Bangladesh, the second largest recipient of Chinese investment in South Asia after Pakistan, imports the largest volume of goods from China, making it Bangladesh’s largest trading partner. This is the beginning of the story where China is offering Bangladesh financial aid and development experience for its “expensive megaprojects” in order to realize its vision of 2041: a well-conceived dream of being a developed country. China’s crushing funding prompts critics to ask a question, citing the example of Hambantota in Sri Lanka: “Is China trying to bait Bangladesh with its ‘debt trap’ diplomacy? “
“Debt Trap Diplomacy,” a widely used narrative against China, is believed to stem from the “infrastructure war” between China and the Western Allies. It is a bone of contention whether China really has a “Machiavellian strategy” because Chinese projects in Bangladesh are too fragmented to achieve such astute strategic goals. Formerly “the sleeping giant” and now the “second economic superpower”, China follows “socialist ideology” in political affairs but adopts an “open market policy” with the name of “market socialism”. Historical data shows that China still has a strong affiliation with South Asian countries due to the “Big Bazaar” in the region. Bangladesh’s geopolitical eminence and commercial notoriety prompted China to pay close attention to this lucrative market.
To harness the potential of becoming the “economic hub” of South Asia, Bangladesh needs external funding for its “flagship development programs”, the funding of which goes beyond national affordability. This leads Bangladesh to seek external financing options with appropriate conditions. Bangladesh’s loss of substantial financial assistance from global lenders in recent years, for example the World Bank’s refusal to finance the Padma Bridge, and the attractive nature of Chinese investments have opened the door for China to enter the economy of Bangladesh. On the other hand, China, as part of its external orientation, is moving closer to Bangladesh by associating the country with different regional platforms led by China, for example AIIB, BRI, etc.
Sino-Bangladeshi relations, which began in 1976, were limited to trade agreements until the first decade of the 21st century. Bilateral relations went through two different phases before and after the launch of the BRI. The warm relationship turned into a strategic partnership after 2010, when countries signed a number of defense trade, transit and supply agreements. The two countries are working to reduce the huge trade deficit by establishing “free trade zones”. China is trying to prove that it is Bangladesh’s “trusted friend” by interweaving its diplomatic, defense and economic ties.
Although China and Bangladesh have a distinct political and social status quo, collaborative efforts have brought them closer. The principle of non-intervention by China in the internal affairs of its partners leads Dhaka to welcome more and more investments from Beijing. As an emerging economy, Bangladesh needs “significant investments” to tackle its socio-economic problems, an agreement that is signed by China. On the other hand, Bangladesh is very important in China’s strategic calculation since it can connect the landlocked province of southeast China. In addition, Bangladesh’s cheap labor offers China an opportunity to relocate its “twilight industries”. Yet critics take a controversial look at this relationship by denouncing China’s role in resolving the Rohingya crisis.
According to the World Bank and the IMF, a country will cross the threshold of danger if its external debt exceeds 40% of GDP. Bangladesh is in a “safe zone” because its total foreign loan is less than 15% of GDP. “Flow of External Resources into Bangladesh,” a Ministry of Finance publication, reported that the country’s total outstanding foreign loans stood at 4,409.51 crore, representing a per capita loan of around $ 278 during the year. 2019-2020 fiscal year. This clearly shows how much reality differs from the misconception that Bangladesh is overloaded with external debts. Another misreading that Bangladesh will fall victim to the “China debt trap”, pointing to the growth of Chinese investment, does not reflect the reality on the ground either. Bangladesh’s total external debt, in fiscal year 2019-2020, consists of 38% WB, 24.5% ADB, 17% JICA, 6.81% China, 6, 14% from Russia and 1.3% from India. This explicit data shows that Bangladesh is on the right track contrary to the aforementioned misconceptions.
The strategic advantage of cross-border trade has tilted Bangladesh exponentially towards China, leading critics to say that too much dependence on money from China will make the country beholden to China. But Bangladesh’s diplomatic maneuvers over the past decades demonstrate that the country has struck the right balance between donors. By injecting money into Bangladesh, China is in fact trying to take long-standing relations to a new high. Although there is a story that Bangladesh is going to fall victim to “payday loan diplomacy”, but the counter story explains how Chinese “low rate loans” reduce pressure from Western donors for economic reforms and policies.
Bangladesh sees Chinese investment as a welcome addition to existing sources while creating a competitive environment. Before concluding by marking China’s debt trap with Bangladesh, it should be borne in mind that the financing options for Bangladesh are very limited. In addition, a loan becomes a burden if it is not used optimally. To date, all Chinese-funded projects in Bangladesh have proven to be financially viable. There is no example where Bangladesh has accepted all diktats, while signing a financial agreement blindfolded.
Bangladesh’s current stronger position in terms of China’s external debt will change with increasing Chinese investment, but the long-term return will be more attractive if funds are used efficiently. Bangladesh needs to negotiate carefully before signing a financial deal, focus more on low-interest loans and ensure projects are implemented on time. In addition to taking funds for infrastructure strengthening, Bangladesh can also take advantage of China’s development experience to create a win-win situation. Not to mention that Bangladesh’s macroeconomic management policy is prudent enough to avoid China’s “debt trap”, even if there is one.

—The writer is a strategic affairs and foreign policy analyst who received his MBA from the Department of International Affairs, Dhaka University. [email protected]