Published in The Financial Express on Tuesday, 25 August 2015.
Increasing economic cooperation with China
There are good news and bad news everywhere, and Bangladesh is no exception. As usually happens here, the steady flow of good news in the country can hardly be sustained for many pitfalls – sometimes because of bad and unacceptable politics and sometime regional or global vicissitudes beyond control. But Bangladesh, which is also called by some as the ‘land of opportunity’ has shown the world that the country once uncharitably stigmatised as a “basket case” can be an achiever too. Its success stories in many fields including social and economic sectors have been recognised and widely acclaimed.
Recently, a glimmer of hope appears to beckon the country’s burgeoning readymade garment sector for a big opening in China’s restructured clothing market. China’s huge garment industry is worth $300 billion, half of which is export-oriented. Because of its great economic successes and consequent rise in the wage structure, China has concentrated on the top-end of the garments market leaving space for import of relatively cheaper garments from low income countries. China’s domestic market is also huge – worth nearly $170 billion – and offers an opportunity for Bangladesh.
Average wage for a Chinese garment worker is $500 per month and in comparison, the same in Bangladesh is now between $70 and $100. Another advantage is the low cost of freight. In fact, it is cheaper to ship goods to Shanghai from Chittagong than from Mumbai. Chinese importers are said to prefer importing RMG goods from Bangladesh and Vietnam because of their proximity to China. Industry sources, however, suggest that the continuing political tensions between the two countries may favour Dhaka provided the Bangladeshi entrepreneurs respond quickly and responsibly.
During FY2013-14, total trade between the two countries amounted to $8.286 billion, and of this Bangladesh exported goods worth only 746 million (including garment of $241.37 million). This year (FY2015-16) the two-way trade figure may substantially rise because of faster rise in the garment exports. Initial garment export to China was and perhaps still is slow because of the rules of the origin (RoO) China follows.
BGMEA and Centre for Policy Dialogue (CPD) sources point out that China stipulates 40 per cent value addition to enter its market which is difficult for most Bangladeshi RMG products except the knit segment which enjoys much higher rate of value addition. At a recent discussion meeting with the Chinese representatives, CPD has suggested China to reduce the value addition to 25 per cent for Bangladeshi RMG to qualify.
There is a big opportunity to access the Chinese market as the Chinese authorities have provided Bangladesh with duty-free benefit for exports of a total 4,721 types of products, and garment is going to be a major beneficiary. Latest report suggests that during FY2014-15, RMG exports to China accounted for about $305 million, representing 26 per cent rise compared to the previous year’s export of $241.37 million.
China has become the second largest garment market for Bangladesh in Asia after Japan and has become Bangladesh’s largest trading partner. Japan imported garments worth $652.22 million during FY2014 million compared to $100 million five years ago. Garment export to Japan is also rising but the growth in China is higher. Another large potential importer of Bangladeshi RMG is India and after initial hiccups, export registered 21.86 per cent growth in FI2014 to $96.26 million. Industry sources say that problems relating to rules of origin and para and non-tariff stand in the way of further increase.
However, two things appear to be offering hopes for triggering a substantial lift to both exports to and investment from China. China has emerged as the largest investor in the country. With the setting up of one or more special economic zones for Chinese investors and relocation of some of their existing garment industries, there will be an investment boost. This is likely to expedite further exports from Bangladesh.
Taking advantage of this situation, the Standard Chartered Bank (SCB) has opened an account in the Chinese currency renminbi as it would help exporters and importers from both the countries. Patricia Wong, head of network corridor at Standard Chartered China, who was in Dhaka recently, said there is room for trade settlement in renminbi as globalisation of the Chinese currency has taken off in a big way. It will help save 2-3 per cent in cost and quicker payments. This is what the businessmen want most.