BRI projects hold high promises, but the outcome will depend on how Bangladesh plans and executes these projects
The Chinese President Xi Jinping launched both the Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives in 2013. Afterwards, these were termed the Belt and Road Initiative (BRI). Also known as the New Silk Road, the BRI is an ambitious infrastructure project which stretches from East Asia to Europe.
The initiative’s objective is to build connectivity and cooperation across six main economic corridors. These are: (1) New Eurasia Land Bridge (NELB); (2) China-Mongolia-Russia (CMR) Economic Corridor; (3) China-Central Asia-West Asia (CAWA) Economic Corridor; (4) China-Indochina Peninsula (ICP) Economic Corridor; (5) China-Pakistan (CP) Economic Corridor; (6) China-Bangladesh-India-Myanmar (BCIM) Economic Corridor.
Through the BRI, China intends to engage in the global economy mainly through investments in infrastructure. China plans to rebuild the land network connecting China to Europe via Central Asia (“One Belt”) and the maritime route from China to Southeast Asia, South Asia, the Middle East, and Eastern Africa (“One Road”). By the end of July 2019, a total of 136 countries and 30 international organizations had signed 194 cooperation documents with China to build a “Belt and Road” cooperation document.
Bangladesh is connected with the BRI through the BCIM economic corridor which was formally endorsed during the first inter-governmental study group meeting in Kunming held in December 2013. The corridor covers 1.65 million square kilometres, and includes about 440 million people. It connects China’s Yunnan province, Bangladesh, Myanmar, and Kolkata in India through road, rail, water, and air linkages.
The BCIM initiative had the ambition to build regional cooperation through building an economic corridor connecting the sub-regions of South Asia, Southeast Asia, and East Asia. Connectivity through the BCIM economic corridor has the potential to benefit the North East Indian states through trade with Yunnan province.
Bangladesh can also benefit through linkages with the North East Indian region and Yunnan. Moreover, BCIM has the potential for benefiting from the blue economy and international maritime trade through the Bay of Bengal, the Indian Ocean, and the Andaman and Nicobar Islands. In order for the BRI to be successful, operationalization of the BCIM is important.
A number of measures have been rolled out to materialize the ideas embedded in the BRI. During the visit of the Chinese president to Bangladesh in October 2016, an understanding was reached regarding implementation of various government to government (G2G) and business to business (B2B) projects. In total, China promised about $40 billion investment in Bangladesh. An amount of $24.45bn was in bilateral assistance for infrastructure projects and $13.6bn in joint ventures. In addition, $20bn in loan agreements was committed.
In 2016, Bangladesh and China signed eight projects costing more than $9.45bn financed by China. These include: Padma Bridge rail link worth $3.3bn; the power plant in Payra worth $1.9bn; digital connectivity worth $1bn, and power grid network strengthening project worth $1.32bn.
Bangladesh’s first toll road project was signed on December 6, 2018. The government of Bangladesh had signed a contract with a China-Bangladesh consortium to upgrade the 48-kilometre-long Dhaka Bypass Road to a dual carriageway. The objective was to improve connectivity between the north and northwest parts of Bangladesh and the Chittagong Port.
This toll road was only one of the many transportation projects which China was investing in Bangladesh. During the period 2009-2019, China has invested an estimated $9,750mn in various transportation projects in Bangladesh.
As part of Bangladesh government’s initiative on establishing Special Economic Zone (SEZ), Chinese Economic and Industrial Zone (CEIZ) is being developed in Anwara Upazila of Chittagong district on a land of 783 acres. State-run China Harbour Engineering Company holds 70% share in the joint venture. CEIZ will be the first specialized G2G economic zone.
Bangladesh’s ties with China
Bangladesh has increasingly been connected with the Chinese economy through trade, investment, and cultural exchanges during the last decade or so.
Investment and financial integration: Due to the rapid pace of growth of the Bangladesh economy, the infrastructure investment need as a percentage of GDP is expected to fall in the coming years. However, the difference between the infrastructure investment need and the current trends of infrastructure investment in Bangladesh is predicted to be more than 1% of GDP.
