#1BELT AND ROAD INITIATIVE: WHAT ARE BANGLADESH'S INTERESTS? Presented at the International Conference on Belt and Road Initiative Positioning Bangladesh within Comparative Perspectives Presented by Fahmida Khatun Executive Director Centre for Policy Dialogue (CPD) POLICY DIALOGUE CENTRE FOR Dhaka: 8 September 2019#2CENTRE FOR POLICY DIALOGUE Team and Acknowledgements Team Member Syed Yusuf Saadat Research Associate, CPD Acknowledgements Research team gratefully acknowledges the guidance provided by Professor Rehman Sobhan, Chairman, CPD, Dr Debapriya Bhattacharya, Distinguished Fellow, CPD, and Professor Mustafizur Rahman, Distinguished Fellow, CPD. We thank Ms Sharmin Akter Jahan, Intern, CPD for research support. Belt and Road Initiative & Bangladesh 2#3Outline 1. Understanding the Belt and Road Initiative 2. Financing Mechanism of BRI 3. Linkages between BRI and Global Goals 4. Bangladesh in the Belt and Road Initiative 5. Infrastructure Connectivity 6. Unimpeded Trade 7. Financial Integration 8. Cultural Exchange 9. Challenges 10.China's Response to Challenges 11. Conclusions and Way Forward for Bangladesh CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 3#41. Understanding the Belt and Road Initiative Belt and Road Initiative & Bangladesh 4#51. Understanding the Belt and Road Initiative • • CENTRE FOR The Chinese President Xi Jinping launched both the Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives in 2013. Afterwards, these were renamed as the Belt and Road Initiative (BRI). Also known as the New Silk Road, the BRI is an ambitious infrastructure project which stretches from East Asia through Europe. The initiative's objective is to build connectivity and cooperation across six main economic corridors. These are: (1) New Eurasia Land Bridge; Bridge; (2) China-Mongolia-Russia Economic Corridor; (3) China-Central Asia-West Asia Economic Corridor; (4) China-Indochina Peninsula Economic Corridor; (5) China-Pakistan Economic Corridor; and (6) China-Bangladesh-India-Myanmar Economic Corridor. POLICY DIALOGUE Belt and Road Initiative & Bangladesh LO 5#6CENTRE FOR 1. Understanding the Belt and Road Initiative POLICY DIALOGUE China's One Belt, One Road NETHERLANDS GERMANY Duisburg LATVIA Riga Moscow Rotterdam Venice ITALY RUSSIA Kiev KAZAKHSTAN UKRAINE Almaty Khorgos Urumqi GREECE Athens Istanbul TURKEY Lianyungang Kashgar CHINA Zhengzhou Xi'an Lanzhou PAKISTAN BANGLADESH Chengdu Wuhan Suez Chongqing Canal Gwadar EGYPT Persian Gulf Chittagong Quanzhou INDIA MYANMAR Beihai Kolkata Hanoi Guangzhou Kyaukpyu Haikou VIETNAM DJIBOUTI SRI LANKA Colombo Hambantota MALAYSIA Silk Road Economic Belt ........ Maritime Silk Road initiative KENYA Indian Ocean Lamu Belt and Road Initiative & Bangladesh Kuala Lumpur Jakarta INDONESIA SINGAPORE STRAITS TIMES GRAPHICS 6#71. Understanding the Belt and Road Initiative . ● ● Through the BRI, China intends to engage in the global economy mainly through investments in infrastructure. Five major goals of the BRI are: policy coordination; infrastructure connectivity; unimpeded trade; financial integration; and people-to-people collaboration. China plans to rebuild the land network connecting China to Europe via Central Asia ('One Belt') and the maritime route from China to Southeast Asia, South Asia, the Middle East and Eastern Africa ('One Road'). By the end of July 2019, 136 countries and 30 international organisations had signed 194 cooperation documents with China to build a "Belt and Road” cooperation document. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 7#81. Understanding the Belt and Road Initiative • • • • CENTRE FOR The Silk Road Economic Belt and the 21st Century Maritime Silk Road span across the territories of 72 countries, which covered 66.09 per cent of the world population and 33.65 per cent of the global Gross Domestic Product (GDP), as of 2018. The BRI has generated a lot of discussion and speculation across the world. Many least developed and developing countries which are in need of infrastructures such as roads, railways, ports and other infrastructure, have welcomed BRI investments. Though the BRI aims to promote regional cooperation through investment, it is seen as China's a plan to strengthen its influence in the region. There is opposition in some participating countries, as costs of many proposed projects have risen substantially. