Making the most of our trade relationship with China
According to the Financial Times (US), the USD 3.7 billion Padma Rail link, for which Beijing has provided more than USD 3 billion, will serve as “a physical reminder of China's growing presence” in Bangladesh. Other media outlets and commentators too have been making similar remarks about China's increasing role in Bangladesh's development and economic activities recently, and for good reasons.
As pointed out by Gateway House, “China has committed to USD 31 billion worth of projects in Bangladesh, making it the second-biggest recipient of money in South Asia behind Pakistan,” including on “roads, railways, coal power plants and water treatment facilities.” Once private sector investments are included, this goes up to USD 42 billion, according to Ahsan Mansur, executive director of the Policy Research Institute of Bangladesh.
The Financial Times (US) report says that Chinese companies are seeking to take full advantage of the specially created economic zones in Bangladesh and are therefore considering setting up shop here. Already Zhejiang Jindun Pressure Vessel Co Ltd has offered to invest USD 5 billion in one zone to build up heavy industry near Chittagong, including establishing a 2.6-gigawatt power plant, which was the largest single investment proposal in the history of Bangladesh, according to the chairman of the Bangladesh Economic Zones Authority, Paban Chowdhury.
While all this investment (if properly utilised) is sure to benefit Bangladesh and, hopefully, China too, the real fruits of those benefits will take some time to materialise. But in the meantime, what should not be overlooked is the disappointing performance of Bangladesh's exports to China at a time when imports from there (in the form of capital machineries and other resources) are sure to be on the rise, as that may endanger tilting Bangladesh's trade deficit with China even more to the extreme.
And by all indications, it looks like now is the time for the government to intervene in order to check that from happening at a worrying degree.
In FY 2017-18, Bangladesh's exports to China fell by 26.79 percent year-on-year to USD 694.97 million, despite China being one of the most promising markets in Asia. Part of that was due to the China Food and Drug Administration toughening its certification regulations and no longer accepting certification of the Bangladesh Standards and Testing Institution starting last year, as this newspaper reported. This means that Bangladeshi processed food exporters have to wait for days to receive testing certification from China, which is the main reason for the fall in exports, according to ATM Azizul Akil, senior vice-president of Bangladesh China Chamber of Commerce and Industry.
This is one area where the government can easily use diplomacy to get a better deal for exporters, while using this opportunity to raise its own certification standards not only to further export opportunities, but also for the sake of better domestic quality control.
That aside, Bangladesh as a least developed country is also supposed to enjoy much greater duty benefit on exports to China than it currently does, as per a decision of the World Trade Organisation's ministerial conference of 2006 held in Hong Kong.
According to Commerce Minister Tofail Ahmed, “Under the Asia Pacific Trade Agreement, 5,074 Bangladeshi products have been enjoying duty-free market access but as per WTO rules China can provide DFQF [duty-free and quota-free] market access for at least 97 percent of Bangladeshi products and we have sent a letter of exchange to avail the trade facility.” In response, “China offered that if Bangladesh forgoes the existing benefits it is getting under APTA, the country would consider providing DFQF market access” to Bangladeshi products as per the WTO rules.
Last week, the minister said that a memorandum of understanding has already been agreed between the two countries for the signing of a free trade agreement. But before it was signed, Bangladesh asked China to start providing the prescribed duty benefit on export of Bangladeshi goods.
If Bangladesh can successfully negotiate the implementation of DFQF market access to China, that will surely give a massive boost to exporters, increasing chances of Bangladesh reducing its huge trade deficit with China. Therefore, this is something that the government should urgently pursue.
However, while the government tries to resolve this issue, what exporters themselves should keep in mind is that Bangladesh's export to China is lagging behind not only because of policy issues, but because of other shortcomings too. For example, according to Azizul Akil, export of jute, jute goods, leather and leather goods are not doing as well as they could in Chinese markets simply because of the poor negotiation skills of Bangladeshi exporters.
Garment exports to China also has remained stagnant for the last two years primarily because of Myanmar and Vietnam—who export basic garment items to China for lower- and middle-income groups similar to Bangladesh—taking advantage of their geographical proximity to China. To overcome this, exporters should look to diversify their products more or come up with other alternatives instead of settling for the status quo, as China's demand for basic garment items is still relatively high with its manufacturers mainly producing high-end products for upscale western markets.
Ultimately, despite China's increased role in Bangladesh's economic development, Bangladesh is yet to position itself in a way that would allow it to fully maximise the benefits from this increased integration. This is something that the public and private sectors should look to address with their respective Chinese partners, in order to achieve what the Chinese president often terms as “win-win” outcome for both countries.
And given the possibilities that lie ahead for both nations, there is no reason to believe that such an outcome is not possible, should policymakers and other stakeholders take the right steps and make the right decisions.
Eresh Omar Jamal is a member of the editorial team at The Daily Star. His Twitter handle is: @EreshOmarJamal.