Sectoral decomposition of infrastructure investment needs shows that the greatest need for investment in Bangladesh are in the energy and transport sectors. Predictions show that in 2040, infrastructure investment needs of the energy and transport sectors will be around 1.5% and 1% of GDP. The largest proportion of BRI projects in Bangladesh are in the energy and transport sectors. Thus, BRI has the potential to fill in the infrastructure gaps in Bangladesh.
In fiscal year 2019, Bangladesh witnessed a record high net foreign direct investment (FDI) inflow of $3,232.89mn between the months of July-March. This surge in FDI was largely driven by Chinese investment. During the period January-March 2019, Chinese net FDI inflow amounted to $396.99mn, which was 38.34% of total net FDI inflow into Bangladesh during that period. In April 2018, Alipay, a concern of China’s e-commerce and tech giant Alibaba Group, bought 20% stakes in bKash, Bangladesh’s largest mobile financial service provider.
Trade: China had not been one of the traditional markets for Bangladeshi exports. However, since the third quarter of 2010, China has become the biggest import partner for Bangladesh, overtaking the place previously held by India. In 2018, China was the largest trading partner of Bangladesh with a share of 18.94% of total trade. This was almost double the amount of trade with India and more than the trade with the US and Germany combined.
Cultural exchange: One of the five components of the BRI is cultural exchange. Through means of knowledge sharing, research collaboration, and strengthening of people-to-people bonds, China is expanding cultural exchanges between the countries using the BRI. Since the declaration of BRI in 2013, there has been a steady increase in the number of Chinese government scholarships offered to foreign students.
Since the inception of BRI, the number of Bangladeshi students pursuing higher education in Chinese universities has grown rapidly over the years. For example, 4,905 more Bangladeshi students went to study in China in 2016, compared to 2015. Chinese government scholarships are offering lucrative higher education opportunities to students from Bangladesh. Since the start of BRI, the number of Confucius institutes all over the world has increased from 440 in 2013 to 548 in 2018.
On the other hand, the number of Confucius classrooms has increased from 646 in 2013 to 1,193 in 2018. The increase in the demand for learning the Chinese language has been driven not only through cultural exchange, but also through other components of BRI, such as trade and investment.
Overcoming the challenges associated with BRI
Debt issue: Sustainable financing of the BRI projects in the participating countries is an important issue. Chinese government has provided debt relief to countries which have been suffering from debt distress, on a case-by-case manner. Major official creditors actively participate in multilateral mechanisms dealing with sovereign defaults, in particular the Paris Club.
China is not a member, but an observer at meetings of the Paris Club. There are several examples of how China has approached debt issues in various countries. According to the IMF, China was a creditor to 31 of the 36 heavily indebted poor countries (HIPC), and it provided relief in at least 28 of them, including 100% forgiveness for several (for example, Burundi, Afghanistan, and Guinea). In case of Sri Lanka, China agreed in July 2017 to a debt-for-equity swap for $8nn loan and a 99-year lease for managing the Hambantota Port.
The external debt of Bangladesh fell from 20% of GDP in 2007 to 15% of GDP in 2015, but rose again to 17% of GDP in 2018. The absolute amount of outstanding external debt has also increased from $19354.81mn in 2007 to $33,511.83mn in 2018. Despite the recent trend of increasing external debt, Bangladesh’s good debt servicing record has ensured that external debt has not piled up. The total debt service as a percentage of total exports decreased from 8.6% in 2013 to 3.9% in 2018.
Environmental concerns: While the BRI has the potential to bring in positive economic development, it may cause irreversible damage to the environment as the infrastructure may threaten the eco-systems and the livelihoods of the people who depend on environmental resources surrounding them. However, China’s own national sustainability commitments could be used across the whole of BRI.
