Relationship of convenience

B'desh wants China's help to reach its goal of becoming a middle-income country by 2021. China hopes to achieve a breakthrough in BCIM.

Bangladesh, seen as the closest Indian ally in South Asia, was under the economic offensive of China when its President Xi Jinping recently visited that country.

Through this economic offensive, China tried to change the complexion of the bilateral relationship by elevating it to the level of a strategic partnership. Bangladesh, which has been growing at a fast pace in recent times, grabbed this opportunity to expedite the growth rate of its economy.

This was the first visit of a Chinese president to Bangladesh after nearly 30 years. Before this, then Chinese President Li Xiannian had visited Bangladesh in March 1986. Things have dramatically changed since then and now China is a major global power in the quest of becoming a superpower. Bangladesh, too, has improved its economic condition and is no longer seen as the ‘basket case.’

The economy of the country has been growing rapidly at 6-7% per year for over a decade. This development has changed the contours of China-Bangla-desh economic relationship. For the last several years, China has emerged as the largest trading partner of Bangladesh. The bilateral trade has grown from US $900 million in 2000 to US $14.7 billion in 2014. It is expected to reach US $30 billion in 2021. In South Asia, Bangla-desh is the third largest trading partner of China and also the third largest project contracting market for China.

This economic relationship is, however, heavily skewed in favour of China. Bangladesh faces a huge trade deficit which is continuously growing. Still, it does not seem to be grudging this situation. There is a bipartisan consensus in the country with regard to its relationship with China. China is seen as a trusted partner for development finance and the most important supplier of military hardware. This helps the Sheikh Hasina government keep development projects afloat and its army happy.

China has immensely benefitted from the booming garment industry of Bangladesh, which sources most of its raw material from China. Now, Bangla-desh hopes that China would help it become the largest exporter of readymade garments by offering it the Chinese domestic market of low-end garments.

The huge growth of the Bangladeshi garment industry and the remittances sent by its 10 million expatriates working in foreign countries has allowed the country to build a large foreign exchange reserve. However, the continuous growth of its economy has also made the country realise the bottlenecks that exist in the field of infrastructure. Nearly 13 million Bangladeshi households go without electricity. The country has to generate three times more power to meet its requirements. It also has to modernise its existing power plants.

This is where China fits in the Bangladeshi requirements. In 2013, Chinese President Xi Jinping announced his ambitious One Belt One Road (OBOR) initiative. Also known as the Belt Road Initiative, it intends to bring together countries in Asia, Europe and Africa via overland and maritime networks.

Xi has been visiting a number of countries to lobby support for the OBOR project. According to the Chinese state media, the main objective of his Bangladesh visit was to promote OBOR as well. In this effort, he has been successful.

Bangladeshi Prime Minister Sheikh Hasina, hailing the Belt Road Initiative, stated that the country was now working to connect its growth centres with the rest of the region in South Asia and create a single economic contiguity between South Asia and Southeast Asia. She also hoped that Bangladesh would then connect this region through its port to the world. This development is not surprising. Bangladesh sees the Bangladesh-China-India-Myanmar Forum for Regional Cooperation (BCIM) as having the potential to change the economy of the less developed regions. And BCIM, like other economic corridors promoted by China, is part of OBOR.

Ambitious and confident
The fast growth rate of last decade has also made Bangladesh ambitious now. Though, so far the country has been careful in utilising foreign loan, it seems to be overcoming this inhibition now. Bangladeshi Finance Minister A M A Muhith has stated that the country is now scouting for loan for mega projects at even higher costs. He thinks that repayment of these loans is no longer a problem if the country continues to grow at the current pace.

The Chinese could not have asked for anything better. They have given Bangladesh a $24 billion credit line – the highest it has received from any foreign country. This leaves India’s credit line of $2 billion far behind. Bangladesh and Chinese firms also signed trade and investment deals worth $13.6 billion. China has offered loans at the rate of 2-3%.

During his visit, Xi Jinping also wanted the two countries’ relevant departments to provide a sound legal guarantee for the political, economic and trade cooperation as well as people-to-people exchanges. Possibly, through this measure, China wants to avoid any future disruption in the relationship.

The continuous economic growth in Bangladesh in the last few years has aroused the interest of many extra-regional powers. The prominent ones are China, Japan, the United States and Russia. The country, however, wants to follow a pragmatic policy whereby it benefits from China as much as possible without annoying its next door neighbour, India.

Bangladesh sees Chinese funding of projects as a way to break free from the clutches of low-level equilibrium trap. Hasina thinks that cooperation from China will help Bangladesh reach its goal to become a middle-income country by 2021. China, on the other hand, hopes to achieve a breakthrough in BCIM by increasing cooperation in infrastructural development with Bangladesh.

India will have to closely watch this emerging economic relationship between Bangladesh and China which will have important geo-political implications after a point.

(The writer is Associate Fellow, Institute for Defence Studies & Analyses, New Delhi)