ECONOMIC TIES BETWEEN CHINA AND BANGLADESH

Background:

• Bangladesh has made significant progress in reducing poverty and improving its economic conditions since 1999. Poverty declined from 11.8 percent in 2010 to 5.0 percent in 2022, based on the international poverty line of $2.15 a day. While Bangladesh has had a strong track record of growth and development, supported by a robust demographic dividend, strong ready-made garment exports, high remittance inflows and stable macroeconomic conditions, it continues to require assistance from other countries and international organisations for various development needs. Bangladesh's limited natural resources, high population density, and frequent natural disasters present significant challenges in its efforts to reduce poverty and achieve sustainable economic growth, making foreign assistance critical. This is evident from the fact that foreign partners constitute a significant share of development support in the country's Annual Development Programme.
• China, in particular, has become an important economic partner for Bangladesh, as evidenced by its foreign direct investment (FDI) which increased 10.9 times between 2011 and 2019. Chinese investment is focused on various sectors: energy industry, which includes projects ranging from green energy efforts to coal-based power plants; infrastructure projects, such as seaports and railway lines; information technology; defence cooperation; and even education as evident from the recent donation of a second smart classroom by the Chinese embassy in Bangladesh. Thus, China-Bangladesh relations have improved considerably because of China’s steadfast support and its willingness to fund initiatives - which were previously rejected by Western funders - that are significant to Bangladesh. In addition, China has continuously demonstrated a strong desire to interact with South Asian nations since they offer an entry point to the Indian Ocean and aid China to strategically contain India.

Strategic Importance of Bangladesh to China

• In 2023, China and Bangladesh reinforced their Strategic Partnership of Cooperation, with President Xi Jinping and Prime Minister Sheikh Hasina holding face-to-face talks after four years. Chinese investment in Bangladesh reached nearly 1.4 billion USD, supporting over 700 Chinese companies and creating 550,000 job opportunities. Bangladesh's strategically significant location, close proximity to India both politically and geographically, access to inexpensive labour, and proximity to the Bay of Bengal makes Bangladesh geopolitically significant, making it a recipient of substantial bilateral assistance from a country hoping to become the next global leader. At the same time, Bangladesh's closeness to China has been accelerated by their tense ties with the United States, owing to the US’s emphasis on democracy while Bangladesh has been showing more authoritarian tendencies since 2014 as per the USA.
• Firstly, China wants to secure energy routes and lessen reliance on the Strait of Malacca by expanding its sphere of influence in the Indian Ocean. Plans for port expansion and oil pipelines are among the many investments that China has made in Bangladesh as a part of its ‘string of pearls’ strategy. Second, Bangladesh is an important gateway to South Asia, giving China access to a significant market. In order to access South Asian markets, the Bangladesh-China-India-Myanmar (BCIM) corridor is an important avenue for China, positioning Bangladesh as a hub for Chinese infrastructure projects. Bangladesh's location along the BCIM Economic Corridor and the 21st Century Maritime Silk Road—particularly with the Chittagong port—plays a crucial role in China's inter-connectivity aspirations as a key player in the Belt and Road Initiative (BRI). Furthermore, China maintains influence by countering India's regional domination through arms supplies to Bangladesh. Lastly, Bangladesh also has an conducive atmosphere for relocating sunset industries to lessen the impact of “China plus One” strategy. It will also  give China access to a young, relatively cheaper labour pool. Bangladesh's strategic significance to China is thus multidimensional and encompasses economic, geopolitical, and connectivity aspects.

Key economic developments

On economic front, China has offered significant developmental assistance to Bangladesh, some of the major projects include:

• China-Bangladesh Friendship Talent Development Project: This project involves the donation of smart classrooms to schools in Bangladesh, aiming to promote digital education and contribute to the vision of a Smart Bangladesh.
• Belt and Road Initiative (BRI): Over the last decade, China has released $4.45 billion for 35 projects under BRI in Bangladesh. Chinese enterprises have implemented major infrastructure projects in sectors like transportation, energy, power, and communications in Bangladesh, including the inauguration of the Bangabandhu Sheikh Mujibur Rahman Tunnel, the Padma Bridge, BCIM Economic Corridor, Single Point Mooring (SPM) with Double Buoy Mooring (DBM), among others. The focus of China's investment in Bangladesh has shifted from light industry to infrastructure, such as power plants and highways. These BRI projects have significantly improved Bangladesh's infrastructure and advanced its development objectives as it has drawn more capital to be invested in digitization, energy, and transportation, and enabled greater local participation and engagement with diverse stakeholders, such as governments, commercial sector, and civil society. However, sustainable financing remains a primary concern in the region, considering how Bangladesh - a member of China's BRI - already owes Beijing USD 4 billion, or 6% of its total foreign debt. Due to these reasons, a number of BRI infrastructure projects in Bangladesh, such as building a 5G network for the government-owned telecom company Teletalk and building highways, have been abandoned or delayed.
• Bilateral Trade: Over the years, China and Bangladesh's bilateral trade has increased significantly; in 2021, China exported $24.1 billion worth of goods to Bangladesh, up from $652 million in 1995. While Bangladesh's main exports to China include knit t-shirts, tanned equine and bovine hides, and light rubberised knitted fabric, China's top exports to Bangladesh are vaccinations and refined petroleum. Bangladesh sees room for expansion despite China's huge trade surplus, particularly in areas like ready-made clothing, leather goods, and agricultural products. The growing trade relationship presents possibilities for trade portfolio diversification and further development.
• Economic and technological cooperation: China and Bangladesh have immense potential to explore cooperation in fields like climate change, renewable energy, and digital technology. One notable project is the Cox's Bazar wind power project, which is the first centralised wind power project in Bangladesh. Upon its full operation, it is expected to provide Bangladesh with about 145 million kWh of clean electricity per year, reducing coal consumption and carbon emissions. The Chinese corporation SPIC Willing Power Corporation provides financial support to the private company US-DK Green Energy Bd Ltd, which is leading the project.

