Chinese Strategic Hedge in Bangladesh through Investment

Abstract

During the last decade, the surge in Chinese outbound foreign direct investment in Bangladesh has been met with anxiety, often invoking national security concerns. Most scholars explain China’s investment with the connection of economic interests and market expansion. Scholars have not paid enough attention to the geostrategic rationale behind China’s investment statecraft towards Bangladesh. This study centres on the question: What economic and non-economic (geostrategic) factors drive the growing Chinese investment footprint in Bangladesh? Following the qualitative research approach, this study argues that along with economic incentives, non-economic issues such as security and strategic competition with India are the significant determinants of the Chinese increasing investment footprint in Bangladesh, which is beyond the notion of win–win cooperation enhancing China’s regional status and leadership in South Asia. This study promises to contribute to the literature on the Chinese political economy, providing a theoretically nuanced treatment of Chinese investment statecraft concerning neoclassical realism.

Keywords

Investment statecraft geostrategy non-economic factors neoclassical realism China Bangladesh India the United States

I. Introduction

Since its reforms in 1978, China has been experiencing rapid economic growth and expanding its global economic footprint (Wang, 2010). After three decades of remarkable growth, China exceeded Japan and became the world’s second-largest economy behind the United States (Barboza, 2010). In the twenty-first century, China’s economic rise to global predominance has become one of the critical areas of discussion for international relations and global political economy. China’s economic growth and development have railed mainly on outbound investment, trade and external lending. China has become an indispensable economic partner for the many developing counties in South Asia, Sub-Saharan Africa, Latin America and beyond (Norris, 2016). Regarding this, ‘China’s rising economic, political, and military power is the most geopolitically significant development of this century’ (Huang, 2013, p. 3). Beijing’s involvement with global affairs expanded through joining global and regional institutions, strengthening its diplomatic efforts and expanding its trade and strategic foreign direct investment (FDI) globally (Bulkeley, 2009). Particularly, after the initiation of the Belt and Road Initiative (BRI) in 2013, Chinese outward investment has raised concern regarding its global strategic influence (Ehteshami, 2022; Farias, 2021; Karalekas et al., 2022). The dominant explanation exposes that Chinese investment under BRI has been driven by its geo-strategic motives and has increased the political influence in the host countries (Pradhan & Mohanty, 2021).

As home to more than a fifth of the world’s population, South Asia has become a significant region for Chinese investment and market expansion. In the past decade, China has strengthened its geoeconomic linkages with South Asian countries through the BRI umbrella projects (Mendis, 2013). Similar other South Asian nations, Chinese investment footprint has constantly increased in Bangladesh as the country has a vast potentiality concerning the market for Chinese products and is an investment hotspot. China has tried to fill the investment vacuum in Bangladesh created by Western investors. In addition, China has followed a proactive foreign policy in the Bay of Bengal region to extend its strategic interest. Beijing’s effort to build a strong relationship with Bangladesh has been reinforced due to New Delhi’s lack of initiative to connect the potential of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) (Yasmin, 2019).

Over the last five years, from 2019 to 2023, the world has been facing a severe challenge due to the COVID-19 pandemic, described as a major crisis that the world has seen since World War II (Hossain et al., 2023). The global crisis has further accelerated after the Russia–Ukraine war and Israel’s war against Hamas. Regarding South Asia, the China–India border disputes in 2021 have raised concerns for the smaller South Asian states, such as Bangladesh concerning their mode of relations with the two great powers— China and India. In this regard, researchers and academia have raised concerns and questions on non-economic motivation of the Chinese growing investment in Indian closed neighbouring country like Bangladesh. Beijing’s increasing investment interest in the strategic sector and military linkage with Bangladesh has heightened this concern. This research aims to understand Beijing’s initial design for its strategic investment intention in Bangladesh. In this context, the key focus of this article is to investigate the questions: What does Beijing seek to accomplish through investment? Do geostrategic considerations drive Chinese investment statecraft in Bangladesh?Is the India factor crucial behind the ever-increasing Chinese investment footprint in Bangladesh? This study claims that along with economic incentives, non-economic issues such as security and strategic competition with India are the significant determinants of the Chinese increasing investment footprint in Bangladesh, which is beyond the notion of win–win cooperation enhancing China’s regional status and leadership in South Asia.

For its market expansion and strategic presence, Beijing has snowballed its investment in the smaller South Asian countries. This study promises to contribute to the literature on the Chinese political economy, providing a theoretically nuanced treatment of Chinese investment statecraft concerning neoclassical realism.

This article is divided into nine sections. After the introduction Section I, the study begins with a literature review in Section II. Section III discusses the changing dynamics of China–Bangladesh relations. The theoretical and conceptual framework of geostrategy of Chinese investment is outlined in Section IV. The methodology is presented in Section V. The trend and sector of Chinese investment are discussed in Section VI. The geostrategic factors of Chinese investment are analysed in Section VII. Section VIII examines Bangladesh–China relations in the light of ‘bandwagoning’ and ‘balancing’ theories. The article concludes by discussing the overall geostrategic reasons and issues of Chinese investment in Bangladesh with some recommendations.