Making its environmental guidelines mandatory overseas, China can improve local standards in the developing countries where they work. President Xi Jinping’s concept of “ecological civilization” could contribute to environmental governance. China is developing its green financing system. The green “One Belt, One Road” demonstrates China’s responsibility for global ecological security and sustainable development.
A positive sign is that 58.3% of BRI transport sector construction contracts are in railways, which are relatively environment-friendly, compared to other modes of transportation. However, 38.05% of BRI construction contracts in the energy sector are in coal, which is highly damaging to the environment. Around 56% of China’s total investment in Bangladesh is in the energy sector, and more precisely -- in coal. Such large investment in coal-based energy sector projects may have adverse impacts on the environment. BRI is partly responsible for the soaring investment in renewable energy worldwide. So China could have made more BRI investment in renewable energy in Bangladesh.
Transparency: Lack of open, transparent, and competitive procurement processes can lead to poor performance of projects in terms of missing timeline, cost overrun, and low quality services. The Corruption Perceptions Index (CPI) score of Transparency International indicates that the perceived corruption in the Belt and Road corridor economies is higher than the global average and higher among lower middle and low income countries. Increased transparency in procurement process and other compliance can benefit BRI projects in terms of co-financing by other financial sources including the multilateral development agencies.
In response to accusations that it lacked transparency, facilitated corruption, and that some projects contributed to pollution, a number of initiatives were announced at the 2nd Belt and Road Forum in Beijing held in April 2019, such as “The Beijing Initiative for Clean Silk Road.” This initiative calls for international cooperation to promote transparency and integrity, and combat corruption. The “Green Investment Principles (GIPs) for the Belt and Road” calls for environment-friendly, climate resilient, and socially inclusive investments under the new BRI projects. The Ministry of Finance of the People’s Republic of China had published a Debt Sustainability Framework (DSF) for Participating countries of the BRI in April 2019.
The way forward for Bangladesh
BRI holds promises to deliver physical and soft infrastructure to foster connectivity and economic development across its corridors. For Bangladesh too, BRI provides an opportunity to seize benefits, particularly in areas of trade, investment, connectivity, education, and tourism, through strong ties with countries particularly in the Southern Asian region, and more specifically, with China and India.
The Kunming to Kolkata corridor can reduce costs of transport and benefit Bangladesh through enhanced trade and investment. This will create opportunities for employment and income. Bangladesh’s enhanced competitive strength through BRI will help it become better integrated into the global economy. Bangladesh needs huge resources to build the required transport infrastructure to be connected with the BCIM corridor.
Implementation of BRI projects will require trade facilitation reforms. Some of these measures include standardization and harmonization of procedures and regulations across countries, improvement of trade facilitation and logistics at the border, cross-border electronic data exchange, speedy customs clearance, customs cooperation, and measures to ensure security of people, vehicles, and cargo on the move.
Vast quantities of resources will need to be mobilized to build the needed transport infrastructure. Bangladesh has to mobilize domestic resources through tax reform and public-private partnerships. Selection and planning of BRI projects should be sound, with a full understanding of the economic and social benefits that will be created through such projects. In order to address the challenges associated with the BRI projects, the government of Bangladesh should implement the BRI projects through on open, transparent, and competitive contracting and procurement process in order to ensure the quality of the projects.
For timely completion of projects and for minimizing cost overrun, public disclosure of BRI projects’ terms and conditions of finance, monitoring, reporting, and anti-corruption measures should be in-built in the project implementation mechanism.
Debts should be managed well and debt sustainability issue should be closely monitored in order to avoid any possible debt traps. For green and clean governance mechanisms in the BRI projects, financing and environmental information should be disclosed in advance, and on a continuous basis.
Social and environmental impact assessments of projects should be done through meaningful and informed participation and engagement of local people. On the whole, while the BRI projects hold high promises for economic development, the outcome will be determined by the way Bangladesh plans and executes these high value projects.
Dr Fahmida Khatun is Executive Director and Syed Yusuf Saadat is a Senior Research Associate at the Centre for Policy Dialogue (CPD) Bangladesh.