China-BD Ties
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China’s duty-free access to 97 per cent of Bangladeshi products came loaded with hopes and aspirations for the garment exporters in Bangladesh, who saw in the Chinese offer an effective means to deal with the fallouts of the COVID-19 pandemic. And why would they not, considering the size of China’s apparel market, which is approximately around US $ 330 billion (as of 2019), and second only to that of USA (market size of approximately US $ 345 billion).

After the Chinese Government decided to offer zero tariff facility effective from 1 July, all were hoping it would open new windows of opportunity and help salvage the falling apparel exports, subsequent to the global outbreak of the pandemic.

“Product access in the Chinese market is welcomed in this humanitarian global crisis. We are in consultation with Government, stakeholders of 97 per cent product list to maximise export opportunities of the 5,100 plus products, mitigate any challenges in execution and look into the 3 per cent that still has barriers and will be engaged from FBCCI with our counterparts in China as we are sure Government to Government engagements will continue on policy supports as the new opportunities yielded because of that,” underlined Sheikh Fazle Fahim, President of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), welcoming the Chinese move then.

However, in terms of exports to China in view of the duty-free opportunity, Bangladesh seemed to have failed to make much of a headway as data from the Export Promotion Bureau show Bangladesh’s exports to China stood at US $ 110 million during the July-August period of the current FY ’21, down by 16.66 per cent compared to the same period last year.

Prior to the trade facilities being granted, the country would enjoy the similar privileges for only 60 per cent of its products under the Asia-Pacific Trade Agreement arrangement, where Bangladesh is a founding member. However, after the duty-free trade facility declaration by the Chinese – on June 16, 2020, China announced the duty-free export facilities for 97 per cent of its tariff line and with the announcement, a total of 8,256 Bangladeshi items became eligible for zero-duty facilities in the Chinese market – there was anticipation that Bangladesh’s exports to China would witness a sharp rise.

On the contrary, apparel exporters from Bangladesh could not gain much as more than one-third of Bangladesh’s total apparel exports to China was found to be still out of the of duty-free benefit coverage. This was underlined in an analysis being carried out by Bangladesh’s apex garment makers’ body, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

The President of BGMEA, Dr. Rubana Huq, reportedly maintained that in financial year 2018-19, Bangladesh’s total RMG export to China was US $ 507 million, of which US $ 308.4 million worth apparel items was under duty-free facility, which effectively means, US $ 198 million apparel export was under duty. Further, after the latest duty-free offer from China, products worth US $ 20 million out of the US $ 198 million, would be included in the duty-free scheme, explained the BGMEA President, adding apparel exports worth US $ 178 million still remained out of duty-free benefit, on which Bangladesh paid 6-12 per cent tax, and which accounted for Bangladesh’s 33 to 38 per cent of total exports to China.

Rubana also reportedly expressed her apprehension on the revised rules of origin for 40 per cent value addition as set by China so as to enjoy duty-free market access, which the BGMEA President felt would be rather difficult for apparel manufacturers to comply with.

It may be mentioned here that although China is one of the export destinations of Bangladeshi apparel items, mainly cotton-based, the export volume has been rather insignificant compared to that of the European Union (EU) countries and the United States. In 2009, Bangladesh’s total export to Chinese market under the Asia-Pacific Trade Agreement (APTA) preference scheme was US $ 140.72 million, of which apparels accounted for only US $ 19.79 million as against China’s total imports of apparels worth US $ 1,651.75 million. Further data from the country’s Export Promotion Bureau (EPB) shows Bangladesh exported garment items worth US $ 391.60 million to China in fiscal 2016-17, and it remained almost the same in fiscal 2017-18.

So, even if efforts continue unabated to ensure that Bangladesh, especially its apparel manufacturing and export sector can make the best of the duty-free benefits in the Chinese market, the focus has now changed into what one may say attracting more FDI from China, for which experts advocate integrating into the Chinese value chain.

As per experts, Bangladesh needs to widen its own vision in its relationship with China to look at broader areas of comprehensive partnership in trade and investment. According to the Founder Chairman of Bangladesh’s leading non-profit civil society initiative – Centre for Policy Dialogue (CPD), Rehman Sobhan, Bangladesh needs to set much wider vision in relationship with China as the country would lead the Asia in economic development contributing 50 per cent of the global growth in next 25 years.

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“The most important issue is to target Chinese investment in line with the Chinese current economic restructuring to tap the market as well as the East and Southeast Asian markets, which would control the global economic growth,” said the founder Chairman of CPD, adding, ‘So, design investment strategy targeting Chinese investors and look at broader areas of comprehensive economic partnership in the areas of trade, investment and technical cooperation.”

He also suggested that the Finance Ministry should consider the proposal of US $ 5 billion Chinese loans to the central bank to diversify its foreign currency reserve. Rehman also advocated the concept of converting a portion of Chinese loans into equity investment to minimise risk of ‘debt trap’.

Further, experts opined that China had a comprehensive agenda for the global economic partnership and in the Asian region on a much wider range of trade and investment and technical cooperation. “China has been thinking about a wider comprehensive economic partnership and relation with South Asia for a long time. They had a vision for relation with the Bay of Bengal. This is known as the long-term strategic thinking,” said Rehman Sobhan while underlining that few things Bangladesh needs to keep in mind is that the world, as it is going to evolve over the next 25 years, is going to be an Asian world led by China.

“Chinese investment in Bangladesh is very important for China…We should consider Chinese investment as a broader vision instead of a narrow vision. We need to join hands to increase political trust,” meanwhile said Li Jiming, the Chinese Ambassador to Bangladesh, but not before adding that the Chinese investors faced difficulties such as lack of infrastructure, bureaucracy, inefficiency of Government officials and lack of skilled workforce.

For attracting more investment, the Chinese envoy urged Bangladesh to improve its investment environment, upgrade workforce skill and provide more vocational training. Li also urged Bangladesh to conduct promotional activities for the Chinese investors.

In response, State Minister for Foreign Affairs M Shahriar Alam said that Bangladesh is working on increasing trade and investment cooperation with China as there is growing interest from the Chinese investors to invest here. “In last few years, there is a significant boost in relation with China and it has become an important partner,” said Shahriar while adding that about 800 acres of land is allocated in Anwara upazila of Chittagong for a dedicated Special Economic Zone for Chinese investors.

Upon completion, it will attract a huge amount of Chinese investment, said the junior minister.

“We are working very closely with the Chinese authorities and all-out cooperation will be provided to the Chinese investors,” he added.

Experts further underlined that in view of the Chinese Government offering duty free market access for 97 per cent of Bangladeshi products, attracting investment in those products was very crucial for the country.

“When we want to visualise inflows of Chinese investment, we should think about how it is going to invest in the value chain, which will connect us to Chinese markets as well as in major exports markets,” said Rehman Sobhan, adding, “The challenge for Bangladesh is to attract Chinese investment for their markets taking advantage of duty free market access.”

He also urged the Chinese government to extend the duty-free market access for Bangladesh beyond 2024, when it will graduate to a developing country.

Now if Bangladesh can take its business relations with China to the next level to bring in more investments from China for the overall growth and development of Bangladesh in the days to come, is to be seen.