II. Literature Review

Since establishing diplomatic relations, China and Bangladesh have developed bilateral cooperation based on mutual trust and interests (Uddin & Bhuiyan, 2011). China’s economic ties with Bangladesh have evolved primarily through trade, investment and lending. Several studies (Malik, 2004; Sahoo, 2013) mention that Sino-Bangladesh economic relations have expanded based on their mutual economic interest. China has contributed to Bangladesh’s economy by boosting local trade and business and constructing the country’s basic infrastructure. However, during the last decade, the surge in Chinese outbound investment in Bangladesh has been met with anxiety, often invoking national security concerns. There is speculation that the Chinese rise might create a geostrategic threat to Bangladesh as its investment statecraft has been directed by the strategic consideration to make a strategic balance with India. The speculation has increased through the recent China–United States competition over the Indo-Pacific strategy (Wei & Zhang, 2021). Under the US grand strategy, the security forum between the United States, Australia, India and Japan has created anxiety for Beijing as the Quad is intended to constrain the Chinese influence in the Indo-Pacific region (Li, 2020). In addition, asymmetrical interdependence leads to political influence (Wagner, 1988). Thus, there is a speculation that Bangladesh’s uneven economic relations with China might translate into Beijing’s geostrategic influence. In other words, Chinese investment in the South Asian smaller country—Bangladesh— is motivated by its strategic competition with India regionally and the United States globally (Chan, 2020).

The burgeoning literature on Chinese economic statecraft in Bangladesh focuses on the issues of labour cost, tariff and non-tariff barriers, productivity and environmental degradation. These studies explored that Bangladesh has attracted massive investment from Chinese companies due to its low labour cost, easy investment procedures and growing domestic market (Hussain, 2015; Malik, 2004; Nasrin, 1999; Uddin & Bhuiyan, 2011; Siu, 2019). This literature, however, has yet to resolve significant question: What are the geostrategic motives and factors driven the Chinese investment in Bangladesh? In the geostrategic aspect, a few studies (e.g., Kahandawaarachchi, 2015; Wang, 2011) highlight China’s strategic presence in Bangladesh; however, ignore the recent geopolitical dynamics concerning Sino-Bangladesh investment linkages. Based on this research gap, this study examines the geostrategic and security rationale behind growing Chinese investment in Bangladesh.

III. The Changing Dynamics of China–Bangladesh Relations

Despite fundamental contradictions in history, culture, ideology, language and ethnicity, Sino-Bangladesh has maintained a strong relationship. In 1971, China supported Pakistan and was hostile to Bangladesh till 1975. China accorded its recognition to Bangladesh on October 4, 1975 (Jain, 2017). Since then, Sino-Bangladesh relations have evolved and they have maintained good ties. In contrast, through military support, humanitarian aid and assistance, India provided the utmost support in the emergence of Bangladesh as an independent state. India sheltered 10 million Bangladeshi refugees, and 3,630 Indian army officers and soldiers sacrificed their lives during the war (Drong, 2016). Consequently, after independence, Bangladesh adopted a pro-Indian policy that continued until the regime change in 1975. After the assassination of Bangabandhu Sheikh Mujibur Rahman in 1975, the military government came to power, and Sino-Bangladesh relations steadily advanced from strength to strength, covering economic and military involvement. The military regimes, which lasted nearly 15 years (1975–1990), were better suited to China (Table 2). Sino-Bangladesh has come much closer to each other due to their mutual economic interest and shared strategic perceptions (Jain, 2017).

Besides, after the 1990s, Beijing and Dhaka maintained a warm relationship based on their shared economic interests. Most importantly, both countries’ Foreign Trade Agreement (FDA) has boosted their economic linkage. As an economic strategy, China has provided duty-free access to a list of Bangladeshi products in the Chinese market under the Bangkok Agreement, now called the Asia-Pacific Trade Agreement (Sahoo, 2013, p. 123). Consequently, China surpassed Indian trade in 2004 and became Bangladesh’s top trading partner (Sahoo, 2013; OEC, 2018).

The massive economic exchange In recent years, particularly from 2015 to 2019, has further boosted Sino-Bangladesh relations. China’s economic activities through trade, FDI and lending have become indispensable for the economic development of Bangladesh (Jain, 2017). Along with trade, China has become a significant investor in Bangladesh. Notably, after joining China’s BRI in 2016, Bangladesh has received huge Chinese investment through various mega infrastructure development projects. During Chinese President Xi Jinping’s visit to Dhaka in 2016, Sino-Bangladesh signed 27 agreements for investments and loans worth around US$24 billion. Chinese investment in Bangladesh stood at over US$38 billion, making it the country’s single largest investor (Ramachandran, 2019).

IV. Geostrategy of Chinese Investment: A Theoretical and Conceptual Framework

Chinese foreign policy has been driven by its economic prowess and BRI as China’s new grand strategy reshapes its global projection of power and influence (Beeson, 2018). The ‘neoclassical realism’ theory can explain the individual state behaviour linked with its core foreign policy (Foulon, 2015; Schweller, 1993). The ontology of neoclassical realism— ‘balancing’ and ‘bandwagoning’ can be applied to explain the Sino-Bangladesh relationship regarding its grand policy of BRI (Schweller, 2004). Balancing and bandwagoning are related to the capabilities of a state to achieve its foreign policy goals in another country (Figure 1). Balancing indicates a country’s alignment and association with the weaker state and bandwagoning with the powerful state (Walt, 2013, p. 21). The state chooses a bandwagoning policy to gain opportunities from the other state. Nonetheless, ‘the presence of a significant external threat, while required for the effective balancing, is unnecessary for states to band-wagon’ (Schweller, 1994, p. 74). Thus, in most cases, alliances or relations are based on the political goals of the countries rather than bandwagoning or balancing (Schweller, 1994). In recent years, Bangladesh has become a significant partner of China’s alignment in South Asia, boosting both country’s economic and strategic cooperation. As a traditional partner, India has a significant geostrategic and economic interest in Bangladesh, and both countries have maintained substantial relations over many years. As an India-locked country (Yasmin, 2019), Bangladesh cannot ignore its relations with its powerful neighbour like India. For maintaining two great powers, Bangladesh has followed a sort of bandwagoing relations with China by balancing with India. In addition, Beijing has tried to keep its robust relations with Bangladesh to make a balance against Indian traditional domination in the Indian Ocean region.

