Implications for Bangladesh-China relations

by M Shahidul Islam | Published: 01:10, Oct 14,2016


China’s president Xi Jinping waves on his arrival at the Phnom Penh international airport on October 13. Xi is due in Dhaka today. — Agence France-Presse/Tang Chhin Sothy

CHINESE president Xi Jinping’s visit to Bangladesh is likely to be a landmark one owing to a number of factors. After three decades, a Chinese president is visiting Bangladesh signifying growing importance of the latter in South Asia’s economics and geopolitics. China is Bangladesh’s top official trading partner. A number of high-profile investment and other business deals worth billions are expected to be signed during Xi’s trip. Following Bangladesh’s demarcation of maritime boundaries with India and Myanmar, there is an opportunity to develop ocean economy in the world’s largest bay with the help of China and other maritime powers. However, the implications of the visit go beyond economics. Dhaka maintains strong military ties with Beijing. Geopolitically, we are witnessing growing rivalry between China and India, particularly in the era of weakening American role in the region. A new type of big power relationship is emerging in the region and relatively smaller countries like Bangladesh have to adjust with this changing scenario maintaining balanced economic and geopolitical relations, particularly with China and India.
That being said, in this piece I will focus on a host of issues that concern Xi’s visit to
Bangladesh in particular and China-Bangladesh relations in general.

Xi: China’s most powerful, popular leader since Deng
PRESIDENT Xi is considered to be the most powerful Chinese leader since Deng Xioping, the architect of China’s miraculous economic growth. Some even argue that Xi’s control over the country as authoritative as Mao Zedong’s, the founding father of modern China. Xi assumed the Communist Party’s leadership towards the end of 2012. Ever since he became the commander-in-chief, Beijing has witnessed marked policy shift in terms of leadership, economy and geopolitics. Given his command of all power, analysts argue that president Xi has distanced himself from Deng and his successors’ practice of ‘collective leadership’, a governance paradigm based on accepted rules and norms.
Xi has changed the Chinese economic model giving greater emphasis on consumption, innovation- and services-led growth shifting away from traditional export- and investment-driven economic expansion. His fight against corruption, particularly against political and business elites, is seen as one of the most powerful campaigns in the country since the death of Mao Zedong. President Xi’s ambition of ‘great rejuvenation’ of the Chinese nation means, unlike his predecessors, he is not heeding Deng’s famous advice to his colleagues to ‘hide your capacities, bide your time’. With nationalistic fervour he has been more assertive in dealing with geopolitical issues, de facto challenging America’s supremacy in the Asia Pacific.

The post-American South Asia: living with dragon and elephant
IT IS no denying that the United States remains top global power. However, the nation is in relative decline. This is largely due to the rise of China and a number of other emerging economies including India. The global economy’s shifting centre of economic gravity towards Asia is making China and India two powerful economic engines as well as geopolitical rivals. India is visibly playing a greater role, and Washington seems not too unhappy given its strategic alliance with New Delhi. China, which considers US as its biggest rival in Asia and elsewhere in the world, is quietly celebrating America’s shrinking role in South Asia.
Geographically sandwiched between China and India, Bangladesh finds itself in an economically much favourable position than ever. Bangladesh’s sizeable market with 160 million population and steady economic growth is making it an important economic player in South Asia. It is China’s third largest market in South Asia after India and Pakistan. Beijing intends to access the Bay of Bengal though Bangladesh to serve its land-locked south-western region as well as ship its goods cutting down transport cost substantially. However, it faces marked challenges from India and other major powers in the Indian Ocean. Geopolitical rivalry between the two Asian giants means Dhaka could face mounting challenges in managing a balanced relation with them in years ahead. It is critical for Bangladesh to maintain balanced ties with India and China preserving the country’s national interests. Too much alignment with a single power risks the country becoming a vassal state.

