Bangladesh

Country profile

Geography

Bangladesh lies on the alluvial delta of the Ganges and the Brahmaputra rivers in the northcast of the South Asian subcontinent. It borders India in the cast, west and north, and Myanmar in the southeast. The Bay of Bengal lies to its south. Its coastline spans 550 kilometers. Up to 85% of the area is plain, and there are hills in the southeast and northeast. Most of the country has a subtropical monsoon climate, and is hot and humid. There arc three seasons: winter (November-February), summer (March-June) and the rainy season (July-October). The annual average temperature is 26.5°C. Winter is the most pleasant season in the year. The lowest temperature is 4°C, and the highest is 45°C. The average temperature in the rainy season is 30°C.

Natural resources

Bangladesh has rich natural resources such as natural gas, limestone, adamant, coal, lignite, silica, tripoli and kaolin. As of 2014, the reserves of natural gas, as the main fuel, were reported to be 311.39 billion cubic meters, mainly in some hilly areas in the northeast. The coal reserve was 750 million tons. Bangladesh has a forest area of about 2 million hectares, and the forest coverage rate is 13.4%. A large amount of oil remained undetected.

Bangladesh has rich tourism resources, and with the help of the United Nations Development Programme, the World Tourism Organization (UNWTO) has launched a strategic plan for tourism development in Bangladesh. This is an integrated tourism program which identifies the tourism products and tourism facilities to be developed in Bangladesh. With the help of advanced foreign technology, the government of Bangladesh has revised and updated the program and decided to set up special tourist zones throughout the country to better serve global tourists. These include Cox’s Bazar, Sundarbans and Kuakata. The Chittagong Hill Tracts, which cover the three areas of Rangamati, Khagrachhari and Bandarban, will also be developed into a special tourist zone.

Population and ethnicity

Bangladesh, with a population of about 160 million, is the eighth largest country in the world, with a population growth rate of 1.58% and a population density of 1,051 per square kilometer. Bangladesh is a multi-ethnic country. While Bengalis account for about 98% of its population, there are more than 20 other ethnic groups, such as Chakma, Santhal and Garo. Islam is the national religion of Bangladesh, with 88.3% of the population following it. In addition, 10.5% of the population follows Hinduism, 0.6% Buddhism and 0.3% Christianity. People of Bangladesh live their lives with high respect for tradition and in harmony. Agriculture dominates the life of 60% of the population, and their main foods are rice and fish.

Political system

Bangladesh’s state power system consists of three parts: administration, legislation and justice. The president is the head of state, elected by the parliament. The prime minister is the head of the cabinet. Since the 1990s, Bangladesh has been ruled alternatively by the Bangladesh Nationalist Party (BNP) and the Bangladesh Awami League. The country adopts unicameralism, and its parliament is Jatiya Sangsad, or the House of the Nation. The constitution provides for the exercise of legislative power by the parliament, which has 300 members directly elected by citizens and 45 women members selected by other parliament members, all serving five-year terms. There is a leader and a deputy leader of the House, elected by members of the parliament. The parliament also has a secretariat and committees.

Bangladesh has a large number of political parties, mainly:

• 1. Bangladesh Awami League. Established in October 1949 as the All Pakistan Awami Muslim League, the party changed to its current name in 1952 and became the first ruling party from the independence of Bangladesh to 1975. Its aims are nationalism, democracy, socialism and secularism. In September 1992, the National Council of the Bangladesh Awami League amended the party constitution to abandon the principle of public ownership, pursue a market economy and introduce free competition. It pursues a non-aligned foreign policy and advocates friendly relations with all countries. Its current president is Sheikh Hasina.
• 2. BNP. Established in September 1978, the party advocates the preservation of national independence, sovereignty and territorial integrity, faith in Allah, democracy, nationalism and social and economic justice. The basic policies arc democratic pluralism, privatization, the elimination of excessive administrative intervention and the establishment of a competitive market economy. Its foreign policy adheres to neutrality and non-alignment and stands for friendship with all countries. The president is Khaleda Zia.
• 3. The Jatiya Party. Established on January 1, 1986, the Jatiya Party upholds independence and sovereignty, the establishment of an ideal Islamic society, nationalism, democracy, social progress and economic development. At the end of June 1997, the party split as former prime minister Kazi Zafar Ahmed and others established Jatiya Dal, and then merged in December 1998. In April 1999, there was another spinoff, the Jatiya Party (Manju), led by Anwar Hossein Manju, who was then minister of communications, and Mizanur Rahman Chowdhury, former vice chairman of the Jatiya Party. The main body of the Jatiya Party, Jatiya Party (Ershad), is chaired by former president Hussein Mohamed Ershad. It split again at the end of 2013 and is now the largest opposition party in the parliament.