Figure 1.

China–Bangladesh Relationship.

Thus, small power’s (Bangladesh) policy to the great power (China) can be explained in two ways: trade-off I: independence/autonomy vs. security; and trade-off II: risk of abandonment vs. the risk of entrapment. Bangladesh has strived to reduce its economic and strategic dependence on India, giving trade-off Beijing, which has strengthened the Chinese investment footprint in the country to achieve its geostrategic goals. In addition, balancing and bandwagoning are linked with other factors such as hard power, geographical and strategic location and strategic intention of an individual state. Regarding this, Walt (2013) mentions that: ‘Because balancing and bandwagoning are more accurately viewed as a response to threats, it is essential to consider other factors that will affect the level of threat that states may pose: aggregate power, geographic proximity, offensive power, and aggressive intentions’ (Walt, 2013, p. 22).

As a weaker neighbour, Bangladesh has perceived India’s threat in its geostrategic calculation. Similarly, China has perceived India as a threat because of its border disputes and strategic alliance with the United States. Bangladesh does not want to jeopardise its core interests by taking one particular side in a great power rivalry (Maimuna, 2022). Sino-Bangladesh economic and strategic linkage has increased, considering common threats concerning India (Anwar, 2022). Bangladesh seems to follow the ‘balance of interest theory’ (Schweller, 1997) to build a robust relationship with China and maintain its traditional ties with India. China has taken the opportunity of anti-Indian sentiment and strengthened its investment footprint in Bangladesh.

Following Hans Morgenthau’s concept, Rohrlich (1987, p. 61) noted that ‘while states may sometimes pursue economic policies for their own sake (in which case they should take little interest in their success), the more important economic policies they will favor are instruments of political power’. Thus, in the line of realist geopolitical explanation of ‘power theory’, China has tried to expand its investment in Bangladesh to achieve its geostrategic goals (Rohrlich, 1987). The Asian Infrastructure Investment Bank (AIIB) and BRI are new instruments to attain China’s strategic goals (Haga, 2021). Under this theoretical framework, this study explores the geostrategy behind the Chinese investment in Bangladesh.

V. Methodology

Based on the research questions, this study uses qualitative methods, employing descriptive techniques to explore the strategic rationale behind the Chinese investment statecraft in Bangladesh. We employ the qualitative approach, which is suitable and widely used to explore the ‘impact and effect of current programs and practice’ (Denzin & Lincoln, 2011, p. 142). This study also uses document analysis since it is appropriate in qualitative studies for producing detailed descriptions of a single phenomenon. Document analysis helps to discover the meaning, understanding and insights of the Chinese strategic footprint through investment in Bangladesh (Bowen, 2009). Under document analysis, we follow the temporal criterion for searching and selecting the documents: Official documents on Chinese investment in Bangladesh issued from 1997 to 2023 were analysed. Time-series data and reports were collected and analysed from international organizations (e.g., UNCTAD, World Bank) and reports published by the Bangladesh Bank and Bangladesh Bureau of Statistics (BBS, 2016).

VI. The Trend of Chinese Investment in Bangladesh

Traditionally, the United Kingdom, United States and South Korea are the major investors in Bangladesh. Among them, the FDI inflow from the United Kingdom has been similar to the United States and South Korea. In 1997, the United Kingdom invested US$255.87 million, which increased to US$416.14 million in 2019. FDI flow from South Korea gradually increased until 2018 and reached US$179.8 million. However, it declined the following year again. FDI from Singapore has fluctuated. Singapore invested the most in 2011, which was US$1374 million. While the Chinese FDI inflow in Bangladesh was insignificant until 2010; however, it increased steadily in the following year. In 2019, Bangladesh attracted US$625.92 million in Chinese FDI, which increased from US$0.57 million in 1997. Due to the COVID-19 pandemic, investment flow from China has been reduced in the last two years and stood at US$93.24 million in 2023 (Figure 2).

Figure 2.

Source: Data compiled from various reports of Bangladesh Bank (2023).

Beijing has stepped into the vacuum left by the traditional investors in Bangladesh. Chinese investment in Bangladesh has continued through building friendship bridges with Chinese aid across Bangladesh since the 1980s. For example, China built the eighth Bangladesh–China Friendship Bridge Project in 2022 in the Southwest of Bangladesh (Xinhua, 2022). Moreover, China-funded the Padma Multipurpose Bridge, a 6 km bridge and rail link, has been opened to traffic and links to Bangladesh’s northern and southern regions. The Padma Multipurpose Bridge was constructed by a Chinese company with a US$3 billion loan from China’s Exim Bank as part of a larger plan to spend US$30 billion in Bangladesh’s infrastructure sector under BRI (Stacey, 2018).

According to the World Investment Report 2023, Bangladesh’s FDI rose from US$2.90 billion in 2021 to US$3.48 billion in 2022, showing a 20.2% growth rate (UNCTAD, 2023). Chinese investment and contracts in Bangladesh from 2005 to 2023 stood at US$30.77 billion (AEI, 2024).

