US-based research lab AidData has analyzed Chinese investment in Bangladesh under the Belt and Road Initiative (BRI) and said that the country will likely remain “a key battleground for great power competition” in the coming years given its unique locational position and recent geopolitical trends.
AidData, housed at William & Mary's Global Research Institute in Virginia, generates evidence for policymakers and practitioners to improve how sustainable development investments are targeted, monitored, and evaluated.
The report on the BRI comes as Beijing is celebrating the 10th anniversary of President Xi Jinping’s signature initiative. Bangladesh was the first South Asian country to join the BRI in 2016.
AidData found that out of the total Chinese development finance portfolio of $20.79 billion committed between 2000 and 2021 in Bangladesh, 19% was ODA (grants and highly concessional loans) and 81% was OOF (other official sector loans).
Compared to only $175 million per year during the BNP era (2002-06), Chinese development financing doubled to $381 million in Bangladesh during Sheikh Hasina’s first term (2009-14). Since then, it has risen seven-fold to $2.2 billion (2014-2018) and $2.3 billion (2019-till date).
However, the research lab found that Bangladesh does not have any hidden debt exposure to China, indicating that the likelihood of unaccounted-for (or implicit) liabilities on the government of Bangladesh to Chinese official sector lenders is low.
But it was noted that the majority of the projects, 59%, are facing ESG - Environmental, Social, or Governance – risks, a claim that Chinese Ambassador in Dhaka Yao Wen disagrees with.
Replying to a Dhaka Tribune question, the Ambassador recently at an event said he was aware of the report and that he found a "generally good assessment” of the BRI.
On the specific ESG risks, he said: “I can ensure all the projects China conducts with Bangladesh on the BRI have had very strict environmental assessments. It was based on these feasibility studies. All the projects are based on scientific and very strict environmental assessments. So I'm quite sure so far all the projects are safe in terms of environmental factors.”
Great power competition
Given its unique locational position and recent geopolitical trends—including the rise of India and growing Sino-US tensions in the South China Sea—Bangladesh will likely remain a key battleground for great power competition in the coming years, said AidData.
From Dhaka’s vantage point, growing competition between China and the US in the Indo-Pacific region only offers more opportunities for improving economic growth.
Its economy still needs diversification, such as through new competitive industries adjacent to its dominant textile industry.
This will require investment, skills transfer, and further integration of existing industries into global supply chains.
A deepening trade relationship with China, potentially through the planned rail link via Myanmar, could increase economic prosperity through job creation, it said.
From the US perspective, its robust trade ties with Bangladesh and strong alliance with India (Bangladesh’s most influential regional partner) may provide opportunities to make inroads.
“Yet recent events—including vote rigging, voter intimidation, the use of violence, and the targeting of Nobel Peace Prize laureate Muhammad Yunus through the judicial system—have put Washington in a tough position,” it said.
“As a defender of liberal democracies around the world, Washington may feel compelled to condemn actions that would push Bangladesh further down the path of authoritarianism. On the other hand, it cannot ignore the realpolitik consideration that China’s influence is expanding in South and Southeast Asia.”
Early BRI period
During the early BRI period, China made modest media sentiment gains in Bangladesh at the expense of the US.
It also dramatically increased the provision of aid and credit to Bangladesh during the late BRI period.
Whereas average annual ODA and OOF commitments from China to Bangladesh were only $994 million between 2014 and 2017, this figure soared to $3.4 billion between 2018 and 2021.
“This unprecedented spending increase coincided with a period of political stability, particularly after Prime Minister Sheikh Hasina won her second consecutive electoral victory in 2018. It also coincided with a period of rising authoritarianism,” AidData summarised.
China’s late BRI era foray into Bangladesh
In May 2021, Chinese Ambassador Li Jiming issued a stern warning to Bangladesh’s elites.
In response to reports that Dhaka might join the Quadrilateral Security Dialogue (the Quad)—an informal coalition between the US, Japan, Australia, and India—he said that such a move would inflict “substantial damage” on Sino-Bangla relations.
“This uncharacteristically blunt remark provoked strong pushback from Bangladesh’s Foreign Minister Dr AK Abdul Momen.”
“We are an independent and sovereign state. We decide our foreign policy,” he said.
He also clarified that Dhaka was neither approached by the members of the Quad nor was its participation in the Quad a possibility under active consideration.
This diplomatic spat highlights Bangladesh’s desire to delicately balance relations with the US and its closest regional partner (India) while bolstering its “strategic partnership” with China.
Bangladesh is located in the strategically vital Indo-Pacific region, serving as a gateway between South Asia and Southeast Asia.
For China, it is an entry point to the Bay of Bengal, and its proximity to Myanmar increases its strategic value to the US and its Quad allies.
Public debt exposure, ESG risks
At $17.1 billion, Bangladesh’s public debt exposure to China is 4.1% of GDP, which is 6.9 percentage points below the global average in China’s portfolio.
“Bangladesh does not have any hidden debt exposure to China, showing the likelihood of unaccounted for (or implicit) liabilities on the government of Bangladesh to Chinese official sector lenders is low,” AidData said.
“Unlike countries like Pakistan and Argentina, Bangladesh has yet to receive any rescue loans from China, indicating proactive debt management. This is likely due to the fact that Bangladesh has not experienced debt distress in recent years.”
While only two projects have been suspended or cancelled, the majority (59%) are facing ESG risks.
This includes the energy sector, where several high-profile coal-fired power plants were financed.
Only one-quarter of the portfolio is protected by strong ESG contract safeguards, indicating higher risks of implementation challenges in the future, according to the report.
At 55% and 31% of the entire portfolio respectively, the Energy and Transport and Storage sectors received the vast majority of Chinese development finance.
AidData said the proportion of this portfolio facing significant ESG risks has increased dramatically, from $1 billion in 2015 to over $12 billion by 2021.
Since joining the BRI, according to the Chinese Embassy in Dhaka, Chinese investment in Bangladesh has grown to $1.346 billion in 2022 from $241 million in 2016.
Two-way trade was $22.8 billion in 2022, up from $15.3 billion in 2016. China has built 12 roads, 21 bridges, and 27 power and energy projects in Bangladesh, and 670 Chinese companies have created more than 550,000 jobs.