Diplomatic relations

Since China established diplomatic relations with Bangladesh on October 4, 1975, relations have developed rapidly and leaders of both sides have exchanged frequent visits. President Zia Rahman and President Ershad have visited China many times, and both Kia and Hasina made China the first place to visit after they became prime minister. President Li Xiannian (1986), Premier Li Peng (1989), Premier Zhu Rongji (January 2002), NPC Chairman Jia Qinglin (November 2003), Premier Wen Jiabao (April 2005), Vice President Xi Jinping (June 2010) and Comrade Li Changchun (2012) of China visited Bangladesh successively. On the occasion of the 35th anniversary of the diplomatic ties between China and Bangladesh in 2010, leaders of the two countries exchanged visits and announced the establishment and development of a closer comprehensive cooperative partnership. In June 2014, Prime Minister Sheikh Hasina visited China. In November, President Hamid came to China to attend the

Dialogue on Strengthening Connectivity Partnership. In 2015, to mark the 40th anniversary of the diplomatic ties between China and Bangladesh, Vice Premier Liu Yandong paid an official visit to Bangladesh in May. In June, Shirin Sharmin Chowdhury, Parliamentary Speaker of Bangladesh, went to Yunnan to attend the opening ceremony of the Third China-South Asia Expo. In September, President Xi Jinping held a bilateral meeting with Prime Minister Hasina while attending the United Nations General Assembly in New York. In October, Speaker Chowdhury visited China and attended the Asian Political Parties’ Special Conference on the Silk Road in Beijing and an event commemorating the 40th anniversary of the diplomatic ties between China and Bangladesh. In October 2016, President Xi paid a state visit to Bangladesh, announcing the promotion of China-Bangladesh relations to a strategic partnership.

In 2015, bilateral trade volume between China and Bangladesh was US$14,707 billion, up 17.2% ycar-on-ycar, including US$13,901 billion of exports from China and US$806 million of imports. Bangladesh is the third largest trading partner of China in South Asia, and China is the largest trading partner of Bangladesh.

Economy

Bangladesh is one of the least developed countries of the world. Underdeveloped, the national economy mainly depends on agriculture. In Bangladesh, both the current and the previous administrations have advocated a market economy, encouraged privatization and striven to improve investment environment, attract foreign investment, build export processing zones and develop agriculture. With the emergence and use of a variety of synthetic and man-made fibers, the demand for jute in the international market has been falling sharply, dealing a heavy blow on the jute industry of Bangladesh, whose yield and export value

Table 3.5

Source: World Bank.

have both been declining. Jute exports accounted for only about 5% of Bangladesh’s total export.

The country’s GDP of the fiscal year 2015 (July 2014 to June 2015) was US$195,079 billion. The industrial sector mainly produces raw materials and primary products, including cement, fertilizer, jute and its products, sugar, cotton yam, soybean oil, paper, etc. Heavy industry and manufacturing are underdeveloped. FDI mainly comes from the United States, the United Kingdom, Malaysia, Japan, China, Saudi Arabia, Singapore, Norway, Germany and South Korea.

Legislation

The Supreme Court has under it the Court of Appeal and the High Court. The chief justice and judges arc appointed by the president. The chief justice and several designated judges handle cases in the Court of Appeal, while other judges hear High Court cases. Dhaka has a high court and a labor court of appeal. There arc also circuit courts, county courts and civil and criminal courts.