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 8#92. Financing Mechanism of BRI Belt and Road Initiative & Bangladesh 6#102. Financing mechanism ● CENTRE FOR Institutions that finance BRI include China Development Bank, China Exim Bank, Agricultural Development Bank of China, Industrial and Commercial Bank of China, Bank of China, Silk Road Fund, China Construction Bank, New Development Bank (NDB), China Export and Credit Insurance Cooperation, and Asia Infrastructure Investment Bank (AIIB). • Following • POLICY DIALOGUE the BRI announcement, the Chinese government established the Silk Road Fund in December 2014 with USD40 billion. The AIIB was established in January 2016. The AIIB approved USD 1.73 billion by the end of 2016 (AIIB, Approved Projects). Belt and Road Initiative & Bangladesh 10#112. Financing mechanism ● • • By the end of 2015, China Exim Bank had provided more than USD 80 billion to 49 countries for BRI-related projects. China Development Bank had supported 37 countries for BRI projects, totalling an amount of USD 110 billion by the end of 2015. The AIIB has been co-funding projects with international funding organisations, such as the World Bank and the Asian Development Bank. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 11#123. Linkages between BRI and Global Goals Belt and Road Initiative & Bangladesh 12#13CENTRE FOR POLICY DIALOGUE 3.1 Achieving SDGs through BRI BRI approach SDGs Reduction of poverty through economic growth Goal 1, Goal 10 Goal 9 Goal 7 Infrastructure connectivity Energy modernisation Focus on green and low- carbon development Focus on people's livelihood through economic growth: employment, health, education, etc. Goal 6, Goal 12, Goal 13, Goal 14 and Goal 15 Goal 2, Goal 3, Goal 4, Goal 5, Goal 8, Goal 11 and Goal 16 Source: Authors' compilation based on Honghui & Ting, 2016. Belt and Road Initiative & Bangladesh 13#143.2 Paris climate agreement and BRI • . • China is a signatory of the Paris Agreement on climate change. It is gradually aiming to move towards more sustainable infrastructure. It has taken the lead in international discussions on climate change by committing to fulfil the Paris Agreement. China has also heavily invested in solar and wind power industries. As a result, in the past decade global prices of renewable energy had fallen sharply. However, reliance on fossil fuel to implement BRI projects may be contradictory to its climate commitment. Two leading Chinese banks, namely the China Development Bank and the Export-Import Bank of China have invested about USD 244.2 billion globally and USD 186.3 billion in BRI regions in energy between 2000 and 2018; approximately three-quarters of this went to oil, coal and gas. China can use more special funds to green opportunities, that would bring in positive impact on green growth in the BRI countries. A study by World Resource Institute estimated that just 25 per cent of BRI special funds would be equivalent to more than USD 28 billion additional dollars for climate finance in BRI countries. This will make China a major player for low carbon development in the BRI regions. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 14#154. Bangladesh in the Belt and Road Initiative Belt and Road Initiative & Bangladesh 15#164.1 Bangladesh in the BRI • • Bangladesh is connected with the BRI initiative through the BCIM economic corridor which was formally endorsed during the first inter- governmental study group meeting held in December 2013 in Kunming. The corridor covers 1.65 million square kilometres and includes about 440 million people. It connects China's Yunnan province, Bangladesh, Myanmar, and Kolkata in India, through road, rail, water and air linkages. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 16#174.1 Bangladesh in the BRI ● ● CENTRE FOR POLICY DIALOGUE It may be mentioned here that economic cooperation within the BCIM region was promoted by Professor Rehman Sobhan, Chairman of the Centre for Policy Dialogue (CPD), Bangladesh. His pioneering ideas eventually led to the development of the platform in the 1990s, known as the "Kunming Initiative“, which later on came to be known as the BCIM Forum. Under his leadership, CPD later on pursued various activities to promote greater collaboration in the region. During the 11th BCIM Forum organised by CPD in 2013, a car rally was coincided which started in Kolkata and completed in Kunming, popularly coined as K2K Car Rally. Belt and Road Initiative & Bangladesh 17#184.1 Bangladesh in the BRI • . · Indeed, research conducted at CPD at least 14 years before the BRI showed that there existed significant economic complementarity between Yunnan province of China and the South Asian countries of Bangladesh, India and Myanmar. ● • Rehman Sobhan (2000). Rediscovering the Southern Silk Route. CPD and University Press Limited, Dhaka. Rehman Sobhan (1999). Transforming Eastern South Asia: Building Growth Zones for Economic Cooperation, CPD and University Press Limited, Dhaka. These studies found that improved infrastructure connectivity and increased international trade would be mutually beneficial for all countries in the region. