Home ›› 11 Aug 2022 ›› Editorial
Repeated lockdowns under zero-Covid tolerance policies have periodically disrupted manufacturing and transportation. Tightened border controls have curtailed two-way goods and services trade, tourism, and student and business travel. Weak domestic demand and debt pressures, particularly in the property sector, are also constraining growth.
Further, Chinese economy has faced major disruptions through 2021 due to the ongoing China-US trade war, Covid-19 restrictions, and power shortages. While the economy may continue to suffer from the ongoing trade war and possible Covid-19 resurgences, new issues are likely to rise to the forefront of economic problems in 2022.
On the other hand, the World Bank has set China’s 2022 growth forecast to 5.1 percent, a much slower pace of growth than China averaged in previous decades. The Chinese government targets 5.5 per cent growth for 2022, while the International Monetary Fund (IMF) projects 4.8 per cent growth. Some economists assess China may struggle to meet these targets due to domestic constraints and global economic pressures with Russia’s invasion of Ukraine.
There are political as well as geographical factors that contributed to this growing proximity. For Bangladesh, China has been an important partner over the years, with areas of cooperation spanning diplomacy, economy, and defense.
Bangladesh-China bilateral trade has let our consumer to taste Chinese manufactured products of different types starting from machineries for production process to daily use belongings. Chinese products have competitive pricing strategy and they do not feel stiff competition from other products coming from other countries in Bangladesh.
Recently, China has emerged as the largest source of foreign investments into Bangladesh with the net FDI inflows from China reaching $1.16 billion (28.5 per cent of the total FDI) in 2018–19. The stock of Chinese FDI, however, remains very small at around $2 billion. Most of these investments came in such sectors as agro-processing, banking, power and energy, and textile and clothing. It is important to attract investment in export-oriented sectors. Relocation of Chinese firms, as a result of economic transformation that is taking place in China, into Bangladesh can greatly boost supply-side capacities and export response.
China is also a prominent force in global supply chains, forming networks of cross-border suppliers. It offers favourable market access to LDCs and has now become an important source of technical and financial assistance, particularly in developing large-scale infrastructures.
As Chinese manufacturers already have good backward linkage in this business, they can contribute to substantial export gains by Bangladesh. Through the relocated firms, local entrepreneurs can gain important insights into China’s high value-added premium quality apparel items.
China adopted a policy of non-interference in the domestic Bangladeshi politics. At the same time, irrespective of the political developments taking place within Bangladesh, Beijing has refrained from issuing any public statements, as has Bangladesh regarding Chinese internal issues. Thus, all the political forces within Bangladesh have been willing to promote closer ties with Beijing.
Bangladesh can immensely benefited from an extended economic cooperation with China through technology transfer. China is already one of the most important sources of capital goods used by Bangladeshi firms. Chinese entrepreneurs and private businesses can also contribute to the skill development of Bangladesh’s labour force. This can be very timely as the shortage of skilled workers has become a major problem for business enterprises in Bangladesh.
From Bangladesh’s perspective, BCIM is the gateway to other regional trading arrangements.
BCIM members are also signatories to big regional arrangements such as ACFTA, APTA, ASEAN, BIMSTEC, and SAFTA. FDI inflow and infrastructure development through BCIM can be a potential game-changer for Bangladesh.
The BRI could have ‘significant impact on Bangladesh from an economic and connectivity perspective and the Chittagong Port can act as a central hub to connect Northeast India, Myanmar, Southeast China, Bhutan, Nepal, and Bangladesh’. Bangladesh through its land and water routes sees itself as a natural corridor between South and South- East Asia.
At a primary stage, BRI will facilitates trade with good infrastructure and leads to industrial transfers, boosting such activities as manufacturing, mining, agro-processing, and commercial logistics. BRI will ‘lead to greater financial integration and facilitate greater Chinese portfolio investment in the Bangladesh Stock market.’ They are optimistic that Bangladesh will also have an opportunity to access China’s equity (globally 2nd largest) and bond markets (globally 3rd largest) through this initiative. There is an upbeat mood about Chinese loans and investments in general in Bangladesh.
China is the largest source of imports, accounting for more than 22 per cent of Bangladesh’s total merchandise import payments. Bangladesh imports almost half of its raw materials and capital goods from China. China is the largest sourcing destination for Bangladesh, which buys $14 billion worth of industrial raw materials and food items every year.
Despite the duty-free market access for 97 per cent goods, Bangladesh could not seize the opportunity for most of last year because of a lack of diversified goods and may be the fallouts of the coronavirus pandemic. China has announced a tariff exemption for 97 per cent of Bangladeshi products to be effective from July 1, 2020. Given the limitation of our product basket, we would only be able to take more benefits of the duty-free access to China if we can diversify products, or enhance our exports within the duty-free covered items which is already happening. It would be important to increase Research and Development to meet the new requirements of 40 per cent value addition to capture the full benefits of the opportunity. Retaining the existing level of market access through an FTA is also an option but it comes with reciprocity (i.e., offering a similar preferential treatment to China). The fast-growing domestic market in Bangladesh and China’s already dominant position as the most important source of import makes the latter interested in a bilateral trade deal.
Bangladesh exporting only few products to China and other market. It has exported plastic worth 100.52 USD Million in the FY19-20 and China was the fourth largest recipient of these products for Bangladesh.
If Bangladesh can strengthen the bilateral trade, exploiting the potential in other member countries of the Regional Comprehensive Economic Partnership (RCEP) will also be possible as China is leading the trade bloc. At the same time, as proposed by China for bilateral FTA, Bangladesh must give top priority to sing FTA with China.
We are struggling to enter with few low technology product to enter into Chinese market. In order to increase the new products for export and to increase quality standard of existing eligible products, Bangladesh should proactively seek Chinese investment along with technological knowhow.
Bangladesh hasn't generated a brand image among the consumers of China. In order to enhance the brand image, the big brands of Bangladesh need to open their outlets and offices in China and invest in marketing, promotion, advertisement, cultural exchange, both online and onsite.
Every year, China imports $2.1 trillion worth of goods from all over the world and the amount is expected to double within the next seven to 10 years. Bangladesh's contribution to China's annual import is only 0.05 per cent compared to 3 per cent of Vietnam. If Bangladesh can increase our export contribution to China to 1 per cent, Bangladesh's export to China will be $26 billion in a year.
Bangladesh and China relationship has grown over the past three decades. Given the sustained development of Bangladesh-China ties shall continue to grow for the mutual benefits on strategic reasons.
The writer is Non-Government Adviser, Bangladesh Competition Commission. He can be contacted at mssiddiqui2035@gmail.com