Investment to get a big boost?
BANGLADESH’S economic relations with China have traditionally been dominated by trade. The former has not been benefited much by the latter’s rapid expansion of outward foreign investment. However, more and more synergies are emerging between the two countries resulting in more Chinese investment in Bangladesh. The country’s steady urbanization and 6 per cent plus economic growth mean that it is in need of huge funds and technical know-how to narrow its mounting infrastructure deficit. It fares poorly in Asia’s infrastructure ranking. Globally, China invested about $128 billion in 2015. Beijing showed huge interest to invest in Bangladesh’s port, railway, highway, energy sector and other key infrastructure in the past few years. In fact, a large number of Chinese companies are already involved in Bangladesh’s infrastructure development.
However, unlike trade, which is largely driven by market forces, investment is a tricky area to deal with. Foreign direct investment in most cases is dealt by governments. Inefficiency and governance constraints, inter alia, often fail to execute large amount of investment in developing countries. Foreign investment in Bangladesh compared with its GDP size is meagre. Then there are some geopolitically sensitive areas such as foreign investment to develop deep sea port. Dhaka has been less than successful in dealing with regional geopolitics as far as deep sea port development is concerned.
The government has invited China to invest in one of the special economic zones in Chittagong. However, given the experience of the Korean EPZ, the government has to make land allocation and development process less cumbersome and also provide supporting services to draw large Chinese investment in the economic zone. Despite such a drawback, we have seen growing Chinese investment in Bangladesh in recent years in a host of sectors. President Xi’s visit could be a game changer as far as China-Bangladesh investment relation is concerned. It is reported that with Chinese fund over two dozens of large projects are to be implemented in the next few years.

$30 billion Bangladesh-China trade by 2021?
IT IS trade that dominates China-Bangladesh economic relations. The two-way trade reached about $12.5 billion in 2014, according to the International Trade Centre. Traditionally, Bangladesh imports from its neighbourhood and exports to Europe and the United States. In recent years, exports to Asian countries particularly to Japan, China and India have increased. Bangladesh’s exports growth to China has averaged about 40 per cent per annum in the past five years. On the other hand, import growth averaged 23 per cent annually. Going forward, under even a moderate scenario (based on Bangladesh’s average export and import growth vis-à-vis rest of the world in the past 10 years which has been lower than its trade growth with China), a back-of-the-envelope calculation indicates that the two-way trade between the two countries could exceed $30 billion by 2021. This projection is subject to a number of assumptions including sustenance of Bangladesh’s recent GDP growth rate.
While Bangladesh has given duty-free access to a large number of products by Beijing, its export to China has not exceeded even one billion. Dhaka is likely to demand more soft provisions to access trillion dollars worth Chinese consumer market. However, the fundamental drawback in this regard is that Bangladesh has one of the narrowest export baskets in Asia. The large and growing trade imbalance between the two countries can be reduced partly if China invests in Bangladesh’s industrial sector, particularly relocating some of its low value added sun set industries. Goods produced in those industries could be exported to China. Bangladesh’s RMG exports to China offers huge potential in this regard given the latter’s fast erosion of competitiveness in low-value added manufacturing owing to higher wage and currency appreciation.
Moreover, unlike Southeast and East Asian countries, Bangladesh and the rest of South Asia are least integrated physically missing the trade and investment benefits that enjoy by China’s bordering and other close neighbours thanks to the rise of East Asian Production Network.

One Belt, One Road: linking Bangladesh with Southeast and East Asia
HISTORICALLY, China has been well-connected with its immediate neighbours as well as Europe, Middle East and Africa through the Silk Road for centuries. Historical records show that there were three Silk Roads that connected primeval China with the Indian subcontinent. The Southern Silk Route was a bridge between the eastern part of Bengal (today's Bangladesh) and the Middle Kingdom. War and other conflicts in the region, particularly during and after World War II, disrupted the Sino-Bengal historical ties and connectivity. Beijing intends to re-establish this historical connection creating a vast network of railway, energy pipelines, highways and modernising border points. Xi Jinping is the mastermind behind China’s flagship plan under the aegis of One Belt, One Road. About 70 countries have joined the project. Beijing is developing new institutions and channelling funds such as Asian Infrastructure Investment Bank and Silk Road Fund to support the largest undertaking since America’s Marshall Plan, implemented after World War II.
The BCIM Economic Corridor involving Bangladesh, China, India and Myanmar is also a part of OBOR. However, the progress of the BCIM has been less than satisfactory, although its origin dates back to 1990s. China and India’s strategic rivalry has slowed down the pace of BCIM. Historical baggage and big power rivalry in the region has cost the economic interests of countries like Bangladesh badly. SAARC, owing largely to India-Pakistan rivalry, has been a dormant regional
Institution leaving South Asia least integrated region in the world. Dhaka needs to employ its diplomatic apparatus to integrate with China and other Southeast Asian countries taking the institutional advantages of OBOR in general and BCIM in particular.
Dhaka and Beijing should work closely to find ways Bangladesh accessing the world’s most dynamic region ie, East Asia, through Myanmar taking the advantage of China’s leverage over Naypyidaw. In fact, Beijing would like to see Chittagong becoming a major connectivity and industrial hub of the region so that the city is increasingly integrated with China’s land-locked western provinces, particularly Yunnan, by developing Chittagong-Kunming road and railway links through Myanmar.

