‘A rising tide raises all boats.’ Former US President John F. Kennedy often used this phrase during the Cold War era to promote free market policies. Interestingly, it is borrowed from an old Chinese proverb. Unfortunately, Kennedy did not live long enough to see the unprecedented rise of China’s economy in the 21st century. China’s economic boom is such that its neighbouring countries want a piece of it. They are trying to raise their own boats on this Chinese tide. And Bangladesh is one of these countries!

Since 2010, Sino-Bangladesh collaboration on different issues, such as trade, investment and infrastructure, has stood as testimony to the appropriateness of the old Chinese proverb. Bangladesh’s economic development is in itself a story worth telling. When the apex intergovernmental body, the United Nations, itself uses the ‘Bangladesh model’ to exemplify economic development, then it is safe to say that the country is an emerging economic power in the region. China has been a crucial partner in Bangladesh’s development journey. 

The Sino-Bangladesh relationship is rooted in economic partnership. It is true that the relationship between the two countries did not start well, owing to China’s adversarial role during the liberation of Bangladesh in 1971. But things turned around quickly. Over the decades, the relationship has gone through a tremendous transformation, to the extent that China is now an indispensable development partner of Bangladesh. Observers now often term China an ‘all-weather friend’ of Bangladesh. 

Sino-Bangladesh relations started with defence ties when the two countries established a diplomatic relationship in 1976. This has now expanded to every sector, with impacts on Bangladesh’s economy. Despite the havoc caused by the covid-19 pandemic since 2020, which has devastated economic activity across the globe, foreign direct investment (FDI) from China into Bangladesh grew by a record 200% in 2020-2021. China has now become Bangladesh’s largest trading partner. 

Where Bangladesh has not been able to secure funding from Western partners, China has come forward.

The Sino-Bangladesh trade and investment partnership covers a wide variety of activities. China generates the largest share of Bangladesh’s imports, including items like textiles, machines, refined petroleum, raw materials and electronics. Meanwhile, in 2021 Bangladesh was one of the largest recipients of Chinese FDI in South Asia. The country was the third largest market for engineering contracts in the region. Needless to say, this is a remarkable achievement for a ‘small’ country like Bangladesh in a time of crisis. 

The Sino-Bangladesh partnership has proved itself. Where Bangladesh has not been able to secure funding from Western partners, China has come forward. Let’s take a deep dive into four major sectors where Chinese engagement in Bangladesh has become instrumental. 

Energy 

The energy sector plays a crucial role in the economic development of a country. Chinese FDI in this sector in Bangladesh deserves a mention. Since 2010, Bangladesh has achieved remarkable progress in terms of producing power. During this time, China has implemented a number of projects, albeit environment-threatening coal-based power plants. These include Payra Thermal Power Plant in the south—the single largest power plant in the country. 

There are other projects in the pipeline, including some renewable energy projects, which will be undertaken by a joint venture called Bangladesh China Power Company by 2023. China has also been a strategic partner in developing Bangladesh’s power grid network.  

China’s plan to extend its long-term strategic investment policy, the Belt and Road Initiative (BRI), has faced a few issues in Bangladesh. Chinese plans to build an oil pipeline did not work out as initially planned. However, this did not stop China establishing its strategic presence in Bangladesh. In 2017, US oil company Chevron sold three Bangladeshi gas fields to the Chinese. These fields constitute more than half of the total gas output of Bangladesh. The plan was to build a pipeline and a mooring point to directly offload imported oil at the refinery in the port city of Chattogram. However, Bangladesh now needs to renegotiate with China to finance low-carbon energy to align with its pledge to be carbon-neutral by 2050. 

Infrastructure 

Chinese technological knowhow on infrastructure in developing countries has no match. Chinese FDI has been poured into strategic infrastructure in Bangladesh. This includes the third largest port of the country, Payra Deep-Sea Port. China is also set to develop another major port in Mongla, which is in the southwest. The country had planned to build another, called Sonadia, but this was abandoned as a result of concerns raised by environmentalists.  

China has offered to construct embankments along the Teesta River in the north, close to Bangladesh’s border with India. Water management issues on the Teesta River are an endemic problem for Bangladesh because of India’s inability to seal a water-sharing deal. The proposed Chinese project on the Teesta has given India a headache. This has immense strategic implications for both Bangladesh and India. 

China is also interested in improving the two main economic hubs of the country, Dhaka and Chattogram cities. It has proposed construction of the Dhaka–Chattogram High Speed Rail, which, if implemented, will change the landscape of connectivity of the country. There are several other big projects in joint collaboration with the Chinese, including construction of the country’s first river tunnel, Bangabandhu–Karnaphuli tunnel, and its longest bridge, Padma Bridge.   

