ISSN 2330-717X

China-Bangladesh Strategic Linkages – Analysis

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By Sumanth Samsani

Though China and Bangladesh shared an adversarial relationship during the latter’s independence movement and immediately after that, the relationship has undergone a tremendous transformation to the extent that China is now considered by many in Bangladesh as an ‘all-weather friend’. They established diplomatic ties in 1976; it was defence ties that was an important area of their relationship, which led to further expansion of ties.

Bilateral trade between China and Bangladesh is heavily tilted towards China. The trade deficit between them stood at US  $16.27 billion in 2019, which has increased 16-fold in the last two decades. China forms the largest share in Bangladesh’s imports at 31.1 percent in 2019, more than double the imports from the next largest partner. Imports from China include a variety of items from textiles, machines, refined petroleum while exports to China consist mainly of textiles which form 70 percent of the total share.

Development cooperation forms an integral part of the partnership. It was only in recent years that the Chinese investment into Bangladesh has grown exponentially. Total Foreign Direct Investment (FDI) stock has increased at a rate of 10.9 times between the end of 2011 and the end of 2019. Bangladesh received a net FDI of US $1.159 billion in FY19 from China, making it one of the largest recipients in South Asia. The energy sector has been the largest recipient of Chinese investment in recent years. China has implemented a number of projects in the power sector, consisting mostly of coal-based power plants. It has also built the single largest power plant in Bangladesh in a joint venture with Bangladesh, which will bear 30 percent of the total cost.  At least 12 dual-fuel power plants are being planned, but so far only three 1,320 megawatt plants are near completion costing around US $ 4.5 billion. China is also investing in the green energy sector with several projects already in the works, including a proposal for a 310 megawatt solar power plant. Bangladesh has also set up a US $400 million joint venture with a Chinese company to build renewable energy projects of a total of 500 megawatts by 2023.

Another important strategic area in the power sector where China is working is the power grid. China is working on a Power Grid Network Strengthening project at an investment of US $1.32 billion and also an expansion and strengthening of the power system network, which is supposed to help in the intelligent operation of the power grid in Bangladesh with an investment of US $ 2.04 billion. Since India declined to be a part of the Belt and Road Initiative (BRI), the Chinese plans for building an oil pipeline from Bangladesh have not materialised. Despite this, China has a significant strategic presence in Bangladesh. In a deal in 2017, Chinese companies bought three natural gas fields in Bangladesh, which account for more than half of the total gas output of Bangladesh from Chevron. China is also partially financing and helping Bangladesh to build a 220 kilometre pipeline and a single mooring point, which will facilitate direct offloading of imported oil at the Chittagong refinery. It is from this point that the Chinese plan to carry oil to the storage plants in mainland China.

Besides the energy sector, infrastructure is one of the sectors where China has made significant investment. One of the most strategically important investments is in the ports of Bangladesh. China is financing and constructing the Payra Deep Sea Port project estimated to cost between US $11 billion and US $15 billion. The port is the third-largest port in the country and had started operating in 2016.

Presently, Chinese firms have been given contracts to construct two components of the project and in a recent letter, Bangladesh sought US $1.6 billion from China to construct the first phase of the seaport. In 2019, Bangladesh gave China access to two of its largest seaports—Chittagong and Mongla. China also signed a deal to develop the Mongla port. China expressed interest and was going to construct a deep sea port at Sonadia but it was later cancelled citing environmental concerns. One major project which has immense strategic implications for India is China’s offer to Bangladesh to manage and restore the Teesta river which flows from India. The plans include building embankments along the river near the Indian border and are estimated to cost US $1 billion, 85 percent of which will be provided by China as a loan. Chinese firms have also shown interest in constructing and operating the Dhaka-Chittagong High-Speed Rail Project. The massive Chinese outreach among other infrastructure projects include the construction of eight Bangladesh-China Friendship bridgesa sewage treatment plant, under river tunnel, economic zonesexpansion of Sylhet airport, and various highways and rail links including the flagship Padma Bridge Rail Link Project at an estimated cost of US $ 3.3 billion, 85 percent of which is being funded by China.