On the other hand, India is one of the trusted and traditional economic partners of Bangladesh. Along with the second largest trading partner, India has become a significant investor in Bangladesh. In fiscal year 2023, India invested US$119.88 million (Bangladesh Bank, 2023), and total Indian investment in Bangladesh stands at more than US$3.11 billion and is expected to increase by US$9 billion in 2024.¹

Major Sector of Chinese FDI in Bangladesh

Traditionally, China invests in Bangladesh’s manufacturing sector, particularly garment and textile. However, in recent years, Chinese FDI has attracted the power sector in Bangladesh. Due to growing energy needs, China has tried to expand its FDI in developing countries’ natural resources and power sectors. Currently, China is the second-largest energy consumer in the world after the United States (Ren & Sovacool, 2014). China’s dependency on energy imports has been increasing; 30% of natural gas and 60% of its oil need to be imported from other countries (Andrews-Speed et al., 2014, p. 7). China’s FDI has increased in Bangladesh’s energy and power sector. In 2017, the US company, Chevron decided to sell its three gas fields in Bangladesh to China’s Himalaya Energy company, whose gas fields supply half of the country’s total gas output, valued at about US$2 billion (Das & Quadir, 2017). Regarding Chinese investment in the energy sector, Jain mentions that:

Chinese energy diplomacy aims to access Bangladesh’s vast untapped natural gas reserves. In addition, Bangladesh’s significance for China lies in its 160 million-strong market; its supply of cheap labour and the resulting potential as an outsourcing destination for Chinese manufacturing industries; its ports that offer an alternative route to lessen China’s dependence on the Straits of Malacca for energy supply; and its geographical proximity to China’s Yunnan Province, which will easily facilitate the supply of energy resources. (Jain, 2018)

In 2023, the highest FDI from China was in the textile and wearing sector of Bangladesh, which amounted to US$112.13 million or 51% of China’s total investment in the country. The power sector attracted the second-highest investment from China, US$74.85 million (Table 1).

In recent years, Bangladesh’s coal-fire sector has attracted more Chinese FDI. A report published by Bangladesh Bank in the first half of the fiscal year 2018–2019 stated that Bangladesh’s power and mega infrastructure sector had received around US$600 million in investment from Chinese companies. These included the 1,300-MW coal power plant in Chittagong and Patuakhali (Payra Seaport area). Besides, the third Chinese-backed power plant agreement was signed for a 1,300-MW coal project in Cox’s Bazar (Siddique, 2019). As the second-largest sector, the textile and wearing sector of Bangladesh attracted US$112.13million, followed by power US$74.85 (Table 1).

Table 1.

China’s FDI Inflows (Gross) in Bangladesh During 2023.

Major Sectors	Total Amount (in US$ Million)
Textile and wearing	112.13
power	74.85
Leather and leather products	9.55
Trading	8.29
Construction	4.10
Chemicals and pharmaceuticals	3.80
Other sectors	9.07

Source: Bangladesh Bank (2023).

Chinese FDI, therefore, has constantly increased in Bangladesh, which depicts China’s interest in the country’s power, clothing, construction and other sectors. In recent years, Chinese companies have been attracted to invest in Bangladesh’s strategic sectors, such as seaport and airport building. Several other strategic infrastructure projects have showed Beijing’s growing geostrategic interest in Bangladesh. Chinese economic activities, expressly trade, and investment have thus shown a growing trend in Bangladesh. About 400 Chinese companies are investing and doing business in Bangladesh, including 200 large companies and 200 small and medium enterprises (Siddique, 2019).

VII. Geostrategy of Chinese Investment in Bangladesh

Chinese foreign policy has changed and gone beyond its economic interest after President Xi Jinping came to power in 2012. There is a scepticism that the Chinese so-called ‘peaceful rise’ challenges the current world order economically, politically and militarily (Mearsheimer, 2019).

In recent years, the importance of South Asia has increased economically, politically and geo-strategically in world politics. Among the South-Asia countries, Beijing has had an important geostrategic consideration for Bangladesh and expanded its investment statecraft. Bangladesh is not an attractive country in South Asia regarding the business and investment. According to the World Bank’s Doing Business Ranking Report, 2020, Bangladesh ranked 168 out of 190 economies,² which is not attractive to foreign investors (World Bank, 2020). Then, what has attracted China’s investment in Bangladesh? Bangladesh has attracted FDI from China due to its advantages, such as cheap labour and duty-free excess to the Western countries. In addition, Chinese investment in Bangladesh can be viewed as its great geostrategic interest in the Indian Ocean region. As a rising global power, strategic and security considerations have become significant in China’s foreign investment statecraft. Due to the changing South Asia’s strategic and security architecture, Beijing has significant geopolitical considerations in its growing investment footprint in Bangladesh.

China’s dependency on imported oil, fuel and other raw materials has increased in recent years to sustain its economic growth and development. In this respect, because of the Indian Ocean, South Asia has become a vital sea lane of communication in China’s importation of energy, mineral and natural resources from the countries of the Middle East and Africa (Cheng, 2010).

The Indian Ocean “straddles Asia in the north, Africa in the west, Indochina in the east, and Antarctica in the south. Home to four critical access waterways—the Suez Canal, Bab-el Mandeb, the Strait of Hormuz, and the Strait of Malacca—the Indian Ocean also connects the Middle East, Africa, and East Asia with Europe and the Americas. (Pant, 2009, p. 279)

Moreover, the Indian Ocean is a significant sea lane of communication for China as it contributed to half of the global seaborne trade, where 20% of this trade consists of energy minerals and resources. In addition, about 40% of the world’s offshore oil production comes through the Indian Ocean from the Middle East and Africa (Pant, 2009, pp. 279–280).