Society

Bangladesh’s education system is composed of five-year primary, seven-year secondary and four-ycar tertiary education. The government attaches importance to education and stipulates that girls enjoy free compulsory education till the eighth grade. In Bangladesh, there arc 1,683 state and private hospitals. State hospitals arc less expensive but have poor medical conditions and can only treat common diseases. Private hospitals have good conditions but arc very expensive. There is no government-funded medical programs in the country and commercial medical insurance is offered by several companies. The country is generally safe, and the social environment is stable.

Current status of industrial capacity cooperation

Foreign investments

Bangladesh attracted US$1,504 billion in foreign investment in the 2013-2014 fiscal year, according to Bangladesh’s central bank. Also, it was reported that FDI registered US$960 million in fiscal year 2008-2009 and US$1.73 billion in fiscal year 2012-2013. Over the past five years, the growth rate of FDI in Bangladesh reached 80%, effectively alleviating the shortage of foreign capital in the country.

According to World Investment Report 2015 issued by UNCTAD, Bangladesh attracted US$1.53 billion of foreign investment flows in 2014, and by the end of 2014 the total foreign investment stock was US$9.36 billion. According to another report of UNCTAD issued in 2014, FDI in Bangladesh stood at

US$1.6 billion in 2013, up 24% year-on-year. Of this, the telecommunications sector received US$324 million of new foreign investment; the banking sector US$327 million; the textile industry US$422 million; the energy, gas and oil sector US$99 million; the food industry US$40 million; agriculture and fishery US$31 million; and other industries US$356 million. US$541 million was new direct investment, US$361 million was internal loans, and the remaining US$697 million was reinvestment of returns. Bangladesh is the second largest recipient of foreign investment in South Asia after India, which received US$28 billion (about 78% of total foreign investment in South Asia), and Pakistan ranks third with US$1.3 billion.

Chinese investment in Bangladesh

According to China’s Ministry of Commerce, China’s direct investment in Bangladesh in 2014 registered US$25.02 million. At the end of 2014, China’s direct investment stock in Bangladesh was US$160 million. Some investment went to clothing, textiles, ceramics, decoration, drinking water, medical care, aquaculture, printing, home appliances and light industry. Most investment, however, was concentrated in textile, clothing and related machinery industries.

In recent years, Bangladesh has maintained rapid economic growth with an average annual growth rate of over 6%. A booming economy, growing political stability and favorable international credit ratings have together made Bangladesh one of the top 10 FDI destinations favored by investors in the Asia-Pacific region. Among the many foreign investors, Chinese enterprises deliver prominently good performance. As the Bangladeshi economy grows further and aligns with the BRI, production capacity cooperation between China and Bangladesh will be more comprehensive, and Chinese enterprises will play a more prominent role in bilateral economic and trade cooperation.

Advantages

First of all, the rich human resources in Bangladesh arc very attractive. Bangladesh has a population of about 170 million, and a high proportion of it arc young people. Many of them speak English and arc hard-working. Chinese companies have invested in the textile industry in Bangladesh, achieved good economic benefits and brought a large number of employment opportunities to local areas. Second, Bangladesh has good credit ratings thanks to its strong ability to repay debts, and this makes the country especially attractive in South Asia. Bangladesh has US$3.1 billion of foreign exchange reserves, second only to India among all South Asian countries. In addition, the Bangladeshi government takes economic development as its priority and attaches great importance to fostering a good business environment and building investor confidence. As a representative project of Chinese investment in the infrastructure sector in Bangladesh, the Padma Bridge project, with a total investment of over US$3 billion, is funded by the government of Bangladesh, not any international financial institution, and there is no default payment or any other similar problem. Bangladesh has also been able to repay its debts on time for projects funded through borrowing. This is a real guarantee for the interests of investors. Finally, the country holds huge potential for capacity cooperation that caters to local conditions. Other than the garment-making industry, light and heavy industries in Bangladesh are weak and underdeveloped. A serious shortage of transportation infrastructure and energy supply is a major bottleneck in its economic development, which is generally at the low end of the value chain. The low value-added of its exported products has hampered the economy in flourishing further. Bangladesh is the world’s largest exporter of jute, but it brought only just over US$1 billion of foreign exchange. China has advanced jute production and processing technologies, and by investing in Bangladesh’s jute industry China may help Bangladesh substantially increase the added value of its jute industry. Bangladesh faced similar situations in the fields of leather processing, food processing and pharmaceuticals, and was eager to improve its international competitiveness and ability to earn foreign exchange by bringing in advanced technologies from abroad.

