Bangladesh plugged into China’s belt and road scheme, HSBC banker says

Xi Jinping’s infrastructure initiative will help power-starved South Asian nation fire up more manufacturing capacity

PUBLISHED : Monday, 10 April, 2017, 3:09pm
UPDATED : Monday, 10 April, 2017, 11:04pm

The “One Belt, One Road” initiative is often seen as a plan by Beijing to extend its geopolitical reach, but the infrastructure investments and trade opportunities involved can also benefit the poorest countries in the region, including Bangladesh.

The South Asian country is counting on China’s belt and road initiative to help it deal with a chronic shortage of electricity and expand its manufacturing economy, a Dhaka-based senior banker from HSBC said.

With a population of 156 million and per capita gross domestic product of US$1,500, Bangladesh is looking at the development possibilities offered by what has been called China’s Marshall Plan, to lift its people out of poverty.

Mahbub Ur Rahman, HSBC’s deputy CEO and head of commercial banking in Bangladesh, told the South China Morning Post in an interview that China’s infrastructure investment in Bangladesh would help it take advantage of its low labour costs and make more value-added products for export.

China’s role in strengthening Bangladesh’s infrastructure dates back to the 1980s, when it helped build the first Bangladesh-China Friendship Bridge, and seven more such bridges have followed since.

During Chinese President Xi Jinping’s visit to Bangladesh last October, the first of its kind in 30 years, he elevated the two countries’ partnership to the strategic level and committed to fully integrating Bangladesh into the belt and road initiative – the brainchild of Xi.

The belt and road plan involves China trying to export its industrial capacity and influence along the ancient Silk Road route in Eurasia and the maritime Silk Road through the Indian Ocean. More than 60 countries could ultimately be included in the scheme.

According to HSBC estimates, China will invest about US$23 billion in at least 28 projects in key areas from power plants and roads to bridges and railways in next five years.

“It’s a transition from trading partner to infrastructure partner, and that will make the trading partnership even stronger,” Rahman said of Bangladesh’s participation in the belt and road plan.

Since 2005, China has overtaken India to be Bangladesh’s largest trading partner, with about 22 per cent of Bangladeshi imports coming from China. Last year, the value of China’s trade with Bangladesh stood at about US$15 billion, according to Beijing’s customs data.

China has supplied equipment that has allowed manufacturers in Bangladesh to cut costs and add value to their finished products, according to Rahman. But he said basing an economy on manufacturing requires infrastructure, particularly a reliable electrical grid.

About half of Bangladesh’s population doesn’t have access to electricity, according to a report from China’s embassy in the country. The government in Dhaka has therefore decided to double its electricity generating capacity to 24,000 megawatts by 2021.

As one of the largest foreign banks in Bangladesh, HSBC has so far provided more than US$1.1 billion in loans to finance four power plants in the country. Chinese companies have invested in three of these projects.

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One of them is the Shahjibazar power plant, with a generating capacity of 300MW. It is a joint venture between Guangdong Power Engineering Corporation and Guangdong Electric Power Design Institute, with financing of US$280 million.

Another is a 100MW oil-fired plant in Chapainawabganj in northwestern Bangladesh, with financing of about US$109 million, that was built by Hubei Electric Engineering Corporation, a state-owned company under Power China.

And last year, HSBC provided US$333 million in financing to re-power Unit 3 of the Ghorasal plant in central Bangladesh, involving a consortium of China National Machinery and Equipment Import and Export Corporation and General Electric.

China still has a hefty trade surplus with Bangladesh and remains the world’s largest apparel exporter. But as Bangladesh’s infrastructure improves and more Chinese companies head to the country to take advantage of low labour costs and favourable tax policies from local governments, it is looking to export more finished products to China.

Looking to the future of Bangladesh’s role in China’s belt and road strategy, Rahman said it was too soon to tell. “It’s not about what it is today, it’s about what it can become tomorrow.”