What one BRI project shows us about China’s investment in Bangladesh

The days of multi-billion-dollar BRI investments from China are very likely over. The bureaucratic delays and funding cuts that hamstrung the Establishing Digital Connectivity project help show why. This is the final part of the series

In late April, the Information and Communication Technology Division and China Railway International Group representatives signed a contract to implement the Establishing Digital Connectivity project.[1][2]

The project will provide last-mile digital connectivity in parts of Bangladesh by 2024.[3][4][5][6]

China Railway International, a subsidiary of the state-owned China Railway Group Limited, will build 10 digital village stations to provide broadband access to thousands of rural people, and 10,000 computer labs as part of Digital Bangladesh’s Sheikh Russel Digital Labs initiative.

China Railway will also build a 21-story skyscraper in Purbachal a planned city 14km north-west of Gulshan, which will house a training lab for ICT Division employees, and entrepreneurs, as well as dozens of specialized labs at public universities across the country.

China’s Economic Counselor in Dhaka, Liu Zhenhua, said the project stands as a new symbol of the Belt and Road Initiative (BRI) in Bangladesh, according to a Chinese-language Sohu article.[7]

He was right. And in more ways than one.

The project took nearly six years and $550 million in budget cuts to implement. Few would have predicted that outcome when Beijing and Dhaka announced the project in 2016.

But it is an outcome that is becoming more common around the world. And the project’s story helps explain why Bangladesh is unlikely to see more multi-billion-dollar BRI investments any time soon.

Beijing, Dhaka took nearly six years to realize the project

When Beijing announced the BRI in 2013, it looked like an unstoppable juggernaut to many.

At that time, China’s investment into Bangladesh was comparatively modest for an economy of its size; its investment concentrated in energy and ready-made-garments.[8]

That changed dramatically after China’s leader Xi Jinping visited Dhaka in October 2016.

The president’s advance team descended upon Dhaka. Government ministries and companies scrambled to flesh out memoranda of understanding (MoUs). And after the dust settled, China was committed to 27 BRI projects -- valued at US $24bn -- on paper.[9]

The Establishing Digital Connectivity project was one of these projects.

Few news agencies singled-out the project; its planned $1bn contract was smaller than higher profile power and transportation projects announced at the same time.[10][11]

But in the years after Xi’s visit, Beijing and Dhaka only implemented some of the 27 projects.[12] Dhaka scrapped and swapped BRI projects that had reached a dead-end. Other MoUs expired.

Tom Baxter, Global China Editor of China Dialogue, told the Dhaka Tribune: “If forces aren't well aligned for Chinese companies to make money, high-level statements of intent won't really get off the ground.

“Those statements are often intended to guide investments into an area that's of strategic interest to the two governments, but the reality is, if there aren't feasible, bankable, profitable projects available, there won't be much movement,” Baxter explained.

Establishing Digital Connectivity did not generate much momentum after 2016.

The project reflected Beijing’s interest in building a “Digital Silk Road,” a part of the BRI. And it reflected Dhaka’s interest in establishing a Digital Bangladesh. But it did not promise the kind of downstream revenue a Chinese company could bank over the long term.[13]

And the project was not mentioned by the media again until May 2018, when the Cabinet Committee on Economic Affairs approved the project for direct procurement, fast-tracking the tender process.[14]

China Railway International won the bid; it signed an agreement with the ICT Division for the project in October 2018 --exactly two years after the initial MoU.[15] Dhaka appears to have approved the agreement just over a year later in November in 2019, followed by Beijing in March 2020.[16]

Then, Dhaka needed to secure the financing for the project from Beijing. What followed was nearly two years of negotiations over cutting the project’s budget.

Project budget cut four times since 2020

Between June 2020 and April 2022, the project’s contract value shrank by more than half -- from $1bn to $450m. Mir Mostafizur Rahaman followed the story in The Financial Express.

The first budget cut appeared in June 2020, when a finance ministry official told Rahaman the project was one of 17 projects Dhaka requested Beijing to finance on priority.[17][18] Dhaka’s priority list, shown to Rahaman, put the project’s value at US $837 million.