China can take Bangladesh as an important partner in its vicinity, especially in South Asia; deepen mutual political trust; seize the great historical opportunity of Asia’s development to promote mutually beneficial cooperation; accelerate the development of Bangladesh; and benefit its people. Based on the industrial advantages of China and the needs of Bangladesh, priority can be given to building materials, electricity, textiles, petrochemicals, rail transport, automobiles, communications, engineering machinery, shipbuilding and offshore engineering equipment, where the strengths of the two countries arc highly complementary, there is a strong desire for cooperation and conditions arc mature, with an aim to push capacity and equipmentmanufacturing cooperation between the two countries up to a new level.

Automotive industry

With a population of nearly 170 million and a rapidly rising middle class, Bangladesh is a promising land for the future of the global auto market. China should encourage domestic vehicle manufacturers to seize the opportunity to explore the market in Bangladesh, and actively promote the export of new-energy vehicles, trucks, buses and cars to Bangladesh. It should also encourage Chinese enterprises to set up automobile assembly plants and build distribution and maintenance networks in Bangladesh so as to extend the entire industry chain of Chinesc-brand vehicles into the country and promote the exporting of Chincse-brand automobiles and spare parts.

Communications

Making use of their competitive edges in Bangladesh accumulated over the years and taking advantage of the favorable opportunity of the Bangladeshi government’s effort to promote 3G and 4G communications networks, Chinese communications enterprises can strengthen cooperation with major local operators. In line with the Bangladeshi government’s goal of achieving 100% telephone coverage and increasing the broadband network coverage to 35% by 2020, Chinese enterprises may actively explore new projects in cooperation with relevant authorities and local operators in Bangladesh, and move into the market through investment, merger and acquisition (M&A), or in other ways to participate in communications operations and build their influence in the communications industry in Bangladesh.

Construction machinery

Grasping the opportunity of infrastructure development in Bangladesh, Chinese enterprises may export their production capacity of machinery for dredging, road building, ports and concrete in conjunction with major construction projects. Chinese enterprises should be encouraged to cooperate with local peers by means of financial leasing in Bangladesh, and improve the applicability and localization of Chinese construction machinery in Bangladesh by means of investment in building new facilities, or through M&A.

Shipbuilding and offshore engineering equipment

Bangladesh has a dense river network, low-lying terrain and busy river navigation, and thus a huge demand for ships. The dispute between Bangladesh and India over their border on the Bay of Bengal has been resolved, so marine development will become a new hotspot. Enterprises arc encouraged to export bulk ships, container ships, refined oil ships and offshore engineering equipment to Bangladesh and to invest in the building of factories and distribution and service networks in Bangladesh.

Building materials

Given the high demand, low production capacity and dominance of low-end products in Bangladesh’s building material market, Chinese enterprises should be encouraged to construct cement, glass, building ceramics and new building material facilities in BOO (build-own-opcratc), BOT, PPP (public-private partnership) and other possible cooperation models, so as to increase local supply of high-end building materials in the country. At the same time, Chinese enterprises should give full play to their comprehensive advantages in construction, design, equipment and other aspects, and coordinate well to export production capacity along the entire building material industry chain from China.

Power industry

Electricity shortage is a bottleneck of economic and social development in Bangladesh. About 30% of the population has no access to electricity. Chinese power equipment manufacturers should be encouraged to seize the opportunities in Bangladesh brought by the development of coal-fired power generation, nuclear power and new-energy power generation in the country, as well as the upgrading and transformation of the country’s power grid, and to actively participate in power projects and drive the export of ultra-high-voltage power transmission and transformation equipment, photovoltaic modules, nuclear power technologies and other new power equipment and technologies. Chinese enterprises arc encouraged to make investment in building production facilities, actively participate in their operation, improve integration between construction and operation and drive the export of powcr-cquipment-production capacity, as well as relevant Chinese standards.