Navigating Challenges to the China-Bangladesh Strategic Partnership

• Concerns have been raised concerning the durability and transparency of Chinese investments, despite the fact that they have brought Bangladesh considerable economic benefits. Concerns exist over the possible social and environmental effects of Chinese-backed projects in Bangladesh. Opinions regarding China's involvement in Bangladesh's development initiative remain polarised. According to Bangladesh-based Daily Asian Age, a number of Chinese-backed projects in Bangladesh have been operating below expectations, which has alarmed analysts given the state of affairs in Pakistan and Sri Lanka, whose economies have suffered significantly under the Chinese debt burden. Bangladesh, according to Wilson Centre director of South Asia, Michael Kugelman, is “reaping the benefits of great power competition” in its dealings with China and India.
• Bangladesh's "Look East" policy, which was intended to reduce its reliance on India, has instead made it more dependent on China, which has given Beijing more clout in bilateral relations. Bangladesh now has to strike a careful balance in order to preserve its strategic alliance with China, all the while allaying India's worries and safeguarding its own interests. Therefore, in light of their rivalry for influence in the region, Bangladesh's geopolitical balancing act between China and India has grown in importance. India continues to be a vital strategic partner for Bangladesh, which has been cautious in striking a balance between its connections with both powers to protect its own interests, even as China has made significant inroads into the country through different development and defence partnerships. This careful balancing act illustrates the intricate dynamics of South Asia's great power rivalry and how they affect Bangladesh's development and foreign policy goals.
• India’s perspective Prime Minister Hasina has been in power  since 2009 and won a historic fourth term in office in 2023. Her government has strengthened ties with India in vital sectors like energy and trade, including access to vital ports for the transshipment of products to the northeastern states, in addition to toughening up on anti-Indian organisations. PM Modi and Hasina jointly inaugurated three Indian-assisted development projects via video conferencing. The three projects are the Akhaura- Agartala Cross-Border Rail Link, Khulna - Mongla Port Rail Line, and Unit - II of the Maitree Super Thermal Power Plant in Rampal, Bangladesh. There are several points of friction between India and Bangladesh, notwithstanding their close ties.
• Trading concerns: Over the past ten years, Bangladesh and India's bilateral trade has tripled, from US$5.3 billion in 2012–13 to US$15.93 billion in the fiscal year 2021–22. Yet, Bangladesh’s exports to India accounted for just US$1.98 billion of the overall trade, despite a 200% rise. Several trade restrictions, especially non-tariff  barriers are responsible in impeding the expansion of trade. Trade has been hampered by non-tariff obstacles including the drawn-out and difficult procedure of acquiring permits and permissions at the border, conflicts and retaliatory actions occasionally resulting from political tensions and historical disagreements, a lack of coordination and communication between the two nations, and the large volume of smuggled commodities that enter Bangladesh from India across the land border. All these elements have made it more difficult for trade to grow between the two countries.
• Exploiting these areas of friction between India and Bangladesh has been one of the core interests of China. For instance, there are concerns that China's $1 billion Teesta River Comprehensive Management and Restoration Project in Bangladesh, which aims to dredge and embank the river, could cause tension with India. The plan is made at a time when Bangladesh and India are having trouble agreeing to a water-sharing agreement. Md. Touhid Hossain, a former foreign secretary of Bangladesh, warns about the potential problems, particularly in the vicinity of India's Siliguri Corridor. Fears centre on China's presence in the corridor under the pretext of development projects, raising concerns about the wider domestic and regional geopolitical ramifications of its engagement.

Conclusion

• Bangladesh's deepening economic and strategic ties with China have raised concerns in India and other regional powers, as it may impact the geopolitical balance in South Asia. The growing Chinese influence in Bangladesh has the potential to reshape the geopolitical dynamics of the region, leading to a re-evaluation of alliances and partnerships. Given the strategic location of Bangladesh for China, their growing relationship is a worry for India. As a result of China's pledge to safeguard Bangladesh from foreign intervention, India is concerned about Beijing's growing regional influence through economic efforts and the possible dangers of debt trap diplomacy.