The strategic location of Bangladesh serves Beijing’s regional goals and interests by providing China with a significant gateway to access the states in the Indian Ocean and Asia-Pacific region (Nordea Trade, 2019). Bangladesh’s easy access to the Bay of Bengal and the Indian Ocean, and its nearness to India have attracted China to expand its economic and strategic footprint (Jain, 2017; Pant, 2009). As a coastal state, Bangladesh has a good link with the Indian Ocean through the Bay of Bengal (Alam, 2019) and may contribute to the Chinese seaborne trade in South Asia. China imports over 85% of its total energy from the Middle East, and the African mineral resources transit through China’s ‘string of pearls’ ports in Sri Lanka, Bangladesh, and Pakistan (Mendis, 2013). Thus, over the last decade, China has increased its investment and tried to increase strategic infrastructure building in Bangladesh to strengthen its ties (Wolf et al., 2013).

China has become Bangladesh’s key military supplier; the country has been importing about 70% of the military equipment and hardware from China (Shamrat & Ali, 2018). Bangladesh imported US$1.9 billion worth of military equipment from China and became the second-largest Chinese arms importer in South Asia (Pubby, 2019). Hence, Beijing’s investment strategy towards Bangladesh has linked its economic interest with strategic consideration (Chen, 2014). In this regard, ‘Bangladesh–China relations rest on a mix of pragmatism, strategic ambiguity, and political accommodation. Bangladesh and China have built a deep interdependence which is tilting increasingly in China’s favour’ (Anwar, 2022).

India Factor in China–Bangladesh Investment Relations

Between 1970 and the early 1980s, China’s economic policy towards Bangladesh was mostly based on humanitarian aid and assistance. In 1978, high-level Chinese officials made their first visit, which set off improvements in bilateral economic relations. China–Bangladesh’s economic engagement further strengthened during the military regime (1980–1990), mainly through investment in the public sector (Anwar, 2022). After the end of the Cold War, India and the Indian Ocean have increasingly been significant factors in Chinese investment expansion in the South Asian region. Due to the geographic proximity, India has become a significant factor in China’s investment statecraft towards Bangladesh. During the 2000s, China followed an export-based economic strategy towards Bangladesh (Table 2). In recent years, under the BRI, the Chinese investment footprint in Bangladesh has emphasized mega infrastructure projects (Table 1). Strategic asset-seeking is one of the critical motivations of Chinese outward investments. From a realist viewpoint, China’s economic strategy concerning non-economic factors towards Bangladesh is mostly driven by its competition with India (Indraguptha, 2011; Jain, 2017).

Table 2.

China’s Key Economic Strategy toward Different Regimes of Bangladesh.

Regime	Ruling Party	Sino-Bangladesh Relationship			China’s Key Strategy	Remarks
Regime	Ruling Party	Political Relationship	Firm and Sectoral Relationship	Economic Relationship	China’s Key Strategy	Remarks
Sheikh Mujibur Rahman’s Regime (1972–1975)	BAL	Bangladesh tried to convince China to get membership in the UN	Feeble economic relations	China gave its first economic assistance to Bangladesh in 1974	Humanitarian aid-based strategy	Bangladesh’s government shifted its policy from the pro-Soviet Union to India due to post-war reconstruction help
Ziaur Rahman (1975–1981) and Military Regime led by Hussain Muhammad Ershad (1982–1990)	BNP and JP	Chinese president Li Ximannian visited Bangladesh in 1982 and 1986, fuelled both countries’ political and economic relations	China started its investment in the private sector	Sino-Bangladesh trade and investment increased through policies of free-market economy and privatization	Increased Chinese investment in private sector investment (e.g., RMG)	Sino-Bangladesh economic relations strengthened, along with a robust military tie against India
Begum Khaleda Zia 1^st Regime (1991–1996) and 2^nd Regime (2001–2006)	BNP	Chinese Premier Zhu Rongji visited Bangladesh in 2002	Boosted China’s trade and investment in the private sector	Snowballed trade and investment with new sectors	Export-oriented strategy with substantial trade deficits	Bangladesh followed a ‘Look East’ foreign policy with an anti-Indian attitude
Caretaker Government (2006–2008)		No specific policy	Low Chinese trade and investment	Decreased trade and investments	Same as the previous policy	Followed neutral economic and political relations with both China and India
Sheikh Hasina Regime (1st) (1996–2001) and Second Sheikh Hasina Regime (2008–present)	BAL	Maintained a good relationship with bothIndia and China President Xi Jinping visited Bangladesh in 2016	Public infrastructure and power sectors attracted huge investments	China emerged as the single largest trading partner and investor	Trade and investment-based strategy	Bangladesh has tried to maintain a balanced relationship with China and India

Notes: BAL = Bangladesh Awami League; BNP = Bangladesh Nationalist Party; JP = Jatiyo Party.

Under India’s neighbour-first policy, Bangladesh has been considered a significant country for its trade mobilization, mainly boosting the acceleration of its trade and investment in seven sister states. Bangladesh is also critical for India’s strategic ‘Siliguri Corridor’ and border security. Siliguri Corridor or ‘Chicken’s Neck’ is a significant stretch of road where India narrows to just 20 miles wide as it connects the mainland to the resource-rich states of the Northeast. The Siliguri Corridor is considered a lynchpin concerning the strategic great game between China and India. In this regard, Narendra Modi’s Look East policy has focused on speeding up strategic connectivity by building highways through this geo-strategically sensitive checkpoint as an alternative to land–sea routes (Middleton, 2023). In 2023, India, Bangladesh and Bhutan discussed the possibility of the Bangladesh–Siliguri–Bhutan corridor, which would enhance trade volume and strengthen security cooperation. On this ground, India is under tension over China’s strategic investment in Bangladesh. As an emerging great power with enormous potential, India would not compromise the Chinese strategic expansion in its backyard, which might negatively affect its economic and security interests. ‘Despite having much in common—as rising powers with nuclear weapons and large populations alongside a shared ambition of multipolarity—India and China regard each other with suspicion’ (Donnellon-May, 2023).

