, he observed.
“We have to increase our competitiveness.”
He also talked about any free trade agreement with China, saying Bangladesh would be cautious about the issue.
“We already have duty-free benefit to the Chinese market for our products. Why should we go for the FTA with the country? Already China's export to Bangladesh is more compared to its import. If Bangladesh goes for the FTA, how much will we benefit?”
Most of the countries in the world except the US have given duty and quota-free market access to Bangladesh, he said.
During Chinese President Xi Jinping's upcoming Dhaka visit, a number of memoranda-of-understanding between the two countries would be signed.
The commerce minister said Bangladesh has developed its capacity to implement projects on its own funds. Still the country is borrowing from China at 2 percent with tenures up to 20 years, but these rates could not be compared to those of the World Bank and the Asian Development Bank.
But Chinese financing entails one problem as the bidding are unsolicited and do not go through a tender process. During usual tendering process Bangladesh can negotiate hard for the rates and terms and conditions for a loan.
“We have even proposed that there should be competition among Chinese companies. If there is a tendering process among the competing Chinese companies, Bangladesh will still benefit.”
Tofail said Bangladesh wants to maintain peaceful relations with all countries in the world for further development of the country.
