Chinese investments on the rise in Bangladesh

Bangladesh is the most favourable country for investments in south Asia. Its geographical location, high shipping lane connectivity, competitive labour cost and market and business friendly environment, attracts huge foreign direct investments (FDI). Before delving into the core section, i.e., Chinese investments in Bangladesh, it would be prudent to briefly discuss why it is lucrative and profitable to invest in Bangladesh. The economy of Bangladesh has been outstanding for the last 6-8 years which reflects in the GDP of Bangladesh. For instance, during the pandemic years 2020-2021 and 2021-2022 the GDP growth was 6.9% and 7.1% respectively, and in the 2022-2023 the GDP growth is 5.8% (Fig 1). International Monetary Fund (IMF) has stated that the average GDP of a least developed country or emerging countries is 4.9% where as the average GDP of Bangladesh is 5.8% for the last four years. 

There are few compelling reasons why FDI is thriving in Bangladesh. Bangladesh’s strategic location is also a major factor for its burgeoning economy. Bangladesh is situated on the coast of Bay of Bengal which offers ample opportunities for trading within Asian, Middle Eastern, European and American markets.

Furthermore, Bangladesh has a huge pool of young and skilled workforce who are very hardworking and talented. As per the recent census conducted in 2022, there are 6.71m male and 8.27m females aged between 20-24 years and 6.46m males and 7.91m females aged between 25-29 years, that means there are in total 29.35m young people aged between 20-29 years 12.11m mid-level workers aged between 30-34 years who are dedicated and ready for work (Fig 2).

On top of that the labour cost of Bangladesh is way cheaper than any other countries in the region which favours the investors tremendously. With huge pool of young workers and cheaper minimum wage Bangladesh has become a major investment hub in South Asia. Bangladesh government has also put some incentives for foreign investors who invests directly in the EPZs (Export Processing Zones) and the EZs (Economy Zones) in Bangladesh. You can read more on this in our previous blog ‘Why Should You Invest in Bangladesh?’.

Bangladesh is officially graduating from the LDC (Least Developed Country) in 2026, and once graduated from LDC, Bangladesh would lose duty-free-quota-free (DFQF) access to most of the major markets. However, Bangladesh might have a further 3 years of DFQF in EU under Generalised System of Preferences (GSP+) provision, provided all the terms and conditions are met. Therefore, the Government is looking for alternatives for expanding its trade and commerce and already concluded bilateral investments treaties (BITs) with 29 countries including UK, USA, France, Germany Cambodia, Japan, China and many other countries. You can see the list of countries here. Bangladesh is also discussing and negotiating with 11 countries for free trade agreements (FTA) which was reported on Nikkei Asia and the Dhaka Tribune on 23 April 2023. Therefore, these BITs and FTAs would enable Bangladesh to trade freely with those countries without any duties and quotas. You can also read more on the Ministry of Foreign Affairs, British International Investment, or US Department of State about the investment opportunities or climate of investments in Bangladesh.

Now, moving to the core section of the article, Bangladesh commenced diplomatic negotiations with the People’s Republic of China about investment opportunities in Bangladesh in multiple sectors. The major sectors where the Chinese investors are interested in investing are in textiles, electric vehicles manufacturing, establishing solar energy, technology, and financial technologies. HE Prime Minister of Bangladesh invited the investors to visit Bangladesh to evaluate and explore the investment climate and Economic Zones that were established and going to be established in near future. She also sought investments in three special tourism zones and hospitality sectors in Bangladesh. The PM was on a three-days official visit to China to attend a summit in Beijing between 08^th July – 10^th July 2024. On the 9^th of July, Bangladesh and Chinese Companies signed 16 Memoranda of Understandings (MoUs) which are estimated to be over $5b.

People’s Republic of China (PRC) is the 5^th largest investors of Bangladesh, after the USA, UK, Singapore, and the Republic of Korea (South Korea). By the end of December 2023, its FDI stock was $1374.03m, where as the largest investor, USA has a staggering $3935.39m FDI stock in Bangladesh (Fig. 3)

Due to favourable and strategic geographical location and proximity to India and Bay of Bengal, Bangladesh has become very important to China geopolitically. From a popular Dhaka based daily newspaper the Business Standard published an article named ‘How China’s Belt and Road Changing Bangladesh’s Economy and Infrastructures’ on 1^st October 2023. In that article it was stated that under the Belt and Road Initiatives (BRI), Bangladesh is to receive a total package of $40 billion out of which $26 billion is for BRI projects and the remaining $14 billion is for joint venture projects. $4.5 billion has already been released for 35 projects and China would also implement 21 Bridges and 27 power projects in Bangladesh. The major sectors which are hugely invested in, by Chaina are Power and Energy, Metals, Transport and others. Furthermore, it was reported in another popular newspaper the Daily Bonikbarta on 23^rd April, 2023 that Chinese contractors have contracts with the government of Bangladesh worth approx.  $23 billion. From $23 billion $9.02 billion would be for only power and energy sector, $ 8.11 billion for transport and electrical vehicles, $2.36 billion for real estates, $1.28 billion for agriculture, $1.13 technology and $1.04 for utilities (Fig. 4). The report also categorised the Chinese investments by sector. In power and energy sector China has invested $3.27 billion, in metals sector it is $2.13 billion, in transport $1.10 billion, others $0.41 billion, and finance $0.16 billion (Fig. 5).

Either due to the BRI project or due to geopolitics, Bangladesh has become an important investment hub for both Chinese contractors and the government of China.