China has committed soft loans for more than two dozen projects, but the total amount that would be provided was not specified as per Beijing's modus operandi for such matters.

Bangladesh had pressed for stating a specific amount in the Memorandum of Understanding but China did not agree to it, said finance ministry officials.

The deal was one of the 27 final agreements and MoUs signed during official talks between Chinese President Xi Jinping and Prime Minister Sheikh Hasina on Friday.

The MoU, which was signed by Finance Minister AMA Muhith and China's Commerce Minister Gao Hucheng, was for a total of 28 projects under China's “strengthening investment and production capacity cooperation” programme.

Dhaka would probably get $21.5 billion from Beijing in financial assistance under the MoU, according to Bangladesh's Economic Relations Division. The amount could go up or down when loan agreements are signed.

With six other projects and programmes included, the amount could be $24.45 billion.

Earlier this month, the finance ministry sent a draft of the MoU to the Chinese embassy where it was stated that Bangladesh would get $40 billion from Beijing over the next five years.

But Chinese embassy asked for the clause to be dropped. “It's not the normal practice for Chinese government to make commitment on G2G financial arrangement for a single country,” it said.

However, China, for the first time under a single cooperation deal with Bangladesh, committed to giving soft loans to 28 projects, an Economic Relations Division official said.

About the official status of this commitment, the ERD official said it was still only commitment. China would finance those when the projects become viable after feasibility studies, he said.

The official also said there would be scope for dropping projects or including new ones in the list later. The agreement signed spells this out.

A finance ministry official said Chinese side's argument was that Exim Bank of China would make commitments on money for the projects after feasibility studies. Before that, the Chinese side was unwilling to say anything.

The total financing may go up or down after the details of the project were studied.

According to finance ministry rules, when Bangladesh government signs loan agreements with an institution or country, it is considered an actual commitment and the money is included in the aid pipeline of the ERD.

The 28 projects for which the deal was signed involve billions of dollars and there were various procedures to be completed before loan agreements could be signed.

Another ERD official said getting Chinese loans for the projects depend on how quick and efficiently the ministries concerned could complete all necessary procedures.

The ERD during the last several years got actual commitment of billions of dollars they could not spend, resulting in a huge amount of money being piled up, the official said.

In three projects, including the Karnaphuli tunnel project, six agreements were signed between Bangladesh and China on Friday. These also include loan agreements.

More than three years were spent on the process of signing the loan agreements for the three projects.

Until yesterday, neither side gave any details on the MoU and the loan agreements signed on Friday.

Late Friday night, the two sides issued a joint statement, which did not contain any details of the agreements or financing.

Sources said Bangladesh was set to receive $24.45 billion in bilateral assistance from China for the 28 projects and six other projects and programmes, which include a coal-fired power plant.

Officials at the finance and foreign ministries said that besides these, another list of 22 projects was submitted before the two sides during official talks on Friday.

In this regard, a joint statement said, “The Chinese side agreed to consider and encourage Chinese enterprises to explore cooperation on the 22 projects proposed by the Bangladeshi side in power, ICT, river management, infrastructure and other areas on the basis of equality and mutual benefit.”

“The two sides agreed that specific cooperation would include, among others, construction and operation of infrastructure, metallurgy and material, resource processing, equipment manufacturing, light industry, electronics and textiles, semiconductors and nanotechnology, industry clusters, and other areas agreed by both countries.”

World Bank lead economist Zahid Hussain said it was difficult to comment on the agreements without knowing the details. However, there was no question about the need for such projects.

He said in the public sector the country needs Chinese investment mainly in expanding transformative infrastructure assets, meeting the growing energy needs, and in upgrading technology to improve global connectivity and domestic productivity.

“On a G2G basis, the financing available from China needs to be carefully evaluated to take into account all direct and indirect cost of financing, particularly the non-interest costs and procurement related conditions,” he added.

Zahid said, “China has a huge investable surplus which it is looking to invest in areas where it can get returns higher than it gets from safe and low yielding government financial instruments in the United States. So we have a win-win situation here.”

He said Bangladesh cannot implement projects on time. Steps need to be taken for quick implementation of projects.

The Chinese loan has an interest rate of two percent. Bangladesh had been pursuing the Chinese government to lower the interest rate to one percent. 

However, in the talks during the Chinese president's visit, the rate of interest and other terms and conditions were not discussed, said an ERD official.

Bangladesh's ERD and China's Department of Outward Investment and Economic Cooperation would work together to ensure proper implementation of the commitments. And if necessary, they would hold meetings from time to time and solve the problems, the MoU read.

Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue, said the agreements that the two sides signed were MoUs, not investment treaties. “This has to be remembered as they are not necessarily always implemented.”

He said the visit of the Chinese president has created a new situation for Bangladesh. On the one hand, Bangladesh would be able to pursue its geo-economic interests and “at the same time, our geopolitical standing has improved in the process”.

“With both these opening up will it obviously create better prospect for trade and investment and improve the welfare of our citizens.”

“In sum, it is a unique opportunity. But it is also a big challenge for us to handle the opportunity efficiently.”

He called upon policymakers to transparently discuss the terms and conditions of the loans and their impact on debt servicing.

“It is important as we have seen countries which have gone rushing into Chinese financing ended up with unsustainable debt servicing ratio.”

“If we can absorb then Bangladesh is a new Bangladesh. If it can't absorb and our gross domestic product does not grow and debt increases then we will have another problem. I think our policymakers have thought through it.”

He said in recent times Bangladesh has been actively pursuing various kinds of bilateral and multilateral engagements. “That is the real issue and how we prioritise one relationship above others and how we are going to assess the offers which are coming through each of the relationships.”