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 18#19CENTRE FOR POLICY DIALOGUE 4.2 BCIM in the BRI China in red; Members of the Asian Infrastructure Investment Bank in orange; The six Belt and Road corridors in black; Maritime silk road in blue. Belt and Road Initiative & Bangladesh 19#204.2 BCIM in the BRI • • BCIM had the ambition to build regional cooperation through building economic corridor connecting the sub-regions of South Asia, Southeast Asia and East Asia. Connectivity through the BCIM economic corridor has the potential to benefit North East Indian states through trade with Yunnan province. Bangladesh can also benefit through linkages with North East Indian region and Yunnan. BCIM has also the potential for benefiting from the blue economy and international maritime trade through the Bay of Bengal, the Indian Ocean and the Andaman and Nicobar Islands. In order for BRI to be successful, operationalization of the BCIM is crucial. With India outside the BRI implementation of BCIM is also uncertain. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 20#214.3 Materialising BRI in Bangladesh • • A number of measures have been rolled out to materialise the ideas embedded in the BRI. During the visit of the Chinese President to Bangladesh in October 2016, an understanding was reached as regards implementation of various government-to-government (G2G) and business-to-business (B2B) projects. In total China promised about USD 40 billion investment in Bangladesh. • • USD 24.45 billion in bilateral assistance for infrastructure projects USD 13.6 billion in joint ventures • In addition, USD 20 billion in loan agreements was committed. ⚫ In 2016, Bangladesh and China signed eight (8) projects costing more than USD 9.45 billion financed by China. This include: Padma Bridge rail link worth USD 3.3 billion; the power plant in Payra worth USD 1.9 billion; digital connectivity worth USD 1 billion; power grid network strengthening project worth USD 1.32 billion. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 21 21#224.3 Materialising BRI in Bangladesh • • Toll Roads Bangladesh's first toll road project was signed on 6 December 2018. The Government of Bangladesh signed a contract with a China-Bangladesh consortium to upgrade the 48 kilometres Dhaka Bypass Road to a dual carriageway. The objective is to improve connectivity between the north and northwest parts of Bangladesh and the Chattogram Port. This toll road is only one of the many transportation projects which China is investing in Bangladesh. During 2009-2019, China has invested an estimated USD 9,750 million in various transportation projects in Bangladesh. Energy and Power • • Large Chinese FDI is observed in the power sector of Bangladesh. China has invested around USD 11,510 million in the power and energy sector of Bangladesh during the period 2009-2019. Investment in coal power constituted of USD 6,390 million or 55.52 per cent of the total Chinese investment in the power and energy sector of Bangladesh. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 22#234.3 Materialising BRI in Bangladesh . The Zhejiang Jindun Pressure Vessel Co Ltd of China has proposed to invest USD 5 billion in one zone to build up heavy industry in Chattogram, including establishing a 2.6-gigawatt power plant. SEZ for Chinese Investment • . As part of Bangladesh government's initiative on establishing Sepecial Economic Zone (SEZ), Chinese Economic and Industrial Zone (CEIZ) is being developed in Anwara Upazilla of Chattogram district on a land of 783 acres. State-run China Harbour Engineering Company holds 70 percent share in the joint venture. CEIZ will be the first specialized G2G economic zone. Financial Sector Agreement has been reached between the Dhaka Stock Exchange and the Shanghai Stock Exchange and Shenzhen Stock Exchange. According to the agreement DSE would sell 25 percent stake to the Shanghai and Shenzhen Stock Exchange for USD 119 million in May 2018. The Chinese consortium also agreed to provide technical support equivalent to USD 37 million. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 23 23#245. Infrastructure Connectivity Belt and Road Initiative & Bangladesh 24#25CENTRE FOR POLICY DIALOGUE • between the infrastructure investment needs and the current trends of infrastructure investment in Bangladesh is predicted to be more than 1 percent of GDP. 5.1 Infrastructure gap in Bangladesh Due to the rapid pace of growth of the Bangladesh economy, the infrastructure investment needs as percentage of GDP expected to fall in the coming years. However, the a is difference Percentage of GDP 8 7 6 10 5 + 32 Figure: Infrastructure investment in Bangladesh, current trends vs. need (% of GDP) Belt and Road Initiative & Bangladesh 2007 2012 2017 2022 2027 -Current trends -Investment need Source: Authors' illustration based on data from Global Infrastructure Hub, available at https://outlook.gihub.org/countries/Bangladesh 25 2032 2037#265.2 Sector-wise infrastructure gap • Sectoral decomposition of investment infrastructure needs shows that the greatest need for and investment in Bangladesh are in the energy transport sectors. Percentage of GDP Figure: Sector-wise infrastructure investment need (% of GDP) 3 2.5 21 1.5 • Predictions show that in 2040, infrastructure investment needs of the energy