Originally posted in The Daily Star on 9 February 2021
Future functioning of the Bangladesh, Bhutan, India, Nepal (BBIN) initiative rests solely on China’s involvement in this process as it is a major trading partner of nations in this region, said Rehman Sobhan yesterday.
China is the single largest trading partner for every single country of Asia in terms of import and export, said the chairman of the Centre for Policy Dialogue (CPD).
Every single BBIN nation would be disconnected if China is not involved in the process, added the noted economist.
China also dominates other initiatives like the South Asian Association for Regional Cooperation (Saarc), Association of Southeast Asian Nations (Asean), ASEAN + 3, Asia Pacific Trade Agreement (APTA), and the Regional Comprehensive Economic Partnership (RCEP).
The economist was virtually delivering a speech at a Bay of Bengal Economic Dialogue 2021 organised by the South Asian Network on Economic Modeling (SANEM).
South Asian nations like Sri Lanka have two free trade agreements (FTAs) – one with India and another with Pakistan, he said.
Bhutan and Nepal have virtually been enjoying a comprehensive economic partnership with India although they do not say so, said Sobhan.
Bangladesh was allowed duty-free facility by China a few years ago. “These are the factors which are driving our economic relations in this region,” he said.
The presence of cooperation can aid diversification of production in this whole range of trading network, said the economist.
All these relations can also be extended to a wider international relations and can play a significant role in increasing trade, he said.
Multilateral trading platform World Trade Organization (WTO) has unfortunately not been functioning properly. As a result, the bilateral trading system has been functioning well. The BBIN is mainly a South Asian initiative, he said.
Once upon a time, especially in the late 80s, the East Asian nations, for instance, Thailand and Malaysia, were not interested to do business with South Asian nations citing only talk and no actions, he said.
However, the economist found that China started looking to the South Asian region even in 1998 when he started writing his book “Rediscovering the Southern Silk Route” and the Bangladesh, China, India and Myanmar (BCIM) Economic Corridor was initiated.
But the East Asian nations were less interested to do business with South Asian nations. However, the Asian crisis brought them down. Through the formation of the BCIM, China was looking for South Asian nations through the Bay of Bengal, he said.
This was the new dynamics of trade and Asian Development Bank (ADB) initiated the new trading arrangement based on the rise of Asia. The new trading dynamics was not an accidental commodity boom but arose from competitiveness, he said.
Secondly, by this time Asia including West and East Asian nations became a major source of capital surplus which also played a significant role in the trading dynamics. For instance, of the total global foreign exchange reserve, 70 per cent is among the Asian nations, he said.
Not only this but also 70 per cent of the global sovereign wealth fund is also in Asia and 60 to 65 per cent of the US treasury bills are also among the Asian nations. And of course China is a major player among these nations, Sobhan said.
The RCEP, which was formed under the leadership of China, is even more powerful than the European Union (EU), he said.
However, only India’s import figure from China is not available.
The smaller South Asian nations like Sri Lanka and Bangladesh export mainly finished goods. Most raw materials and intermediary goods are sourced from China and exported to Europe and the US, which means Chinese goods are embedded, he said.
China is a powerful source of capital flow having a significant amount in reserves. For instance, currently China holds over $3 trillion in foreign exchange reserve, $1.5 trillion in sovereign wealth fund and $1 trillion in US treasury bonds, he said.
He said China has also been increasing its investment not only among the Asian nations but also in European and African nations. For instance, China is developing a port in Greece and conducting a similar project in Portugal.
China has been lending money through the Brazil Russia India China and South Africa (BRICS) Bank and Asian Infrastructure and Investment Bank (AIIB). The AIIB has already lent India $4.5 billion and another $1 billion is in the pipeline, the economist said.
Sobhan also said although China has strategic contests with India, but the economic reality was a different scenario.
The Asean market, Middle East and Africa are also dominated by China with its foreign direct investment and official development assistance.
China also lends a lot of money to these nations through commercial banks under its Belt and Road Initiative (BRI), he said.
Many see the BRI as an infrastructure development initiative but it is actually a concept of utilising surplus economy, he said.