While the budget cut was not explained, it followed a Bangladesh-China Investment Cooperation Working Group meeting that had occurred months earlier.[19]

In March 2021, an ICT Division official told Rahaman that the project was valued at $694m; Beijing would provide 65% of the total project cost, while Dhaka would provide the remainder.^[20][21][22]

Just months later, in June 2021, finance ministry sources said the project’s value was lowered to $473m -- so that Dhaka could obtain financing from Beijing more easily.[23]

Dhaka reportedly achieved the budget cuts in 2021 by lowering the number of Sheikh Russel Digital Labs and specialized university labs, as well as dropping two potentially sensitive components -- digitalizing the foreign ministry, and a Point of Interconnect for the national broadband network.

When the project was approved for implementation in April 2021, its budget was set at US $450 million, with Beijing providing 80% of the total project cost, and Dhaka providing the remainder.

Notably, the project’s implementation was preceded by months of reporting that described Dhaka’s uncertainty over whether Beijing would finance the project, among others.

Covid-19, and the resulting economic slowdown in China, had pumped the brakes on the BRI.

Christoph Nedopil Wang, Founding Director at the Green Finance and Development Centre, and Associate Professor at Fudan University in Shanghai, China, described this slowdown in The China Belt and Road Initiative (BRI) Investment Report 2021.[24]

“Compared to 2019, the year before the COVID-19 pandemic, Chinese engagement declined by about $53bn -- about 48%” globally, according to the report, which also found that China’s BRI investment was at its slowest pace since Beijing announced the initiative in 2013.

These broader trends help explain why Beijing may have slow-walked Dhaka’s requests for project financing between 2020 and 2022 -- and why Dhaka had to work so hard to secure the financing.

A new symbol of the BRI in Bangladesh

The Establishing Digital Connectivity project implemented in April was smaller and less expensive than many expected when it was announced in October 2016.

Future BRI projects in Bangladesh are likely to follow a similar scale, budget, and timeline.

Nedopil Wang found the average BRI deal size was $476m last year, which is approximately 21% smaller than the average deal size in 2015. Moreover, he found that the total number of BRI investments are decreasing relative to construction projects year-on-year.

Those trends will likely become more pronounced after new guidelines issued by Beijing.

Late last year, Beijing called for “high-quality BRI development,” encouraging companies to pursue contracts in new sectors, such as healthcare, green energy, and ICT, and introduced new environmental and social impact requirements for companies seeking approvals and financing for BRI projects.^[25][26]

The new guidelines and compliances will change the way companies and banks from China assess proposed BRI projects, and as a result, Dhaka may need to start prioritizing projects that are smaller, greener, and cheaper, if it would like to secure support from China in the future.

But the days of multi-billion-dollar power and transport BRI investments in Bangladesh are very likely over. Instead, the BRI will be defined by projects like Establishing Digital Connectivity -- multi-million-dollar construction projects that companies can build and turn-over quickly.

Adam Pitman is an American writer and analyst in South Asia.

[1] https://www.sohu.com/a/542196164_121094896

[2] https://twitter.com/geoff_p_wade/status/1524020989742706688

[3] https://us2.campaign-archive.com/?u=3ad225a592b2e34cc118f9549&id=73a5d1d323

[4] https://www.thedailystar.net/news/asia/china/news/china-firm-implement-tk-3975cr-digital-connectivity-project-3009051

[5] https://bdnews24.com/bangladesh/2022/04/21/bangladesh-brings-in-chinese-company-to-strengthen-digital-communication

[6] https://www.bangladeshpost.net/posts/project-for-establishing-digital-connectivity-gets-ccgp-nod-84198

[7] https://www.sohu.com/a/542196164_121094896

[8] See review of BB reporting

[9] https://archive.dhakatribune.com/bangladesh/2021/07/17/why-bangladesh-has-been-ignoring-india-s-warnings-about-the-chinese-debt-trap

[10] https://www.business-standard.com/article/international/bangladesh-expects-40-bn-from-china-during-xi-jinping-s-visit-116101100483_1.html

[11] https://bdnews24.com/bangladesh/2017/01/18/bangladesh-takes-up-1-billion-project-to-reach-internet-to-remote-parts