Ocean economy development in the world’s largest bay
CHINA’S plan to revive the Maritime Silk Route and development of economic belts offer immense opportunities for Bangladesh. The plan of the 21st century MSR coincides with Bangladesh’s demarcation of its maritime boundary with two of its Bay of Bengal neighbours — India and Myanmar. This gives the country an opportunity to build a blue economy in the world’s largest Bay. Some of the key components of its ocean economy should include energy security (oil and gas resources), fishery and fresh water resources preservation, port and logistic facilities development, piracy and illegal trade control, trade route securing, tourism development and ecosystem protection, inter alia. However, given the massive undertaking, it requires involvement of regional as well as global powers to develop a modern ocean economy. Bangladesh has to develop a deep-sea port in Chittagong to meet the demand of its domestic economy as well as to cater its vast hinterland, changing the economic geography of the region. Although development of a deep sea port with Chinese assistance has been shelved by Dhaka recently largely owing to regional geopolitics, and the issue is unlikely to be discussed during president Xi’s visit.
Moreover, the maritime cooperation is also needed to deal with non-traditional security threats such as climate change, piracy and illicit drug trafficking that have cross-border implications. The littoral surrounding of the Bay of Bengal in particular is vulnerable to climate change. China has expanded maritime cooperation in the area of ocean and climate change, marine disaster prevention and mitigation and biodiversity preservation with a number of Southeast Asian and South Asian countries. The China-ASEAN Marine Cooperation Centre, the Indonesia and China Centre for Ocean and Climate, the China-Pakistan Joint Marine Centre and the China-Sri Lanka Marine and Coastal Zone Joint Research Centre are some examples of how the MSR regions have amplified maritime cooperation. Bangladesh should forge a similar partnership with China. It is expected that both Dhaka and Beijing will sign agreements to forge greater cooperation involving blue economy during Xi’s visit to Bangladesh.

Military relations
CHINA remains Bangladesh’s largest supplier of military hardware. According to the Stockholm International Peace Research Institute, since 2010 Beijing has supplied Dhaka with five maritime patrol vessels, two corvettes, 44 tanks and 16 fighter jets as well as surface-to-air and anti-ship missiles. The PLA navy fleet paid visit to Chittagong in 2016 for the first time in the past three decades, taking part in a joint maritime drill with Bangladesh Navy. It is reported that China will supply two Ming class submarines to Bangladesh by this year. A growing number of high-level exchange visits, training programmes, joint exercises, defence procurement, security cooperation such as counter-terrorism, anti-piracy, peacekeeping cooperation, and disaster management would be the future areas of cooperation.

The way forward
TRADE and military ties have been the hallmark of China-Bangladesh relations for decades. Trade between the two countries is likely to reach new heights in years to come given Bangladesh’s steady economic growth and potential access of large quantity of Bangladeshi products to the Chinese market. In addition, given the greater synergies between the two countries in terms of investment means Bangladesh could become a significant destination for Chinese outward investment in South Asia. Bangladesh that has not been benefited much from its favourable geography stands to gain much effectively joining China-led OBOR project connecting the country with Southeast and East Asia. By joining the Maritime Silk Route project Dhaka can develop its ocean economy changing the economic geography of the country and beyond. Thus, the relation between Beijing and Dhaka are not only important from their economic perspectives, it is equality critical to manage more balanced ties with regional and global players minimising geopolitical risk. In this pursuit, president Xi Jinping’s visit to Bangladesh could have far-reaching implications.

CSG China Insights. M Shahidul Islam is an economist. 

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