and transport sectors will be around 1.5 percent and 1 percent of GDP. CENTRE FOR POLICY DIALOGUE 0.5 -Energy -Telecommunication -Water Transport(Road, Rail, Airport, & Ports) Source: Authors' illustration based on data from Global Infrastructure Hub, available at https://outlook.gihub.org/countries/Bangladesh Belt and Road Initiative & Bangladesh 26#275.3 BRI's role in filling the . The largest proportion of BRI projects in Bangladesh are in the energy and transport sectors. Thus, BRI effectively and efficiently fills in the infrastructure gaps in Bangladesh. Sector gap Figure: Sector-wise BRI Construction Contracts in Bangladesh (as % of total investment), 2009-2019 Technology 0.96% Chemicals 2.14% Utilities 4.65% Energy 36.24% CENTRE FOR POLICY DIALOGUE Transport 0% 56.01% 40% 20% 60% Percentage of all construction constracts Source: Authors' illustration based on data from China Global Investment Tracker. Available at http://www.aei.org/china-global-investment-tracker/ Belt and Road Initiative & Bangladesh 27#286. Unimpeded Trade Belt and Road Initiative & Bangladesh 28#29• 6.1 Top export partners of Bangladesh Over the past ten years, exports to the USA have grown slower than exports to Germany. • As • • 1,400 1,200 to 1,000 800 result, exports a Germany in Q1 of 2019 was almost as high as exports to the USA. China had not been one of the traditional markets for Bangladeshi exports. China was in the tenth position in Bangladesh's destination. CENTRE FOR POLICY DIALOGUE case of export 600 400 200 Figure: Bangladesh's exports (FOB) to partner countries, in million USD 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 201003 2011Q1 2011Q3 2012Q1 2012 Q3 www 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 2018Q1 2018Q3 2019Q1 -United States -United Kingdom -China, P.R.: Hong Kong -Germany China, P.R.: Mainland -Taiwan Province of China Source: Authors' illustration based on data from Direction of Trade Statistics (DOTS). Available at: https://data.imf.org/?sk=9D6028D4-F14A-464C-A2F2-59B2CD424B85 Belt and Road Initiative & Bangladesh 29#30CENTRE FOR POLICY DIALOGUE 6.2 Top import partners of Bangladesh • Since Q3 of 2010, China has become the biggest import partner for Bangladesh, Figure: Bangladesh's imports (CIF) from partner 4,000 countries, in million USD 3,500 3,000 2,500 2,000 1,500 Million USD overtaking the place previously held held by 1,000 500 O India. 2008Q1 2008Q4 2009Q3 2010Q2 2011Q1 2011Q4 2012Q3 2013Q2 2014Q1 2014Q4 2015Q3 2016Q2 2017Q1 2017Q4 2018Q3 China, P.R.: Mainland →Singapore -Taiwan Province of China Year/Quarter -India United States China, P.R.: Hong Kong Source: Authors' illustration based on data from Direction of Trade Statistics (DOTS). Available at: https://data.imf.org/?sk=9D6028D4-F14A-464C-A2F2-59B2CD424B85 Belt and Road Initiative & Bangladesh 30#316.3 Top trading partners of Bangladesh in 2018 . • In 2018, China was the largest trading partner of Bangladesh with a share of 18.94 per cent of total trade. This was almost double the amount of trade Figure: Largest trading partners of Bangladesh in 2018 20% 18% 18.94% 16% 14% 12% 10% 9.75% 8.50% 7.90% 8% 6% than the trade with the 4.16% 4% USA and combined. Germany 2% 0% China India United States of America Germany United Kingdom with India and more CENTRE FOR POLICY DIALOGUE Source: Authors' illustration based on data from International Trade Centre Trade Map. Available at https://www.trademap.org/Index.aspx Belt and Road Initiative & Bangladesh 31#327. Financial Integration Belt and Road Initiative & Bangladesh 32#33CENTRE FOR 7.1 Inward foreign investment • In FY 2019, Bangladesh witnessed a record high net foreign direct investment (FDI) inflow of USD 3232.89 million between the months of July-March (Bangladesh Bank, 2019). This surge in FDI was largely driven by Chinese investment. During the period January-March 2019, Chinese net FDI inflow amounted to USD 396.99 million, which was 38.34 per cent of total net FDI inflow into Bangladesh during that period (Bangladesh Bank, 2019). • In April 2018, Alipay, a concern of China's e-commerce and tech giant Alibaba Group, bought 20 percent stakes in bKash, Bangladesh's largest mobile financial service provider. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 333#347.2 Inward Chinese investment • China's investment in BRI projects has usually been in the range of USD 100 million to USD 1 billion. The only exception to this was in August 2018, when USD 2.13 billion was invested in BRI projects in Bangladesh. CENTRE FOR POLICY DIALOGUE Million USD Figure: Total Chinese investment in BRI projects in Bangladesh (in million USD) $2,500 $2,000 $1,500 $1,000 $750 $780 $500 $0 July $1,010 $2,130 $160 $360 $110 $150 2015 2016 2017 2018 2018 2018 2018 2018 Source: Authors' illustration based on data from China Global Investment Tracker. Available at http://www.aei.org/china-global- investment-tracker/ Belt and Road Initiative & Bangladesh 34#358. Cultural