Expanding China’s security provider role in South Asia has increased its strategic interaction with India (Amighini et al., 2013). Beijing has pursued proactive diplomacy in Bangladesh’s security, defence and strategic sectors. In recent years, India has lost to China in many important economic sectors of Bangladesh, particularly investment. Jain (2017) stated:

Without exaggeration, the Beijing leadership under President Xi Jinping is ruthlessly engaged in multipronged diplomacy to encircle India through a sophisticated strategy offering massive economic aid to win over countries like Nepal and Bangladesh, which harbour anti-India biases for various reasons, notably India’s role as regional hegemon rather than a benign superpower of the region. (Jain, 2017, p. 119)

During the last decade, Beijing has constructed many infrastructures in Asia, Africa and other regions to gain strategic advantage and economic interests. Chinese strategic investments in South Asia have mostly covered the seaport and airport building, and some projects have created national security concerns in the region (Horsley, 2018).

Under China’s strategy of ‘String of Pearls’ policy, Beijing has been building several critical strategic naval infrastructures in the Indian Ocean region (Holmes, 2013; Wolf et al., 2013). China has been building strategic seaports in South Asia, such as Gwadar in Pakistan, Hambantota in Sri Lanka and Payra in Bangladesh. China’s seaport building has drawn much security attention, expressly from India, since this initiative would be a potential site for China’s naval presence in the Arabian Sea and the Indian Ocean region (Fairman, 2019; Kahandawaarachchi, 2015). Under the 21^st Century Maritime Silk Road, China has shown interest in investing in deep seaport building in Bangladesh (Brewster, 2020), countering India’s dominance in South Asia (Mearsheimer, 2014).

Moreover, China’s energy security, that is, secure energy supply through the Indian Ocean, has motivated its naval construction investments in Bangladesh (Pant, 2010). For example, along with the Gwadar Seaport building in Pakistan, China renovated the Chittagong Port to facilitate its entry into the Bay of Bengal (Ahmad et al., 2017). China Harbor Engineering Company (CHEC) invested in a 750-acre industrial estate in Chittagong Seaport, mainly for Chinese industrial firms. After five years, it will be fully operational. CHEC holds a 70% share in this joint venture project with the Bangladesh Special Economic Zone Authority (Quadir, 2018).

The CHEC and China State Engineering and Construction Company have built Payra Seaport with US$15 billion, one of the China BRI-backed mega projects in Bangladesh. India expressed concern over Chinese investment in the Payra Seaport for strategic and security reasons. Indian news agency, ANI published one article in April 2019 warning that the Payra Seaport of Bangladesh could fall into Chinese hands and be used against the Indian strategic interests in the region (Fairman, 2019).

China has started several other strategic infrastructure buildings in Bangladesh, and others have been proposed. Beijing has proposed building a new strategic seaport at Chittagong and Sonadia (a strategic tiny island on the southeastern coast of Bangladesh; Table 3). However, because of New Delhi’s objections and concerns, the Bangladeshi government has not approved these projects (Brewster, 2019).

The Belt and Road Initiative (BRI) and Chinese FDI in Bangladesh

The BRI, which was inaugurated by Chinese President Xi Jinping in 2013, has become China’s significant economic and foreign policy (Tsui et al., 2017). Chinese BRI consisted of two mega initiatives—the Silk Road Economic Belt and the 21^st Century Maritime Silk Road initiatives (Swaine, 2015). China intends to expand its connectivity through the BRI, covering Southeast Asia, Africa, Europe and South Asia. Beijing has been using BRI as a grand strategy towards South Asia and beyond to strengthen its geo-economic presence (Jain, 2018; Swaine, 2015). Bangladesh is one of the core participants in both of these initiatives, and China is considered a most welcome player in its development (Shamrat & Ali, 2018). Besides, the sub-regional connectivity projects under the BRI and BCIM economic corridor have intended to connect the land-locked provinces of Southwest China with Eastern India and the Bay of Bengal through the Northern part of Myanmar, the Northeast region of India and Bangladesh. Since 2016, Bangladesh’s government has received colossal lending and investment through the BCIM economic corridor. During Chinese President Xi Jinping’s visit to Bangladesh on 14 October 2016, China pledged to fund several mega projects in Bangladesh. For example, Beijing signed 15 agreements and Memorandum of Understanding (MoUs) and 12 loans and mutual agreements with Bangladesh. Among these agreements, the most major was—US$21.5 billion for 28 development projects in Bangladesh and US$80.3 million in aid as economic and technical cooperation. Besides, Chinese companies invested US$700 million in constructing the Karnaphuli Tunnel in the southern mountainous part of the country. In addition, China provided US$280 million for the Dashekandi Sewerage Treatment Plan Project and US$3.86 billion for the building of the Padma Bridge (the largest river bridge) in Bangladesh (Mahmud, 2022; Shamrat & Ali, 2018). China’s BRI-backed projects in Bangladesh are valued at over US$10 billion (Brewster, 2019). Chinese investment strongly implies India’s traditional economic footprint in Bangladesh. It is quite pertinent to mention that:

