'China opportunity' beckons Bangladesh. How to seize it?

Infograph: TBS

Bangladesh more than a decade ago in the sixth five-year plan foresaw an "once-in-a-lifetime window of opportunity" to gain from China's fast-eroding competitive edge and increase export of labour-intensive products, a path that Southeast Asian countries were also exploring.

Once more, in its eighth five-year plan, Bangladesh aims to emulate the strategy that transformed China into the world's leading manufacturing hub, thereby integrating itself into the global value chain. 

However, the progress achieved thus far falls short of what should be expected, especially when considering the opportunities and advantages that Asian economies like Vietnam, Thailand, and even India have harnessed.

With state-of-the-art infrastructures in place, many of them supported by China's Belt and Road Initiative, Bangladesh is now uniquely positioned to transform its strategic vision into tangible economic benefits. 

Economists believe the key to seizing this opportunity lies in enhancing the ease of doing business. Bangladesh can leverage its improved connectivity and energy infrastructure to progress towards its ambitious goal of attaining high-income status within the next two decades.

"The transition of China's economy from labour-intensive to capital-intensity opened up three-pronged opportunities for Bangladesh," said Dr Mustafizur Rahman, distinguished fellow of the Center for Policy Dialogue.

These opportunities encompassed buyers redirecting some orders from China to other nations, China increasing its imports of lower-end manufacturing products, and entrepreneurs initiating factory relocations from China, he explained.

The China opportunity

A section of the 6th five-year plan, titled "The China opportunity",  mentioned that those ready to gain from China's falling competitive edge in labour-intensive products are countries like Bangladesh, Vietnam, Cambodia, Indonesia, Philippines, and even India.

"Investors are scurrying for the next best location for manufacturing clothing, shoes, toys and other labour-intensive manufactures. Why not Bangladesh?" it asked.

It was hoped that Bangladesh, during the 6th plan period, will position itself comprehensively – with supportive incentive schemes, investment incentives, and liberal import regime – for a solid berth to become one of the Asian export hubs.

"In terms of attractive trade and investment policies, Bangladesh will match countries like Vietnam and Indonesia which are vying to take a bigger chunk of the Chinese pie which is up for grabs," it forecasted.

This has not happened as desired.

Dr Mustafizur Rahman told The Business Standard that entrepreneurs of Bangladesh have attracted a few export orders shifted from China but the amount is negligible considering the anticipated China opportunity.

"But we have failed to attract investment released from China and increase exports in the country despite China offering free tariff opportunities for over 99% of items due to lower competitiveness and higher cost of business," the economist noted.

He pointed out that China's share of global RMG exports has declined from 39% to approximately 30%, and Bangladeshi exporters have only managed to secure a small portion of this market.

Abul Kasem Khan, former president of the Dhaka Chamber of Commerce and Industry, highlighted that while the government recognised the China opportunity, it has failed to execute effective initiatives. 

He said, "During the Covid-19 period, 60 factories owned by Japanese entrepreneurs relocated from China, with most choosing Vietnam and Indonesia. Bangladesh received only one.

"Entrepreneurs have urged the government to lower the cost of doing business, citing Bangladesh's consistently poor performance in the World Bank's Ease of Doing Business Index. 

"Specifically, the country faces challenges in areas like business registration, customs, taxation, law enforcement, logistics, and policy consistency. Resolving these issues is crucial for fostering increased investment and export growth."

The China book

The current five-year plan (2020-25) draws inspiration from China's post-1978 development strategy, which fueled its remarkable ascent through export growth, rapid economic expansion, and poverty reduction, driven by pragmatic market-oriented reforms. 

The plan underscores China's extensive investments in domestic market integration, enhancing connectivity through road and coastal infrastructure development.

China's approach to connectivity aligns with its global blueprint, the Belt and Road Initiative (BRI), designed to foster closer global connections via road, rail, sea, and air. 

Bangladesh's substantial connectivity projects, such as the Padma  rail bridge, Bangabandhu Tunnel, and Chattogram-Cox's Bazar rail link, mirror China's regional integration efforts. 

Nevertheless, Bangladesh's geographical location doesn't facilitate the same level of integration with China as some of its Asian neighbours, like Malaysia, Singapore, and the Philippines, which enjoy robust trade and investment ties with China. 

While Bangladesh's imports from China have seen significant growth, its exports still fall short of their full potential.

Bangladesh exports to China

Analysis based on TiVA data for countries in the Asia-Pacific region suggests that for every $10 exported to China, $8 is the domestic value-added component, of which $6 is channelled to Chinese final demand while the rest is re-exported.

China's outbound investment has steadily increased in the past decade, with Chinese firms looking for potential relocation of manufacturing to Asian countries.

Bangladesh's gain in this aspect also remains limited.

Bangladesh exported goods worth $677.36 million to China in FY23, which was 1.22% of $55.56 million of the total export earnings.

In comparison, Bangladesh earned $401.94 million from exporting to China in FY12, which was 1.66% of total exports in that fiscal.

The position of China as the export destination of goods from Bangladesh was 15th in FY12 which dropped to 17th last fiscal.

Bangladesh earned the highest $949.41 million export earnings from China in FY17, which has been dropping for six years and reduced by $272.05 million in the last fiscal.

Major export items from Bangladesh to China are RMG products. The combined export earnings from oven garments, knitwear and home textiles was $296.82 million, around 43.82% of total exports to the country.

Leather and leather products, footwear, jute and jute products, and plastic products are among other export items to China.

Al Mamun Mridha, secretary general of the Bangladesh-China Chamber of Commerce and Industry, told TBS that export from Bangladesh to China is reducing due to a lack of variation in export products.

He said that exporters from Bangladesh are facing high competition for a $10 billion RMG market in China. More items in the export market would boost earnings, he added.

He said that demand for ICT goods and services and mercenaries for high-tech products is rising in China. There is a huge potential to increase from importing leather products instead of raw leather.

He further said the China chamber is trying to attract FDI in these sectors. He emphasised ensuring consistency in the policy, reducing the cost of business and eliminating other obstacles to investment.

What more to do

Bangladesh needs to reform trade policies, ease customs procedures, improve one-stop service, liberalise its trade further and faster with bringing down tariff rates to invite more investment from China and send more goods to the Asian powerhouse.

Abul Kasem Khan said that the megaprojects inaugurated recently and waiting for the inauguration will boost trade and investment. 

He emphasised accelerating infrastructure development like the Dhaka Chattogram highway, the tunnel under the Jamuna River, and the second Padma Bridge at Pathura Daulatdia point.

He recommended utilising facilities of the Belt and Road Initiative and accelerating private investment to develop such infrastructure.

Dr Mustafizur Rahman said enforcement of one-stop service centres and operation of special economic zones should start immediately to increase and attract investment and exports.

Special attention is required to increase skills and productivity, ensuring the supply of gas and quality power to increase exports to China and attract export orders shifted from China.