Exchange Belt and Road Initiative & Bangladesh 35#36CENTRE FOR means 8.1 Chinese government scholarships sharing, collaboration of knowledge • Cultural exchange, through Figure: Number of foreign students going to China for study per year (in thousand) research and strengthening of people-to- people bonds, is one of the five components of BRI. Since the declaration of BRI in 2013, there has been a steady increase in number of the Chinese government scholarships offered to foreign students. POLICY DIALOGUE 2006 100 90 80 39 70 36 60 34 50 30 27 40 24 22 30 21 20 14 18 22 26 29 33 37 41 49 10 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year Chinese Government-funded Self-funded Source: Authors' illustration based on data from Ministry of Education, P.R.C. Belt and Road Initiative & Bangladesh 36 Number of students (in thousands)#37• 8.2 Bangladeshi students in China • • Since the inception of BRI, the number of Bangladeshi students pursuing higher education universities in has Chinese grown rapidly over the years. For example, 4,905 more Bangladeshi students went to study in China in 2016, compared to 2015. Chinese government scholarships are offering lucrative higher education opportunities to students from Bangladesh. Number of students in thousand Figure: Number of Bangladeshi students going to China for higher education per year (in thousand) 18 16 14 12 10 642086 +20 3.765 2.566 1.964 1.253 2 0.941 4.905 2011 2012 2013 2014 2015 2016 Year ■ Increase ■ Decrease ▪ Total CENTRE FOR POLICY DIALOGUE Source: Authors' illustration based on data from China's Foreign Affairs (2012-2017), Department of Policy Planning, Ministry of Foreign Affairs P.R.C Belt and Road Initiative & Bangladesh 37#388.3 Spread of Chinese language • Since the start of BRI, the number of Confucius institutes all over the world has increased from 440 in 2013 to 548 in 2018. 1400 1200 Figure: Number of Confucius institutes and classrooms worldwide . of On the other hand, the number 1000 Confucius • classrooms has increased from 646 in 2013 to 1,193 in 2018. The increase in the demand for learning Chinese language has been driven not only through cultural exchange, but also through other components of BRI, such as trade and investment. Q CENTRE FOR POLICY DIALOGUE Number 1193 1113 1073 1000 851 800 646 600 440 475 500 513 525 548 400 200 0 2013 2014 2015 2016 2017 2018 Confucius Institutes Year Confucius Classrooms Source: Authors' illustration based on data from Statista. Available at: https://www.statista.com/statistics/879340/china-confucius- institutes-and-confucius-classrooms-worldwide/ Belt and Road Initiative & Bangladesh 38#399. Challenges Belt and Road Initiative & Bangladesh 99 39#409.1 Debt issues • ● Sustainable financing of the BRI projects in the participating countries is an important issue. Hence, dealing with debt sustainability is also a priority for the Chinese Government. • The Chinese Government has provided debt relief to countries which have been suffering from debt distress, on a case-by-case manner. Major official creditors actively participate in multilateral mechanisms dealing with sovereign defaults, in particular the Paris Club. China is not a member, but an observer at meetings of the Paris Club. There are several examples how China has approached debt issues in various countries. According to the IMF, China was a creditor to 31 of the 36 HIPC countries, and it provided relief in at least 28 of them, including 100 percent forgiveness for several (for example, Burundi, Afghanistan and Guinea) (AidData database and references to debt relief in IMF public documents). • In case of Sri Lanka, China agreed in July 2017 to a debt-for-equity swap for USD 8 billion loan and a 99-year lease for managing the Hambantota Port. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 40#419.1 Debt issues: Bangladesh . The • external debt of Bangladesh fell from 20 per cent of GDP in 2007 to 15 per cent of GDP in 2015, but rose again to 17 per cent of GDP in 2018. The absolute amount of outstanding external debt has also increased from USD 19354.81 million in 2007 to USD 33511.83 million in 2018. CENTRE FOR POLICY DIALOGUE Debt outstanding (in million USD) Figure: External debt of Bangladesh 40000 25% 20% 15% 10% 5% 35000 30000 25000 20000 15000 10000 5000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0% External debt (s % of GDP) Debt outstanding (in million USD) External debt( as % of GDP) Source: Authors' illustration based on data from Economic Relations Division (ERD), available at https://erd.gov.bd/ Belt and Road Initiative & Bangladesh 41#42CENTRE FOR 9.1 Debt issues: Bangladesh • Despite the recent trend of increasing external • debt, Bangladesh's good debt servicing record has ensured that external debt has not piled up. The total debt service as a percentage of total exports decreased from 8.6 per cent in 2013 to 3.9 per cent in 2018. POLICY DIALOGUE 3000 Total debt service