Light industry and textiles

Considering the abundant cheap labor and huge potential market demand in Bangladesh, it is wise to encourage Chinese enterprises to leverage their competitive edges on the international market and invest in yarns, fabrics, garments, household appliances, plastics, entertainment and other businesses. It is also advisable to speed up the building of China-Bangladesh cooperation bases for light industry and the textile industry where upstream and downstream support is readily available and relevant companies collocate so as to drive the export of equipment for the industry.

Petrochemical industry

Given that the petrochemical industry is underdeveloped in Bangladesh and the government seeks to vigorously promote it, Chinese enterprises may pursue cooperation in oil and gas drilling, resource exploration, natural gas transmission and oil refining. They may also actively extend their business in Bangladesh to both the upstream and downstream of the industry chain, and launch cooperation projects in petrochemical product processing and basic chemical manufacturing, as well as pesticide and fertilizer production. On the basis of major petrochemical cooperation projects, we can also strive to build green petrochemical cooperation bases so as to drive the output of petrochemical production capacity and the export of supporting services.

Rail transit

Taking the opportunity of the Bangladeshi government’s effort to invest in rail transit and promote railway connectivity with neighboring countries, China should actively encourage its enterprises to make good use of their advantages in financing, design, construction and relevant equipment to carry out project contracting and investment in the forms of PPP and BOT, and drive the output of production capacity for locomotives and transportation equipment. Chinese enterprises may also actively bid for contracts of the Dhaka urban fast-track project and other projects, and build onc-stop service centers that combine production, assembly, testing and maintenance of rail transit products in Bangladesh.

Areas and priorities of cooperation

Bangladesh is an economy full of vitality. It is also an important country along the Belt and Road and a major part of the China-Bangladcsh-India-Myanmar sub-regional connectivity project. As connectivity and production capacity cooperation between China and Bangladesh improve, Chinese companies will enjoy better prospects in Bangladesh. Business cooperation will not only build closer economic and trade relations between the two countries, but also bring benefits to the people of both countries. The minister of foreign affairs of Bangladesh has expressed support for the construction of Chinese industrial parks; the deepening of cooperation in agriculture, energy and infrastructure investment; and active participation by Bangladesh in the BRI.

Bangladesh had an international investment index of 36.85 in 2015, ranking 64th out of 108 sample economics. This shows that Bangladesh’s overall market environment is ordinary, with some potential, and not very attractive to foreign investment. Among the 11 factors covered by the index, the top three contributors to the country’s appeal as an investment destination arc trade, infrastructure and the macro economy. A good macroeconomic environment is highly attractive to foreign investment, infrastructure shows the basic conditions for economic development in a country, and trade is an important window for a country to open to the outside world and participate in the process of economic globalization. The contribution of financial stability, politics, the investment and financing environment and the social environment is also good, while factor demand and the natural environment’s contribution arc relatively weak. Therefore, we should not be too optimistic about the demand intensity and natural environment in Bangladesh.

Then, further predictions are made, based on economic models, concerning the probability of change in 2015. A calculation is made to measure whether the change of each index exceeds a predetermined value. If it docs, the probability is high; otherwise, it is low. The results arc shown in Figure 3.6. Here we can sec that the probability of change for force majeure, politics and the natural environment is well above 0.5, meaning that close attention needs to be paid to these aspects.

Macroeconomic development in Bangladesh is healthy and steady, and this is conducive to the smooth progress of investment cooperation projects. Trade, infrastructure and financial stability have all contributed significantly to Bangladesh’s appeal as an investment destination. Investment and cooperation in these three areas will not only promote the development of Bangladesh, but also bring considerable benefits to Chinese investors. However, special attention needs to be paid to the impact of politics and the natural environment on the overall economic conditions of Bangladesh.

Figure 3.5 Contribution of various factors to Bangladesh's Appeal as investment destination, 2015.

Source: International Investment Research Center of Wuhan University.

Figure 3.6 Probability of change in each factor in Bangladesh, 2015. Source: International Investment Research Center of Wuhan University.