China’s economic expansion in the region has strategic repercussions for India. From this angle, the benefits from Chinese economic involvement are not inclusive. As far as the future of Chinese investments is concerned, China’s own economic stability and prosperity will be a crucial determining factor. (Jain, 2018, p. 32)

Some Chinese BRI-backed projects in Bangladesh have raised questions regarding debt sustainability and strategic concerns (Table 3). Bangladesh received loans from China that have relatively short grace and maturity periods. Generally, the grace period for the World Bank is 10 years, while in the case of Chinese loans, it is 5 years (Islam, 2023). Due to the increasing borrowing through BRI-backed projects, Bangladesh has a potential risk of falling into a debt trap (Fakir & Islam, 2019). In addition, along with sovereignty and geostrategic issues, negative environmental impacts have been firmly attached to the Chinese BRI-backed project in recipient countries (Ejaz & Jamil, 2022). However, compared to Sri Lanka, Pakistan and some Sub-Saharan African countries such as Djibouti and Angola, most of the China-backed projects in Bangladesh are productive as the government took the projects based on economic feasibility rather than political considerations. According to the Ministry of Finance, Bangladesh’s external debt stock as of 2022 is dominated by multilateral sources with 60% of the total debt, and bilateral sources hold 40%. Regarding external debt stock as of 2022, Japan became the leading development partner of Bangladesh with 45% of external bilateral debt, followed by China (22%), Russia (22%) and India (4%) (Table 4).

Table 3.

Chinese Strategic Projects in Bangladesh.

Name of the Projects	Amount (in US$ Million)	Status	Concern of India
Teesta River Comprehensive Management Project	US$983 (estimated)	Waiting for the signing of an MoU³	Expand enhance strategic advantage of China against India
Payra Seaport	US$15 billion	Ongoing	Fears of maritime encirclement
Sonadia Deep-Sea Port Project		Proposed	Increase China’s strategic ambitions in the Indian Ocean
Expansion and modernization of Mongla Port facilities’ project	US$400	Ongoing	Strategic project for BRI
Renovation of the Chittagong port	US$9		Significant port for China’s String of Pearls strategy
Construction of submarine base	US$1.2 billion	Completed	Threaten to the Indian naval security architecture
Karnaphuli Tunnel	US$700	Completed	Strategic project of China’s BRI

Table 4.

Percentage of External Debt by Different Bilateral Sources in 2022.

Country	Share (%)
Japan	45
China	22
Russia	22
India	4
South Korea	3
France	2
Others	2

Source: Quarterly Debt Bulletin (2022). Finance Division, Ministry of Finance Bangladesh.

On the other hand, regarding multilateral debt stock as of 2022, IDA became the leading development partner of Bangladesh with 54% of external bilateral debt, followed by the ADB (39%), IDA (2%) and AIIB (2%) (Table 5). As of June 2022, Bangladesh’s foreign debt to GDP was only 20.5%. In addition, Bangladesh’s total external debt at the end of June 2023 was US$98.94 billion, and its total debt obligations to China now stand around US$17.5 billion or less than 10% of its external debt (Islam, 2023; Bangladesh Bank, 2023) which prove Bangladesh debt to China falls way below any fiscal threshold of a ‘debt trap’. According to the IMF and World Bank Debt Sustainability Framework, Chinese debt and investments in Bangladesh are still manageable compared to other South Asian countries (Bhattacharya & Ashraf, 2018).

Table 5.

Percentage of External Debt by Different Multilateral Sources in 2022.

Multilateral Institution	Share (%)
IDA	54
ADB	39
IDB	2
AIIB	2
IFAD	1
OPEC	1
Others	1

Source: Quarterly Debt Bulletin (2022). Finance Division, Ministry of Finance Bangladesh.

Notes: ADB = Asian Development Bank; IDA = International Development Association; IDB = Islamic Development Bank; AIIB = Asian Infrastructure Investment Bank; IFAD = International Fund for Agricultural Development; OPEC = The Organization of the Petroleum Exporting Countries.

VIII. Bangladesh–China Relations in the Light of Bandwagoning and Balancing

In recent years, Beijing has been active in Bangladesh’s domestic affairs. China may play a significant role in shaping Bangladesh’s foreign policy, as the country’s dependency on Beijing has been enormous in recent years. China intensely observes Bangladesh’s relationships with India and the United States. In 2021, the Chinese ambassador to Bangladesh, Li Jimming, expressed concern over the Quadrilateral Security Dialogue (Quad), an informal strategic alliance between the United States, India, Japan and Australia. Mr. Li Jimming mentioned, ‘We don’t want any form of participation of Bangladesh in this alliance’. He further said if Bangladesh joins the Quad ‘it will “substantially damage” bilateral relations between Bangladesh and Beijing’ (Bhattacharjee, 2021; Islam, 2021). However, Bangladeshi former Foreign Minister A. K. Abdul Momen indicated a balancing strategy and mentioned that ‘we are an independent and sovereign state. We decide our foreign policy. Any country can uphold its position. But we will take decisions considering the interest of people and the country’ (Islam, 2021). Bangladesh’s government assured Beijing that Dhaka has no plan to join the US-led Quad. In this regard, Bangladesh has tried to follow the ‘bandwagoning’ and ‘balancing’ strategies with China, the United States and India to achieve its foreign policy goals.

