China surpasses India in trade, loans with Bangladesh

Bangladesh has long-standing trade relations with both India and China, along with loan agreements. While India traditionally led in trade and loan agreements, China has now overtaken India. This information comes from the Economic Relations Division (ERD) of the Ministry of Finance.

An analysis of ERD data shows that in the 2023-24 fiscal year, China provided $390 million in loans for Bangladesh's development projects, while India extended $297.9 million. Toward the end of the fiscal year, tensions between Bangladesh and China led to a reduction in Chinese loan assistance.

Examining the last five fiscal years, China has provided Bangladesh with $3.84 billion in loans, while India has given $1.23 billion, making China's loan assistance more than three times that of India. Additionally, India has committed only $12.5 million in new loans over the past five years, compared to China’s $3.82 billion in loan promises.

India's loan projects have faced complications, with four major projects transitioning to be funded by Bangladesh's own resources instead of Indian loans. Meanwhile, Chinese loans are funding major projects like the Padma Rail Bridge, Dhaka-Ashulia Elevated Expressway, and the Karnaphuli Tunnel. Although both countries face some project processing challenges, India's loan agreements come with stricter conditions compared to China's.

India’s Exim Bank introduced the Line of Credit (LOC) concept almost two decades ago, starting in the 2003-04 fiscal year to support India's exports, investments, and businesses. Bangladesh first received a $1 billion Line of Credit in 2010, and the total loan commitment from India now stands at $7.99 billion, with $2.44 billion disbursed so far.

Bangladesh's exports to India have increased 2.5 times in the last five years, alongside a rise in imports. Over the past decade, imports from India have tripled. Discussions on transit have continued for twelve years, but formal transit or transshipment agreements have yet to be established.

In the 2011-12 fiscal year, Bangladesh imported $4.74 billion worth of goods from India, and this figure increased to $13.69 billion in 2021-22. Due to the economic crisis, imports fell slightly to $10.63 billion in 2022-23. Bangladesh's trade deficit with India for that fiscal year was $7.16 billion, with more than 18% of total imports coming from India. India is Bangladesh's second-largest import source, with China being the top, accounting for 25% of Bangladesh's total imports.

The largest import from India is cotton, which makes up one-third of the total import costs, followed by essential food items, railway equipment, engines, and other machinery.

China remains Bangladesh's largest trade partner. According to government statistics, around 14% of Bangladesh's total trade is with China. Although Bangladesh imports a substantial amount from China, its exports to the country are relatively low, though growing. Bangladesh sources 25% of its imports from China, but only 1.22% of its exports go to China. In the 2022-23 fiscal year, Bangladesh imported $19.81 billion in goods from China and exported $680 million, leaving a trade deficit of over $19 billion.

Recently, the change in government in Bangladesh has affected trade with India. In the past month, both imports and exports between the two countries have decreased. Nearly 80% of their trade occurs through the Benapole land port, where imports fell by more than three million kilograms in August compared to July, and exports dropped by 750,000 kilograms. Similar declines were seen at other ports.

When asked about the sharp drop in trade with India, Bangladesh Land Port Authority Chairman Zillur Rahman Chowdhury said that a "psychological distance" had developed between traders from the two countries. Due to higher prices in India, Bangladesh has recently been importing onions from China, Egypt, and Thailand, although no governmental decision has been made to discourage trade with India.