Policy analysis

Policy support

In terms of market access, investment projects in Bangladesh require only registration with the Bangladesh Investment Development Authority, not any approval. Investment projects in export processing zones arc under the jurisdiction of the Bangladesh Export Processing Zones Authority. Investment in electricity, mineral resources and telecommunications requires approval from competent authorities, and investors in garment-making for export must apply for production quotas from the Bangladesh Export Promotion Bureau under the Ministry of Commerce. Tax breaks and national treatment arc available for foreign investors. It is guaranteed that foreign investment will not be nationalized or expropriated, and that the capital principal, profits and dividends can be transferred back to the home country.

Bangladesh opens many areas wide to foreign investment, with only four industries - namely arms, ammunition and military machinery; nuclear energy; mintage; and forestation and mechanized mining in protected forest reserves -closed to foreign investment. All other sectors welcome foreign investment. However, the government of Bangladesh has introduced restrictions on foreign investment in banking, insurance and other financial institutions.

According to the Industrial Policy 2010 of Bangladesh, foreign investment is prohibited in the following areas: guns, ammunition and defense equipment; forestation and mechanized mining in protected forest areas; nuclear fuel production; printing and casting of securities (bank notes).

For environmental protection, public health and national-interest reasons, the government of Bangladesh may, in light of the actual situation, identify certain areas as restricted areas for foreign investment. At present, such areas include deep-sea fishing; private banks and financial institutions; private insurance companies; private production, supply and transmission of electricity; exploration, mining and supply of natural gas, oil, coal and mineral resources; large-scale projects (such as expressways, monorails, economic zones and inland container handling station/freight station projects); oil refining; medium and large-scale industrial projects using natural gas and other minerals as raw materials; communication services; satellite channels; passenger/freight transportation; coastal shipping; seaports/deep ports; VoIP/IP (voice over Internet Protocol) telephone service, etc.

In addition to the above-mentioned areas where investment is prohibited or subject to restrictions, foreign companies or individuals may invest in all other areas in the country. On the basis of mutual benefit, the model of investment may be sole proprietorship or joint venture. The areas in which the government of Bangladesh encourages foreign investment include: basic agriculture and the processing of agricultural products; human resource export; shipbuilding; renewable energy (solar and wind energy); tourism; basic industries; garment-making; herbal medicine; jute and its products, and leather and its products; hospital and medical care; light industry; plastics; furniture; handmade products; energy conservation; frozen aquatic products; tea; home textiles; ceramics; jewelry; toys; container services; warehousing; innovative import substitutes; and cosmetics.

The law of Bangladesh imposes no restriction on capital form or ownership cap of foreign investment. Foreign investors can hold up to 100% of equity in a company and may make their investment in the form of solely-owned enterprises, joint ventures, private limited companies, public limited companies, etc. There arc no restrictions on investment by foreigners in Bangladesh.

M&A of listed companies in Bangladesh require a proposal which is to be discussed with the local court, and the proposal must be accepted by 75% of the voting shareholders. Bangladesh has not yet formulated laws and regulations in regard to security review for foreign M&A cases, investment M&A of state-owned enterprises, anti-monopoly measures, concentration of undertakings, etc. There is only the Company Law issued in 1994.

In addition, in order to regulate the merger and reorganization of banks or financial institutions, the central bank of Bangladesh has issued opinions on the merger and reorganization of banks and financial institutions.

The Bangladeshi government allows foreign investors to participate in the construction of infrastructure and utilities projects such as power stations, power transmission and transformation facilities, oil and gas pipelines, roads and bridges, waterworks and natural resource development projects in Bangladesh in models such as BOO, BOT, BOOT (build-own-opcratc-transfcr) and PPP.

Preferential policies

TAX POLICIES

The Bangladeshi government offers a series of tax breaks for foreign investment, and subsidies for export by foreign enterprises in some sectors.

The tax breaks, offered through industrial policies, import and export policies, and regulations of the Export Processing Zones Authority, arc as follows:

• 1. Tax reduction and exemption period: in Dhaka and Chittagong, this period lasts five years, including two years of 100% tax exemption, a 50% tax cut for the third and fourth years and a tax cut of 25% for the fifth year. In other areas and in the mountainous areas of Chittagong, this period is seven years, with 100% exemption for the first three years, a 50% tax cut from the fourth to the sixth years and a 25% tax cut for the seventh year.
• 2. Rapid equipment depreciation for new enterprises: the depreciation rates arc 50%, 30% and 20% respectively for the first three years.
• 3. For 100% export-oriented enterprises, capital equipment and spare parts up to 10% of the total value of the equipment can be imported duty-free.

