Dr Khondaker Golam Moazzem on export to China, while addressing a discussion on “Bangladesh-China Trade and Investment Corridor: Importance, Potential and Outlook”, organised by SCB and The Daily Star on 12 April 2015.
Published in The Daily Star
China raises trade hopes
Analysts at StanChart-Daily Star roundtable call for deeper ties with China
Star Business Report
Bangladesh stands to gain much from China by way of higher exports and investment, as the Asian economic giant looks to deepen ties with its South Asian neighbours.
In the next five years, China is expected to invest $500 billion in different countries, import goods worth $10 trillion, and export goods worth $20 trillion. More than 400 million Chinese nationals are expected to visit other countries during the period.
“Given geographical proximity, we see a huge potential in trade and investment from China to Bangladesh,” said Abrar A Anwar, chief executive officer of Standard Chartered Bangladesh.
He spoke at a discussion on “Bangladesh-China trade and investment corridor: importance, potential and outlook”, co-organised by SCB and The Daily Star at the newspaper’s office in Dhaka.
Anwar said the country has a huge opportunity to deepen ties with China, as the Asian economic giant has already opened its economy to trading partners under its planned 21st Century Maritime Silk Route Economic Belt.
“We need to explore how we can tap the opportunity,” he added.
At present, China is Bangladesh’s largest trading partner. In fiscal 2013-14, trade volume between the two countries stood at around $8.29 billion.
The trade balance though is heavily tilted in favour of the Asian giant: last fiscal year, Bangladesh imported goods worth $7.54 billion and exported goods worth $746.2 million.
China’s investment in Bangladesh too leaves a lot to be desired, although it is the single largest investor in the country.
In 2014, entrepreneurs from mainland China brought in $43 million worth of foreign direct investment, which is about 3 percent of the total investment the country received during the year.
Areas such as agriculture, industries, power and energy are ripe for Chinese investment, Anwar said, adding that Chinese banks can also look to invest in Bangladesh.
Chinese Ambassador Ma Mingqiang said there are many similarities between China and Bangladesh as both the countries are populous, agrarian and still developing. So, the two economies can help each other grow, he said.
“We should seize the opportunity to tap the trade and investment potential between the two countries. We have the scope to further consolidate the relationships which will ultimately benefit the people of the two countries.”
The diplomat said the imbalance in bilateral trade cannot be fixed overnight.
“However, we are trying hard to bring more FDI to Bangladesh,” Mingqiang said, adding that he met Finance Minister AMA Muhith to talk about a special economic zone exclusive to Chinese investors.
When the zone is ready, he expects Chinese FDI to Bangladesh to soar 100-200 percent.
He said the Chinese embassy in Dhaka is trying to help businesses from both sides increase trade and investment.
Khondaker Golam Moazzem, additional research director of the Centre for Policy Dialogue, said the country’s exports to China are still low because of the Rules of Origin (RoO).
China’s stringent RoO stipulates that the exporting country must have 40 percent value addition to enter the world’s second largest market.
“But Bangladesh can’t do so as it imports almost all of its raw materials. Because of the high RoO limit, Bangladesh can’t benefit from the duty-free benefit to the market.”
The economist went on to urge China to relax its value addition requirements to 25 percent in order to help Bangladesh export more to the country.
Moazzem also highlighted the low freight cost between Bangladesh and China. For instance, the cost of shipment between Shanghai and Dhaka is lower than that between Dhaka and Mumbai.
“The trade corridor holds immense potential if we can develop better connectivity,” he said, while urging China to link Bangladesh directly to its planned 21st Century Maritime Silk Route Economic Belt.
Moazzem also said China needs to help Bangladesh so that it can develop infrastructure that will connect the country with its neighbours.
Nabhash Chandra Mandal, executive member of the Board of Investment, said Bangladesh can go on to become a commercial hub if the country is linked to the Silk Road.
The lack of adequate industrial land, power and energy is a major barrier to attracting foreign investment, he said.
The government has selected five sites for special economic zones, with another 14 in the pipeline, he said, adding that one special economic zone is expected to go to Chinese investors.
Shahidullah Azim, vice-president of Bangladesh Garment Manufacturers and Exporters Association, said the wage and production costs have also gone up in China, due to which work orders are being diverted to Bangladesh from there.
Bangladesh is the right place for industries leaving China because of the cost competitiveness the country offers, he said, adding that China can shift its industries to Bangladesh as the country has a vibrant workforce and enjoys duty benefits to Western markets.
The BGMEA vice-president also touched upon the immense potential China’s $170-billion domestic clothing market holds. “If we can even grab 1 percent of the Chinese domestic clothing market, it would be a bounty for us.”
Syed Afsor H Uddin, CEO of Public Private Partnership Office at the Prime Minister’s Office, said the country has developed a robust framework on PPP, which is very much in line with similar frameworks in other countries.
This framework will provide investors from China and other countries with the similar opportunities they enjoy in their home countries in projects under the PPP arrangement, he said.
“Many Chinese investors have already expressed their interests in infrastructure projects under the PPP. I think the framework can lay the foundation for a long-lasting partnership.”
Afsor said, already 42 projects in the areas of transport, health, special economic zones, hi-tech parks and traffic control systems have been approved under the PPP framework which will be developed in the next three to five years.
Ron Lim, managing director of Eastcompeace, a SIM-card maker, said Bangladesh needs to accelerate its infrastructure development.
Patricia Wong, head of network corridor at Standard Chartered China, said there is room to grow in the area of settlement of trade payments in the renminbi as the internationalisation of the Chinese currency has taken off tremendously in the last two years.
Adopting the renminbi will help save 2-3 percent of the cost and ensure quicker payments, she said.
Alamgir Morshed, head of financial markets of SCB, also backed the idea, saying the use of the renminbi would help exporters and importers on both sides to avoid the currency fluctuations that they face now.
He said many exporters in Bangladesh import machinery from China.
“If exporters receive their export proceeds in the renminbi and maintain their proceeds in a separate account, the currency can be used for importing machinery. As a result, there will be no cost of exchanging currencies.”
SCB has opened an account in the renminbi — the first bank with office in Bangladesh to do so. Other banks have to do the same to boost settlements in the Chinese currency, Morshed said.
Zhao Yi of New Hope, a Chinese agriculture farm operating in Bangladesh, said the National Board of Revenue should treat local and foreign companies equally.
Syed Sadek Ahmed, managing director of Space Sweater, said Chinese people do not want to be employed in garment factories anymore as they are increasingly becoming richer.
Asia accounts for $25 billion of China’s $170 billion global apparel exports, he said.
“We can replace China in the Asian markets as it is moving to the high-end segment. We have the quality and the capacity to fill the gap being left by China.”
Mahfuz Anam, editor and publisher of The Daily Star, who moderated the discussion, said trade and investment between Bangladesh and China have grown in the recent past but there is still huge growth potential. “Now it is up to us to tap that potential.”
The growing trade relations with China are something phenomenal, he added. “And this is one of the major developments that have taken place in the last decade.”