Stocks and tech 

Foreign investment in Bangladesh’s capital market is a recent phenomenon—and China has been a first-mover. In 2018, a Chinese consortium of Shanghai and Shenzhen stock exchanges acquired a stake of about 25% in Bangladesh’s main stock exchange. 

Foreign investment in Bangladesh’s capital market is a recent phenomenon—and China has been a first-mover.

Meanwhile, China has strategically invested in Bangladeshi tech. The Chinese giant Alipay has obtained a 20% stake in bKash, the largest mobile banking service provider of Bangladesh. China has also invested in building the first centralised data storage centre in Bangladesh. It is the largest ‘IV data centre’ in South Asia. Chinese giant Huawei has taken the lead on 5G implementation for the telecom sector in Bangladesh. From Bangladesh’s point of view, China will be an important player in its across-the-board digitalisation agenda. 

Defence 

Crucial—yet controversial in relation to diplomacy—the issue of defence cooperation between China and Bangladesh is creating a buzz among invested quarters. Bangladesh has signed a Defence Cooperation Agreement with China, which covers defence production. This makes China the only country with which Bangladesh has a broad defence cooperation agreement. Between 2010 and 2019, 74% of the arms Bangladesh imported came from China. These included a wide range of equipment for tanks, submarines, frigates, anti-ship missiles and fighter jets, as well as small arms. 

Bangladesh in the BRI 

Ancient China’s ‘silk road’, built under the Han Dynasty around 2000 years ago, was a shared prosperity trade route that fuelled Chinese growth at the time. Taking inspiration from this route, in 2013 the Chinese president conceptualised the One Belt One Road project. The idea was to develop a ‘silk road economic belt’—a transcontinental passage to link China with the rest of Asia and Europe by land.  To complement this, a ‘maritime silk road’—a sea route to connect China with the rest of Asia, Eastern Africa and Europe—would be charted. This would be China’s ‘project of the century.’ The project was soon rebranded as the Belt and Road Initiative (BRI). 

As of 2022, nine ongoing projects in Bangladesh come under the auspices of China’s BRI policy. The BRI has six main corridors. One of them, the Bangladesh–China–India–Myanmar (BCIM) Corridor, passes through Bangladesh. However, the BCIM Corridor is currently at a standstill as a result of New Delhi’s reservations about China’s dominance in the region. 

Bangladesh can continue to harness the benefits of commerce and connectivity from the BRI. Bangladesh just needs a balanced approach to ensure it can deal with the economic opportunities coming from China. Bangladesh will surely become a big destination for Chinese investment. In dealing with Chinese FDI, though, the country needs to be mindful that it holds a very strategic position for the two major superpowers, the US and China. Both will want a piece of it. On one side, there is the US-led Indo-Pacific strategy, on the other the China-led BRI. 

Bangladesh’s FDI policy needs to tread a fine line regarding its economic and strategic engagement with China.

Bangladesh has so far maintained such a balancing approach in dealing with the two powerhouses. This needs to continue. As we emerge from the Cold World era’s ideological dichotomy, foreign policy wonks say that China’s rise will lead to a ‘Sino-centric’ world order.

In this regard, former President of Singapore Lee Kaun Yew has said that the size of China’s displacement is such that it is the biggest player in the history of the world. 

If there is to be a Sino-centric world, then Chinese FDI in Bangladesh’s development needs to be aligned with the latter’s long-term goals. Bangladesh’s FDI policy thus needs to tread a fine line regarding its economic and strategic engagement with China.

The baggage of the debt trap 

China’s debt trap diplomacy is well known in policy circles around the globe. China allegedly inveigles developing countries into taking out loans to build expensive infrastructure that they cannot afford. The end goal of Beijing is to take control of these assets from the struggling borrowers. In South Asia, Pakistan and Sri Lanka have fallen into this trap. The BRI has been widely criticised as being a means to establish Beijing’s influence in setting up a unipolar Asia. 

There are reasons to be suspicious of the BRI, especially after seeing the fate of Pakistan and Sri Lanka mentioned above. Interestingly, though, Chinese operations in Bangladesh are significantly different from those in its South Asian counterparts. The reality is that Bangladesh has so far dealt well with its Chinese loans. Bangladesh has conducted its macroeconomic management very prudently, which has helped it avoid the Chinese debt trap. Smart engagement with the BRI has helped Bangladesh avoid the catastrophic fate of its South Asian neighbours. 

The good news for Bangladesh is that it can say no to Beijing if its national interest is not being served. The cancellation of the deep-sea port in Sonadia is a good precedent. Dhaka has formed an approach to dealing with Chinese interference in its decision-making process. This will balance out its ties with neighbouring India, with which Bangladesh shares an inseparable historic affinity, and its ties with Western allies. 

