Before signing an agreement with China, its preconditions must be verified

The Chief Adviser of the Interim Government, Dr. Mohammad Yunus, is scheduled to visit China on a four-day state visit on March 26. This will be Dr. Mohammad Yunus' first bilateral state visit to China since taking over the responsibility of state administration. While there are various reasons why Dr. Yunus' visit to China is significant, the most important aspect is strengthening bilateral economic relations. The visit is also politically significant, but it is expected that economic issues will take precedence. China's economic influence worldwide cannot be denied. At present, China is one of the largest financial aid providers globally. China has been generously providing financial assistance to various countries, including Sri Lanka and Bangladesh.

However, the loans China provides to different countries are not soft loans. They impose commercial interest rates on the loans they provide. Countries wishing to take loans from China must agree to several preconditions, such as using Chinese raw materials for development work and hiring Chinese experts. If these conditions are met, China provides financial assistance to the concerned countries in a very short time. When a country cannot obtain loans from other sources, it easily turns to Chinese loans. China does not consider the feasibility of a project when providing loans. Their primary concern is whether the loan can be repaid with interest on time. As a result, many countries find themselves caught in a "Chinese loan trap" due to borrowing without due consideration.

Recently, Bangladesh has not received a favorable response from other conventional sources of loans. Therefore, it is now looking to borrow from China. The amount of foreign loans Bangladesh has taken has not yet reached a concerning level, so there should be no issue in borrowing. However, whether borrowing from China or any other source, national interests must always be prioritized. Loans should not be taken at the cost of the country's interests. When borrowing from China, national interests must be placed above all else. Loans from China should not be taken for projects that are not essential for national interests.

It is not only in the case of Chinese loans but in any loan that the feasibility and utility of the project must be considered. Sri Lanka's former government borrowed extensively from China. All the loans Sri Lanka took from China were commercial loans. Most of the projects implemented using those loans failed. As a result, Sri Lanka became a defaulting country. A modern airport was built in the district of former President Rajapaksa, but only a few flights operate there daily. Many had objections when the idea of constructing the airport was proposed, but the government ignored them. Under the previous government, Bangladesh implemented various development projects, some of which have been questioned in terms of their rationale. Moreover, the construction costs of these projects were allegedly excessively high. In the future, when taking loans from any source, these aspects must be kept in mind. Simply borrowing money and implementing projects will not ensure sustainable development.

In the past, Bangladesh imported the largest amount of goods from India. Currently, China holds the top position in Bangladesh’s export-import trade. In the fiscal year 2023-24, Bangladesh-China bilateral trade amounted to 2.25 trillion Taka, while Bangladesh-India bilateral trade amounted to 1.46 trillion Taka. During this period, China’s share of Bangladesh’s total imports increased by 15.17%, while Bangladesh-India trade decreased by 8.47%. In the fiscal year 2022-23, Bangladesh exported $677 million worth of goods to China, while importing $22.90 billion worth of goods from China. Although imports from China have greatly increased, Bangladesh’s exports to China have not grown as expected. During Dr. Yunus' visit, discussions may take place to reduce the existing trade deficit between the two countries, but I do not foresee it in that manner. In international trade, some countries will always have a trade surplus with others, while some will have a deficit.

We must evaluate the situation overall and determine how to bring the trade balance in favor of the country. Various capital machinery for the garment industry is imported from China through back-to-back LC. The machinery imported from China is of good quality and cheaper, making it cost-effective for us. It is unrealistic to expect that imports from China or any other country can decrease overnight. However, we can negotiate on prices.

Whether a country has a trade deficit or surplus depends on many factors. If high-quality products can be delivered to consumers at relatively affordable prices, these products will remain competitive in the market. A trade deficit or surplus is not solely determined by the economic strength of a country; many other factors must be considered. One weakness of Bangladesh’s international trade is that while it imports a significant amount of goods from certain countries, its exports to those same countries are very low. For example, Bangladesh exports the most goods to the United States and European Union countries, but its imports from these two regions are very low. The trade deficit with the United States is the highest in bilateral trade with Bangladesh.

On the other hand, Bangladesh imports the most goods from China and India, but its exports to these countries are very low. Bangladesh's potential in international trade is enormous, but it requires strategic planning. Export diversification is essential. It is impossible to survive in the fierce competition of international markets with a limited range of products. Survival in international trade is based on merit, not charity. Only by exporting quality products at affordable prices can Bangladesh succeed in the international market. If the quality and price are not right, it will be impossible to sustain in the local market as well.

The interim government plans to graduate Bangladesh to the final list of developing countries by next year. Although a top business organization in the country had proposed a 10-year delay in the timeline for Bangladesh’s graduation to the final list, once Bangladesh graduates, it will lose the GSP (Generalized System of Preferences) privileges for exports to the European Union. As a result, Bangladeshi exporters will have to pay at least a 12% tariff for exports to the 27 EU member countries. A private research organization has claimed that Bangladesh could face an annual loss of $8 billion after graduation. A major weakness of our production system is that most of the products manufactured are heavily reliant on imported raw materials. Capital machinery and intermediate goods used in industries also need to be imported. As a result, a large portion of the export revenue goes back to foreign countries in the form of imported raw materials, machinery, and intermediate goods. Therefore, the value-added contribution to the national economy from export earnings is comparatively low.

During Dr Mohammad Yunus' visit to China, there will be opportunities to strengthen the existing commercial relationship between the two countries. It will be necessary to tell China to remove the barriers to importing Bangladeshi goods. Discussions can also take place regarding China granting Bangladesh preferential trade status. Due to increased tariffs by the United States on China, there is a possibility of many Chinese companies relocating overseas. Bangladesh could request China to relocate these industries to Bangladesh.

Dr Toufik Ahmed Chowdhury: Economist and former Director-General, Bangladesh Institute of Bank Management (BIBM)
Transcrib:M a Khaleque