The recently changing geopolitical architecture in the Indo-Pacific region has pressured Bangladesh’s strategic relationship with China and the United States. Bangladesh is also one of the South-Asian countries that strongly support the ‘One China Policy’ (Ranjan, 2019). On 6 August 2022, Chinese foreign minister Wang Yi visited Bangladesh. The Chinese foreign minister mentioned Bangladesh as a strategic partner during his visit (Alam, 2022). One the other hand, Bangladesh’s government support ‘a free, open, peaceful, secure, and inclusive Indo-Pacific for the shared prosperity for all’.⁴ In geopolitical reality, Bangladesh is a sandwiched country between China, the United States and India (Karim, 2022).

The growing economic needs push Bangladesh closer to Beijing. During the 1990s, Western donors started to impose good governance conditions for new loans to developing nations like Bangladesh. However, the ‘string of attached’ concerning good governance is optional for getting the Chinese loan and investment. Because of the fewer conditions for good governance, getting Chinese loans for developing countries is easier than the Bretton Woods Institutions—the IMF and World Bank (Ahmed, 2018). In addition, Chinese investment has increased in contrast with the Indian hegemonic posture, hard power tactics and resource scarcity. Moreover, Bangladesh preferred Chinese investment due to its non-interference policy in country’s domestic politics. Regarding this, the worries of New Delhi have accelerated and Bangladesh may follow the same direction as some other smaller states, such as Sri Lanka and Nepal, hedging towards China (Anwar, 2022).

However, regarding some significant geopolitical issues, such as resolving the Rohingya refugee crisis, Bangladesh needs support from both Beijing and New Delhi (Alam, 2022; Bhattacharjee, 2021). In this respect, Bangladesh strived to maintain an alliance with China and India to continue its economic development and reduce the risk from geostrategic competition between the two rivals. Bangladesh foreign policy can be described as a three-way balance between China, India and the United States. Bangladesh has considered the United States as a strategic ‘third-way-balancer’ and asked for economic help from Washington and support in international organizations to minimize its tension and lessen Bangladeshi dependence on Beijing and New Delhi (Anwar, 2022). Munshi Faiz Ahmad, Bangladeshi ambassador in Beijing, said: ‘To us, China is very important. We also need to maintain good relations with both India and the United States as they are also very important development partners of Bangladesh. There is nothing to be afraid of because of Bangladesh’s close ties with China’ (Alam, 2022).

Therefore, in a geostrategic reality, Bangladesh has maintained its economic and diplomatic relations with China and India by applying ‘bandwagoning’ and ‘balancing’ theory. Bangladesh cannot ignore China or India, as its manifold engagement covers economic and military affairs with these countries. Chinese growing investment in Bangladesh cannot be separated from its strategic interests. Undoubtedly, huge Chinese investment will inevitably generate significant geostrategic repercussions in Bangladesh, where geopolitical contestations between China and other major powers, particularly India, are already on the rise.

IX. Concluding Remarks

A global consensus is forming about China’s threat and assertiveness in its relations, particularly with Asian neighbours (Broomfield, 2003; Diplomat, 2015). This speculation has grown due to growing Chinese strategic investment in developing countries, particularly in Africa and Asia, and Beijing has strived to improve its global image (Hossain, 2021). Chinese strategic engagement with Pakistan, Sri Lanka and recently Bangladesh has raised the question of Beijing’s increasing geostrategic intention in South Asia. Notably, Chinese strategic port-building initiatives and emergence as a critical military supplier for the smaller South Asian states have raised concerns about India’s traditional regional domination. Beijing’s initiative to enhance its military strength in Bangladesh by providing defence supplies and strategic infrastructure building appeared to indicate that China has a long-term strategic interest in the country, driven mainly by the factors of India and the United States. Excluding India, Bangladesh has no strategic linkage and dependence on other South-Asian states. China’s economic footprint could diminish India’s traditional influence over Dhaka. In this regard, Chinese investment footprint in Bangladesh has been driven by several issues and factors: first, the market expansion for Chinese goods and products. China wanted to use the economic advantages of Bangladesh, such as low labour prices and duty-free access to the Western markets. Second, Bangladesh provides a geostrategic advantage to Beijing’s strategic presence in the South Asian region, providing easy access to the Indian Ocean via the Bay of Bengal, which can help to counter the United States. Indo-Pacific strategy in the region. Third, China’s energy security related to the sea lane of communication in the Indian Ocean has influenced its investment statecraft towards Bangladesh. Bangladesh has been considered one of the significant strategic countries in the Chinese String of Pearls strategy intended to reduce the Indian strategic naval power in the Indian Ocean region. Fourth, India’s hegemony in South Asia has also determined China’s investment ties with Bangladesh. The Sino-Indian bloody border clash in 2020 has further expanded Beijing’s geostrategy intention of investment in the Indian strategic neighbour like Bangladesh.

In summary, the Chinese economic statecraft in Bangladesh cannot be separated from its strategic interests. Through the investment, Beijing wanted to build strong political and military support in Bangladesh to further increase its strategic influence. The recent Israel–Hamas war, Taiwan tension and the Russia–Ukraine war would have strongly motivated Chinese geostrategic consideration of investment, particularly in its rival’s neighbour.

However, in the face of growing rivalry between the great powers, Bangladesh has faced challenges balancing imperative to China and India. Bangladesh needs to follow prudent policy to maintain Chinese investment flows and be careful about the strategic foreign investment projects. Bangladesh can attract more investment from other countries, particularly Western countries to make a balance over the Chinese growing investment footprint in the country. Projects from other countries can lessen Bangladesh’s geostrategic threat from China concerning India.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

Notes

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