China eyes huge investment in Bangladesh

China eyes huge investment in Bangladesh

Many nations define themselves in terms of territory or people; China defines itself in terms of history. It looks to their own rich history, beliefs and philosophies as a source of experience and knowledge to find new ways.

China has become recognised as one of the global economic leaders because of the scale of its commerce and its investment. Chinese new leadership will be defined by its actions and impacts on the world stage.

China has become a manufacturing giant and its exports have surged exponentially each year for the last 25 years. In every industrialized country Chinese goods from safety-pin to cars and other consumer goods are available.

Now China is going to the next stage onto the global scene as an investor. It means China will be known as the source of capital, rather than goods.

China is keenly interested in investing in industrialized Europe. This investment can take the form of stocks and bonds, new plants, and equipment or outright purchases of companies.

China has a huge reserve of investment funds that cannot all be absorbed internally. Total foreign investment financial outflows are over US$70 trillion. China holds significant reserves of currency ($3.2 trillion) and financial instruments, but these have been impacted by an appreciating its currency RMB and an expansionary financial environment through the recent rounds of quantitative easing.

It is therefore not surprising, that China is attracted to investment in real assets, resources and businesses to generate returns as an international business owner — foreign direct investment or FDI.

What China lacked in recent experience it made up for in access to capital and aggressive valuations and project investment.

In developed economies such as the US, Canada and Australia, China saw stable economies with open and transparent markets, established rule of law, good infrastructure, skills and attractive, well managed businesses. Chinese investors also saw high costs, restrictive labour practices and conflicting and unclear messages on foreign investment.

In developing countries, most particularly in Asia, Africa and South America, China saw less stability, higher political and legal risk and infrastructure challenges.

A new era of cooperation with Bangladesh:

China had remained a low-key development partner till 2011. But in the last three years, its financial support surged significantly, with low interest rates.

Our two nations have everything to gain from adapting and developing this investment relationship and some of the factors deserve mention below:

First, both nations must take an active and partnership role in ensuring that the Chinese investment is safe in the country.. Both nations must do better to build ‘cultural capability’ and realise we share a joint obligation to win and build public support for the economic benefits which flow from investment in the country.

Second, we must create the policy environment to facilitate growth. .We must lower the barriers to investment. Current approval processes for investment in Bangladesh are cumbersome and fragmented, involving multiple governmental agencies. These are considered serious barriers to investment in the country. For example, to establish a business in Singapore takes only 3 to 5 days while in Bangladesh it takes about 35 days

Third, we must remember that Government-owned business enterprises are by no means unique to China. China’s state-owned companies must clearly explain the evolving role of their enterprises in international investment and acquisition. Misinformation abounds about the role of Chinese state-owned companies in other countries.

In Bangladesh, we are in a period of tectonic change. We are facing huge economic and business opportunities and challenges. I believe that every participant in this important exchange should maintain an open mind to business models – learn how to stand in the shoes of their counterparts and see the world through different eyes. And on that basis, we have every chance of building shared wealth and prosperity.

Relationships are built on trust. Trust builds transparency. Transparency builds solutions. And solutions lead to outcomes.

Assistance in 14 projects:

Given the background, the government of Bangladesh reportedly is seeking a deal of $8.6 billion Chinese soft loan for 14 infrastructure projects that include the massive Ganges barrage.

The important projects include a rail bridge over the Jamuna river and a high-speed “chord” train line between Dhaka and Comilla, say officials of Economic Relations Division.

Side by side, the government has given green signal for a Chinese proposal to fund and build a multi-lane tunnel under the Karnaphuli river at $700m. This decision was taken by the Prime Minister’s Office following an inter-ministerial meeting organised by the finance ministry last month.

Also, the government in principle has decided to respond to a proposal to build an exclusive economic zone for China on a thousand acres of land by the Karnaphuli. China is very interested in this zone as its own labour cost has gone up significantly and it wants to shift some industries here.

But the government remains indecisive on China’s $5 billion proposal to build a deep-sea port near Sonadia island because it has also got proposals from several other countries including India, Germany, Denmark and the UAE.

According to finance ministry officials, Beijing has recently called upon Dhaka to sign a Memorandum of Understanding (MoU) with China Harbour Engineering Company Ltd for the deep-sea port.

Another project envisaged under the loan is the construction of a 4.8km long dual-gauge double-track rail bridge — parallel to the Bangabandhu Jamuna Bridge — at a cost of $1 billion. The Asian Development Bank is financing its feasibility study which is now in progress.

Of them, the $3.93billion Ganges barrage is all set to go for implementation if funding is ensured. Its feasibility study has been done in 2009.By building a barrage in the Ganges system in Rajbari, the country can stop the salinity creeping in the southwestern region as well as reap a net benefit of Tk 7,340 crore every year.

After the barrage is built, about 52 lakh hectares of land could be brought under cultivation in different agricultural projects. A total of 113 megawatts of hydroelectricity can be generated in the main barrage and an off-track structure in the river Gorai.

Another 11 projects worth $2 billion include improvement of power transmission system, setting up two water and sewerage treatment plants and National Data Centre.

The set of above 14 projects was identified accordingly with a proposed interest rate of 1.5 percent and repayment period of 20 years. Though the new Chinese loan will be soft in nature, it will have the condition under which only Chinese companies would implement the projects.

China would inform Bangladesh for which projects it would finally provide loans.

Why FDI by China?

Explaining why China has suddenly taken so much interest in Bangladesh, World Bank Dhaka’s lead economist Zahid Hussain said “China has very large trade surplus which it has been investing in building US treasury bills for a long time. The US, a safe haven for foreign funds, is now cutting its public sector borrowing requirement.”

“Surplus countries such as China therefore are looking for alternative places for investing their funds in opportunities that are profitable while the associated risks are manageable.

“Bangladesh certainly is a candidate deserving of consideration for longer term placement of funds at the government to government level in projects that can make a large difference to our economic progress,” he said.

“What will be important from the Bangladesh point of view in making such deals is to comprehensively assess the costs of such funds, including both the explicit costs such as interest and commitment fees and the implicit costs such as conditions on procurement of goods, works and services,” the WB economist said.

According to a finance ministry official, as Bangladesh aims at becoming a middle income country by 2021, it has high need for investment in the infrastructure sector to increase growth. “This is why, the high-level of the government went to China several times asking for more investment. China is now reciprocating.”

Besides, India’s offer of $1 billion loan to Bangladesh in 2010 also prompted China to think how it could play a greater role in Bangladesh, which is a big market. The more investment China pumps in Bangladesh, its business interest here would be served better.


Trade relationship is not deeply involved with a country while investment is. In trade, the relationship exists between the buyer and the seller and not between the countries. If a buyer gets a cheaper price or a seller receives higher price, they shift to another buyer or seller. There is no deeper involvement between them while investment in a country, both countries are deeply involved. The governments and the peoples interact closely in the case of investment and the relationship is lasting. The stakes are much higher than those of a trading partner

China has had a major role in the world financial markets for years. Currently because of Bangladesh’s geo-political importance China is keenly interested to invest in Bangladesh so as to keep its influence in Bangladesh. Furthermore, China has huge investments in Myanmar, Bangladesh’ neighbour , and its oil and gas go to Yunnan province through pipelines from Myanmar port.

Chinese investment in Japan has been in the billions for several years, despite tensions over conflicting claims about rocky islands in the East China Sea. The investments act as a deterrent to waging a war with Japan because the investments may be confiscated. Greater investment in foreign countries can be a counterweight to global tension and acts as a safety valve.

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