in million USD Figure: Debt servicing record of Bangladesh 4000 3500 10 2500 2000 1500 1000 500 2011 2012 2013 2014 2015 2016 2017 2018 987654321 O Total debt service in million USD -Total debt service (as % of exports) Source: Authors' illustration based on data from Economic Relations Division (ERD), available at https://erd.gov.bd/ Belt and Road Initiative & Bangladesh 42 Total debt service (as % of exports)#439.2 Environmental concerns • • While the BRI has the potential to bring in positive economic development, it may cause irreversible damage to the environment. Infrastructure may threaten the ecosystems and the livelihoods of the people who depend on environmental resources surrounding them. It is feared that with China's focus on higher-value goods and services and adoption of stricter emission standards, high- emission manufacturing industries and unsustainable technologies may be moved to low income BRI countries. Construction and operation of infrastructure, including power, transportation and building contribute to approximately, 70 percent of global greenhouse gas (GHG). Hence, it is crucial that the BRI countries adopt green and low-carbon projects to achieve the goals of the Paris Climate Agreement. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 43#449.2 Environmental concerns • ● CENTRE FOR However, China is the world's leading producer of renewable energy products (e.g., PV cells, windmills, etc.). BRI has already helped export of USD 8 billion of solar goods in 2017. This put China on the top surpassing Germany as an exporter of environmental goods and services. China's own national sustainability commitments could be used across the whole of BRI. Making its environmental guidelines mandatory overseas, China can improve local standards in the developing countries where they work. President Xi Jinping's concept of “ecological civilization" could provide China to contribute to environmental governance. China is developing its green financing system. The green “One Belt, One Road" demonstrates China's commitment for global ecological security and sustainable development. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 44#459.3 Environmental issues: Bangladesh • • A positive sign is that 58.3 per cent of BRI transport construction sector contracts are in railways, which are relatively environment-friendly, compared to other modes of transportation. However, 38.05 per cent BRI construction contracts in the energy sector are in coal, which is damaging environment. to highly the Sector and subsector Transport Energy Figure: Subsector-wise BRI construction contracts in Bangladesh (as % of total investment), 2009-2019 Others Coal 48.67% 38.05% Oil 13.27% 19.66% Autos 22.04% 58.30% 60% Shipping Rail 0% 40% CENTRE FOR POLICY DIALOGUE 20% 80% Percentage of all construction contracts Source: Authors' illustration based on data from China Global Investment Available at Tracker. http://www.aei.org/china-global-investment-tracker/ Belt and Road Initiative & Bangladesh 45#469.3 Environmental issues: Bangladesh • • • Around 56 per cent of China's total investment in Bangladesh is in the energy sector, and more precisely - in coal. Such large investment in coal- based energy sector projects may have adverse impacts on the environment. BRI is partly responsible for the soaring investment in renewable energy worldwide. So it is strange that there was not enough BRI investment renewable energy in Bangladesh. Figure: Sector-wise Chinese investment in Bangladesh, 2015-2018 (as % of total investment) Sector Other Industry 2.02% Finance (Investment) 2.94% Metals (Steel) in Energy (Coal) 39.08% 55.96% CENTRE FOR POLICY DIALOGUE 0% 50% 100% Percentage of total investment Source: Authors' illustration based on data from China Global Available at Investment Tracker. http://www.aei.org/china-global-investment-tracker/ Belt and Road Initiative & Bangladesh 46#479.4 Social implications The social dynamics of BRI can also be significant as people may be affected in various ways. Moreover, the impact could be disproportionate on different sections of the society. • Infrastructure requires large pieces of land, which are acquired through clearing forests or acquisition from people. Such actions increase GHG emission and pollutes the environment. Also, people are often displaced from their roots involuntarily in exchange of compensation. . . CENTRE FOR Transport investment projects require movement of people and labour. For large projects labour force has to be brought from outside the locality. Others also follow to look for opportunities. These put pressure on natural and physical resources leading to price hikes, social conflicts, spread of diseases and insecurity. Thus vulnerability of the poor may increase with BRI projects. