China-Bangladesh Trade: New Prospects Opening Up for Bangladesh

    LightCastle Analytics Wing
    LightCastle Analytics Wing
    China-Bangladesh Trade LightCastle

    The COVID-19 pandemic has forced global trade to reach a standstill as countries struggle to provide for their own. Despite a global trade slump, China has recently opened new trade avenues for Bangladesh with lucrative incentives to stimulate trade. 

    China has announced a tariff exemption for 97% of Bangladeshi products to be effective from July 1, 2020. A total of 8,256 Bangladeshi products will come under this zero-tariff treatment and this exemption is perceived to boost trade between the two countries as Bangladesh previously enjoyed this privilege for only 3,095 of its products.[9] This exemption comes at the condition of a 40% value addition to these products.[10] 

    Besides trade benefits, China has announced that Bangladesh will get priority in case the Chinese are able to develop a successful vaccine for COVID-19. With 5 COVID-19 vaccines undergoing clinical trials in China as of June 2020, this declaration comes as a sign of goodwill for Bangladesh.

    These new deals may come with the potential to help Bangladesh to soften the blow from the pandemic.Before the details on the deal are publicized, it is worthwhile to look at the current trade relationship with China, and analyze which sectors will be most benefited from the deal. 

    The Current Scenario in China-Bangladesh Trade

    From the ancient silk roads to modern day diplomatic ties, China and Bangladesh have been in trade relationships for a very long time. As official ties began in 1975, the China-Bengal relationship has only gotten stronger over time and is on the verge of a new transformation due to new lofty policies from the Chinese.

    Bangladesh’s Top Imports from China

    In 2018, about 32.7% of the total imports of Bangladesh were from China, making it the largest source of imports followed by India (15.8%). The top imports are nuclear machinery, cotton, electrical equipment, man-made staple fibers and knitted or crocheted fabrics. Besides the items mentioned in the pie chart, Bangladesh also imports iron and steel, plastic, fertilizers, organic chemicals, paper and paperboard, ships, boats and floating structure and articles of Iron and Steel. Chinese imports are the fastest growing in Bangladesh with an 82.1% growth from 2013 to 2018.[1]

    Figure: Top Imports from China in FY 2018-2019/ Source: Bangladesh Bank

    A Growing Trade Deficit

    Trade between Bangladesh and China is highly skewed towards imports from China. This deficit is growing day by day as new technological developments and cheaper prices push up the demand of Chinese products.

    Figure: Bangladesh and China Growing Trade Deficit/Source: Bangladesh Bank, EPB[2]

    The trade deficit between Bangladesh and China stood at an all time high of 12,808 USD Million in FY-2019. The growth rate of the trade deficit had been the highest in FY15-16 and FY 17-18 both at 19%. 

    Impactful Trade Agreements

    Both nations often exchange high-level visits and have solidified their bond over time. There are several bilateral agreements in place that boost trade between the two countries.

    • Asia Pacific Trade Agreement (APTA): The Asia Pacific Treaty is a preferential tariff arrangement that aims at promoting intra-regional trade through the exchange of mutually agreed concessions by member countries. China signed this treaty in 2001 removing tariff barriers for 84 Bangladeshi products including jute and textiles. This has played an important part in boosting bilateral trade.[3]

    Loan Agreements: Different loan agreements promise Chinese loans at lower prices in the form of grants, interest free loans, Government Concessional Loans (GLC) and Preferential Buyer’s Credit (PBC). These are channelized through agreements between the two countries. The terms for these development assistance loans are:

    Table: General Terms and Conditions of Chinese Assistance/Source: Economic Relations Division [5]

    However, analyses of China’s top imports reveals , some areas of opportunity for Bangladesh, such as::

    • Plastic and Articles: Bangladesh exported plastic worth 100.52 USD Million in the FY19-20 and China was the fourth largest recipient of these products. Given the new mandates, it would be important to increase Research and Development to meet the new requirements of 40% value addition to capture the full benefits of the opportunity.[12]
    • Oil Seeds and Oleaginous Fruits: China already stands as the largest export destination for Bangladesh’s oil seeds. Bangladesh exported oil seeds worth 22 Million USD in the FY19-20. Given the vast demand in the Chinese market, more value can be added in the form of better refinement and leaner supply chain management to make full use of the coming benefits and exemptions.[12]
    • Pharmaceutical Products: Bangladesh exported 135.78 million USD worth of pharmaceutical products to more than 235 countries in FY19-20. Although China is not a leading destination for these products, the new exemptions provide opportunities to make use of the existing demand of the Chinese market. More research and development efforts might be required to ensure the required quality, but this sector holds huge promise for the country given our fast growing pharmaceutical industry.[12]
    • Fish and Crustaceans: Bangladesh exported fish and crustaceans worth about 455 Million USD to more than 100 countries in FY19-20. Although China was the fifth largest destination for these products, these exports cover less than 0.5% of the total Chinese fish import market. So, with better resources such as improved feed and better freezing facilities, the required value addition can be made to tap into a larger share of the Chinese market.

    The Way Forward For Bangladesh: A Delicate Balancing Act

    There are 2 things Bangladesh has to balance with respect to Chinese grants. 

    1. Streamlining Research, Development & Logistics: The trade deal may be highly beneficial for the above-mentioned sectors and many more. However, both the public and private sector must be astute and invest in high-quality research and development efforts to increase the quality of exports. Improvements in supply chain, transportation and logistics will ensure timely delivery of exports, and build reputation and trust of local businesses. 
    2. Balancing Diplomatic Ties: As the tension grows between China and India, it is essential for Bangladesh to be at a friendly position for both of these parties to gain access to better trade facilities. More diplomatic efforts in the form of mutual visits and trade deals can help to balance the scales to some extent

    With the COVID-19 pandemic slowing down trade, the Chinese exemptions are a boost to the national economy and have the potential to minimize the short term damage at least.

    However, the long term economic and diplomatic consequences of these opportunities are yet to be seen. But with proper steps and foresight, the country stands to gain a lot from these opportunities.

    Eqra Mohammad Resalat Ohee, Content Writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]

    The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.

    References

    LightCastle Analytics Wing

    LightCastle Analytics Wing is the research division of LightCastle Partners. It is tasked with producing periodic reports on the different sectors of the economy, analyzing trends in markets and making methodical, thorough and intelligent analysis to improve strategy and drive business growth.