China has pushed its way into other sectors of Bangladesh’s economy like the stock market and information technology amongst various others.  The Chinese consortium of Shanghai and Shenzhen stock exchange acquired a 25 percent stake in Bangladesh’s main stock exchange. Its bid was selected over the Indian bid, which was 56 percent less than the Chinese bid. The digital space is an important strategic space where China has invested significantly. Chinese giant, Alipay, obtained a 20 percent stake in bKash, which is the largest mobile financial service provider in Bangladesh. China is also building and financing the sixth largest data centre in Bangladesh and the first tier IV data centre in South Asia. China and Bangladesh have deep collaborative ties in the Information and Communications Technology sector. China has helped develop ‘Info-Sarker’ phase 2, which is a national infra network for the Bangladesh government and is also helping them develop phase 3 of this project by providing US $1 billionBangladesh also sought Chinese funds for its ‘Modernisation of Telecommunication Network for Digital Connectivity’ project which seeks to bridge the rural-urban divide in this field. It is in the same project where Chinese giant Huawei seeks to provide 5G technical support.

Defence cooperation is one of the significant pillars of the relationship between Bangladesh and China. In 2002, they signed the Defence Cooperation Agreement, which also includes defence production, making China the only country with a broad defence cooperation agreement with Bangladesh. China accounted for around 74 percent of Bangladesh’s arms imports between 2010– 2019. Bangladesh also forms 20 percent of China’s total arms imports between 2015–2019. China supplies a wide variety of military equipment from tanks, fighter jets, submarines, frigates, anti-ship missiles to the majority of small arms. China will be training and providing equipment to the Bangladesh military, according to a deal signed in 2014. China is also helping Bangladesh construct and set up its first submarine base, which will house Chinese-built submarines, having a variety of facilities like wharfs, barracks, ammunition depots, and repairing dock.

In recent times, Bangladesh has been doing quite well economically and it has a high growth rate which may propel it to the middle-income country target set by its Prime Minister, Sheikh Hasina, and has been seeking investments to facilitate this growth. It is here where China comes in, and Beijing has shown a willingness to fund projects which are important to Bangladesh. Some of these projects were rejected by Western financiers due to multiple reasons. China has also consistently shown keen interest in engaging with South Asian countries as it provides a backdoor to the Indian Ocean as well as helps to strategically constrain India, be it by giving 97 percent of Bangladesh’s goods tariff exemption when exported to China or through investments there. Bangladesh has been a buyer of Chinese arms because after its independence its army repatriated Pakistani soldiers who were familiar with the use of Chinese weapons, which led to the high demand for Chinese weapons. It was from here that the defence relationship developed.

One of the main concerns which were raised about these investments was that of Bangladesh falling into the same debt trap like Sri Lanka. But unlike Sri Lanka, the majority of the external debt Bangladesh owes is to multilateral financial institutions, and loans granted by China accounts for only 6 percent of its total debt, according to a lead economist from the World Bank. According to the Bangladesh government, it has an average time period of 31 years to pay off the loans with a grace period of 8 years, and it is confident of repaying even if the growth rate falls to 5 percent.

In addition, there is also a difference in the Chinese style of functioning in Bangladesh and in other countries. China has gone for a partnership-based project implementation and also does not hold majority shares in most of the projects. So, the fear of Bangladesh falling into a debt trap looks unsubstantiated but it does not deny the fact that China’s influence and investments in the country have grown significantly in the past few years. Bangladesh is very aware of India’s security concerns and problems of over dependence on China. Bangladesh is trying to ride the fine line of balancing both these concerns. Despite the fact of increasing Chinese influence over the recent years, Bangladesh is among the least susceptible Indian neighbours to becoming overly dependent on China. That being said, this is a wake-up call for India to try and realise the full potential of its ties with Bangladesh and increase its economic and military ties besides the people-to-people ties.

The views expressed above belong to the author(s).

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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