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 47#48CENTRE FOR 9.5 Governance issues . • • . • Lack of open, transparent and competitive procurement process can lead to poor performance of projects in terms of missing timeline, cost overrun, and low quality services. Implementation of the BRI has been associated with concerns regarding governance, which are voiced internationally. Due to lack of transparency, financial risks and benefits of projects cannot be evaluates, corruption cannot be curtailed and environmental and social sustainability cannot be ensured. The Corruption Perception Index (CPI) score of the World Bank indicates that the perceived corruption in Belt and Road corridor economies is higher than the global average and higher among lower middle and low income countries. Increased transparency in procurement process and other compliances can benefit BRI projects in terms of co-financing by other financial sources including the multilateral development agencies. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 48#4910. China's Response to Challenges Belt and Road Initiative & Bangladesh 49 49#5010.1 Promises at the 2nd Belt and Road Forum ● In response to accusations that it lacked transparency, facilitated corruption and that some projects contributed to pollution, a number of initiatives were announced at the 2nd Belt and Road Forum in Beijing held in April 2019. President Xi Jinping pledged that the BRI will be "open, green and clean". He also promised that everything should be done in a transparent way, and there would be zero tolerance for corruption. Clean Silk Road "The Beijing Initiative for Clean Silk" Road has been launched. This calls for international cooperation to promote transparency and integrity and combat corruption. The Initiative urges for implementation of the BRI in line with the spirits of the United Nations Convention Against Corruption and other international rules and legal frameworks. CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 50#5110.1 Promises at the 2nd Belt and Road Forum Green BRI • President Xi Jinping also added "We may launch green infrastructure projects, make green investment and provide green financing to protect the Earth which we all call home." • The "Green Investment Principles (GIPs) for the Belt and Road" call for environment-friendly, climate-resilient and socially-inclusive investments under the new BRI projects. Sustainable BRI • • The Ministry of Finance of People's Republic of China had published a Debt Sustainability Framework (DSF) for Participating Countries of the BRI in April 2019. BRI-DSF aims to promote economic and social development by ensuring debt sustainability. However, results of this initiative are yet to be observed. Countries are not bound to use BRI-DSF since at present it is a voluntary policy tool. They are only "encouraged to use this framework to conduct debt sustainability analysis and manage debt risks". CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 51#5211. Conclusions and Way Forward for Bangladesh Belt and Road Initiative & Bangladesh 52 52#5311.1 Conclusions • BRI promises to deliver physical and soft infrastructure to foster connectivity and economic development across its corridors. • For Bangladesh too, BRI provides an opportunity to seize benefits, particularly in areas of trade, investment, connectivity, education and tourism, through strong ties with countries particularly in the Southern Asian region, more specifically, with China and India. • K2K corridor can reduce costs of transport and benefit Bangladesh through enhanced trade and investment. This will create opportunities for employment and income. Bangladesh's enhanced competitive strength through BRI will help Bangladesh to be better integrated into the global • economy. Bangladesh needs formidable resources to build the required transport infrastructure to be connected with the BCIM corridor. • Realisation of the BRI objectives will also help Bangladesh in achieving the Sustainable Development Goals (SDGs). CENTRE FOR POLICY DIALOGUE Belt and Road Initiative & Bangladesh 53 33#54CENTRE FOR 11.2 Way forward for Bangladesh • Implementation of BRI projects will require trade facilitation reforms. Some of these measures include standardisation and harmonisation of procedures and regulations across countries, improvement of trade facilitation and logistics at the border, cross- border electronic data exchange, and speedy customs clearance, and customs cooperation and measures to ensure security of people, vehicles and cargo on the move. Formidable resources will need to be mobilised to build the needed transport infrastructure. Bangladesh has to mobilise domestic resources through tax reform and public-private partnerships. • Selection and planning of BRI projects should be sound with a full understanding of the economic and social benefits that will be created through such projects. • In order to address the challenges associated with the BRI projects, the Government of Bangladesh should implement the BRI projects through open, transparent and competitive contracting and procurement process in order to ensure the quality of the projects. