China-Bangladesh Trade: New Prospects Opening Up for Bangladesh

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 40% value
addition.

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.

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 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

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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
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
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increase Research and Development to meet the new requirements of 40% value addition to capture the
full benefits of the opportunity. 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.
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.

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. 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. 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.

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