The ‘eggs in different baskets’ strategy 

Bangladesh is dealing with Chinese investment in a smart manner. All the China-funded projects in Bangladesh have passed the financial viability test. Not a single deal has been signed blindly. Neither has there been any deal signed whereby Dhaka has accepted all the diktats. In short, the core principles behind the signing of deals have been national interests and the development agenda.  

Bangladesh’s diplomatic manoeuvres in the past few decades demonstrate that it has struck a fine balance between its partners. For the first four decades after its independence, development financing came mostly from West-centric partners. Western loans were usually conditional, entailing arm-twisting reforms. In the past decade, as we have seen, Bangladesh has devised its strategy to tap into Chinese soft loans. This has given the country room to work on much-awaited home-grown political-economic reforms. 

While Bangladesh has tapped into Chinese funds, however, it has not become reliant on them. Dhaka has been prudent enough not to put all its eggs in one basket.  

Bangladesh’s seaport policy is a good example of this. 

Let’s recall that port-building is a major tool in implementing Beijing’s BRI vision. Since the growth momentum of 2010, trade in and out of Bangladesh has accelerated. This means that the pressure on ports, particularly the main port near the southern city of Chattogram, has increased.  An initiative has been undertaken to ramp up the functionality of Chattogram port’s terminal, which has been divided into 19 parts. To hedge their risk, Bangladeshi policy-makers decided to give these contracts to different countries. This diversification reduces Bangladesh’s dependency on one single country. This is the opposite of what occurred in the country’s South Asian neighbour, Sri Lanka. Meanwhile, Bangladesh’s first deep seaport is being built by the Japanese, not by the Chinese. 

Through smart balancing policy, Bangladesh has redefined the concept of neighbourhood—from one based only on land.

Meanwhile, Bangladesh’s finely balanced seaport policy has rather served its national interest. The policy of strengthening port capacity and building new ports has turned Bangladesh into a maritime country. South Asia watchers are now re-envisioning Bangladesh as a key littoral state of the Bay of Bengal region. Access to the Bay has opened up new opportunities for the country—and this is a true opening-up for Bangladesh, which otherwise has only two neighbours. The Bay of Bengal can now be the country’s third neighbour. Thus, through smart balancing policy, Bangladesh has redefined the concept of neighbourhood—from one based only on land. In short, it bargained up its geostrategic value. 

It is important to note that, other than China, partners like Japan, the Persian Gulf countries, Turkey, India, the US, the UK and Germany are investing heavily in Bangladesh. Bangladesh can use its successful strategy of diversification to project itself as a role model for other developing countries to follow in ‘growing without enmity.’

Looking beyond the trap narrative 

According to intergovernmental agencies, the World Bank and the International Monetary Fund, if a country externalises its external debts by 40% of its gross domestic product, then it has slipped into the debt trap. By this definition, Pakistan and Sri Lanka are in the trap. For Bangladesh, in 2019-2020, foreign loans make up less than 15% of its gross domestic product, while Chinese loans constitute 6.8% of gross domestic product. Bangladesh has so far maintained an optimal level of foreign loan intake. Going forward, it needs to keep its foreign loan inflow under the prescribed threshold.  

If Bangladesh is to grow, foreign financing, particularly from China, will remain part of its investment basket. The country needs to pursue soft loans and negotiate every Chinese deal thoroughly. In order to avoid the debt trap, the formula is very clear: ensure the timely implementation of projects. There is no alternative. 

To truly engage with the Chinese, Bangladesh can leverage China’s boom story and plan out a way to import technologies from which it can benefit. At the same time, Bangladesh needs to double-down on its signature policy: continue with its prudent macroeconomic management. These basic approaches are enough to avoid the ‘Chinese debt trap.’

Bangladesh in its 50th year is mature enough to make informed decisions when signing deals with development partners. The country can also reject deals. Bangladeshi decision-makers must keep making it clear that they do not bow down to the diktats of foreign donors. No issue other than the national interest should come into play here. This strategy has worked, and it promises to work in the future—and it will be crucial for reaching the country’s goal of becoming an advanced economy by 2041. 

Bangladesh has an economic partnership with China, with Beijing financing some areas of strategic priority. For this, Bangladesh is being eyed by the policy-makers of the great powers. As long as Bangladesh is transparent on what it is doing, the data should speak for itself. There is nothing to hide.

 

Photo ©️ Mahmud Hossain Opu

Rumana Islam
Rumana Islam is a professor at the University of Dhaka. She is a lawyer and a researcher. She is a panel arbitrator nominated by the Government of Bangladesh to the World Bank’s International Centre for Settlement of Investment Disputes. She was assistant director of research at the Bangladesh Institute for Law and International Affairs. She is a Cambridge Commonwealth Trust Scholar and a Commonwealth Scholar. She pursued her doctoral studies at the University of Warwick, UK.