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 54#55CENTRE FOR POLICY DIALOGUE 11.2 Way forward for Bangladesh . • For timely completion of projects and minimize cost overrun, public disclosure of BRI projects, terms and conditions of project finance, and monitoring, reporting and anti- corruption measures should be in-built in the project implementation mechanism. Debts should be managed well and debt sustainability issue should be closely monitored in order to avoid any possible debt traps. • For green and clean governance mechanisms in the BRI projects, financing and environmental information should be disclosed in advance, and on a continuous • • basis. Social and environmental impact assessments of projects should be done through meaningful and informed participation and engagement of local people. On the whole, while the BRI projects hold high promises for economic development, the outcome will be determined by the way Bangladesh plans and executes these high value projects. Belt and Road Initiative & Bangladesh 55 55#56CENTRE FOR 11.3 Areas of research collaboration At the 2nd Belt and Road Forum, "Belt and Road Studies Network" was launched. The objective of the network is to bring together think tanks in the BRI countries to carry out research on different aspects of the initiative and make policy suggestions. Bangladeshi and Chinese think tanks can undertake collaborative research on a number of issues. These are also applicable for think tanks in other BRI countries. Seven areas of research are suggested here. 1. 2. 3. 4. +ம் 6. 7. Revisiting the trade patterns with China and suggest how to minimise the trade imbalance and receive larger market access for Bangladeshi products in China. Understanding the focus of the BRI projects; how are the projects prioritized; how are they aligned with national objectives and policies. Estimating the economic, social and environmental benefits of the BRI projects and their financial viability. Scrutinising the fiscal risks due to cost overrun and delays of BRI mega projects. Evaluating the impact of BRI projects on debt sustainability and fiscal risks; examine the terms and conditions of loans and strength of the existing fiscal framework of the country. Assessing the social and environmental impacts of BRI projects; explore whether the impacts of BRI project fall disproportionately on the marginalized and vulnerable people. Analysing how BRI projects can help achieve global goals at the country level; to what extent BRI investments align with SDGs and green priorities of the recipient country. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 56#57CENTRE FOR Resource Materials References Bangladesh Bank (2019). Foreign Direct Investment. Dhaka: Bangladesh Bank. Retrieved on July 24, 2019, from Bangladesh Bank: https://www.bb.org.bd/econdata/fdi.pdf Bangladesh Economic Zones Authority (2018). Draft Annual Report 2018, Retrieved on July 24, 2019, from Bangladesh Economic Zones Authority: http://www.beza.gov.bd/wp- content/uploads/2019/07/Draft-Annual-Report.pdf. Honghui, CAO & GONG Ting (2016). Building a shared vision for the Belt and Road Initiative and the Sustainable Development Goals CAO. Available at: https://www.undp.org/content/dam/china/docs/Publications/UNDP-CH- BRI%202017Scoping%20Paper%202 (Final) .pdf International Trade Centre Trade Map. Available at: https://www.trademap.org/Index.aspx L. Zhou, S. Gilbert, Y. Wang, M. Muñoz Cabre, and K.P. Gallagher. (2018). "Moving the Green Belt and Road Initiative: From Words to Actions.." Working Paper. Washington, DC: World Resources Institute. Available at http://www.wri.org/publication/moving-the-green-belt. World Bank (2019). Belt and Road Economics: Opportunities and Risks of Transport Corridors, Washington, D.C. POLICY DIALOGUE Belt and Road Initiative & Bangladesh 57#58CENTRE FOR POLICY DIALOGUE Resource Materials Websites visited Direction of Trade Statistics (DOTS). Available at: https://data.imf.org/?sk=9D6028D4-F14A- 464C-A2F2-59B2CD424B85 Economic Relations Division (ERD), available at https://erd.gov.bd/ Global Infrastructure Hub, available at: https://outlook.gihub.org/countries/Bangladesh Global Development Policy Center. http://www.bu.edu/cgef/?lang=en#/all/Country/Global Statista. Available at: https://www.statista.com/statistics/879340/china-confucius-institutes-and-confucius- classrooms-worldwide/ https://outlook.gihub.org/countries/Bangladesh https://www.yidaiyilu.gov.cn/xwzx/roll/77298.htm https://data.worldbank.org; https://beltandroad.hktdc.com/en/country-profiles; https://www.oecd.org/finance/Chinas-Belt-and-Road-Initiative-in-the-global-trade- investment-and-finance-landscape.pdf http://www.aei.org/china-global-investment-tracker/ Belt and Road Initiative & Bangladesh 58#59Thank you P CENTRE FOR POLICY DIALOGUE www.cpd.org.bd Belt and Road Initiative & Bangladesh 59