• 4. For ordinary enterprises, the capital equipment and spare parts up to 10% of the total value of the capital equipment for the initial construction of a new project or the renovation, upgrading or expansion of an existing industrial project can be imported duty-free.
• 5. Cash incentives and subsidies of 5-20% for the export of textiles, jute, frozen fish, potatoes, bicycles, leather and light industrial products.
• 6. Tax exemptions for the interest on foreign loans, royalties, technology transfer fees and technology service fees.
• 7. Foreign technical personnel enjoy three years of exemption for personal income tax.
• 8. Foreign shareholders may transfer the shares they hold to local shareholders or investors after completing full payment of tax to the Foreign Exchange Administration of Bangladesh, and capital income therefrom is exempted from tax.

INDUSTRY-SPECIFIC INCENTIVES

Bangladesh encourages export-oriented foreign enterprises to invest in the country in order to stimulate its economy and expand employment. In order to encourage investment and stimulate exports, the government has introduced cash subsidies for exports in garment-making.

Bangladesh has a cash export subsidy system for some products. Specifically, it is 5% for textiles (another 5% for small and medium-sized enterprises); 7.5% for raw jute; 10% for jute products, light industrial products and frozen fish and shrimps; 20% for potatoes; 15% for leather products; 20% for processed produce (including vegetables and fruit); and 5% for ships.

In general, Bangladesh has good conditions for trade development and a broad market. The country has a large population, a growing economy and rising income levels, which combined mean enormous consumption potential. In addition, Bangladesh joined the General Agreement on Tariffs and Trade in 1972 and naturally became a member of the World Trade Organization later. Bangladesh supports trade liberalization in economic terms. Since the 1980s, tariffs have been slashed and non-tariff barriers gradually removed. Bangladesh is part of the South Asian Free Trade Area, and investment in Bangladesh enjoys trade preferences in South Asia with tariff rates standing at less than 5% for most goods. Since Bangladesh is a “least developed” country, exports enjoy preferences such as exemptions from tariffs and quota restrictions in countries and regions including Europe, the United States, Japan, Canada and Australia.

In recent years, bilateral trade between China and Bangladesh has been growing rapidly from US$900 million in 2000 to over US$2.4 billion in 2005, and further to USS12.547 billion in 2014, up 21.98% year-on-ycar, thanks to two-digit growth since 2009. Bangladesh is China’s third largest trading partner in South Asia.

According to the World Economic Forum’s 2014-2015 Global Competitiveness Report, Bangladesh ranks 109th out of 144 sample countries and regions in the world in terms of overall competitiveness.

Bangladesh has rich human resources and low-cost labor. Its population is about 160 million, with the highest population density among the world’s most populous countries (those with more than 50 million people). The working-age population accounts for about 60% of the total population, offering a large labor force at low cost. This makes the country suitable for the development of labor-intensive industries. As labor cost increases in China, some industries, such as garment-making, tend to seek opportunities of direct outbound investment so as to move the whole industry chain out of China. Bangladesh can be a good destination.

Bangladesh advocates investment liberalization and encourages investment. In order to encourage foreign investment in recent years, the government of Bangladesh has adopted a series of preferential policies: foreign investors enjoy national treatment, investment is protected by law and is not to be nationalized or expropriated, and capital and dividends are guaranteed. Foreign companies enjoy a tax-free period of live to seven years, the import of machinery and equipment enjoy preferential tariff rates, exports from the country are eligible for the preferences for least developed countries and foreign investors can hold up to 100% of equities and arc subject to no exit restriction. Bangladesh opens almost all sectors of the economy to foreign investors, offering great freedom of investment. In addition, the country has been making active efforts to build export processing zones and special economic zones.

In June 2016, during the First China-Bangladesh Capacity Cooperation Seminar held in Kunming, Yunnan Province, Abdul Matlub Ahmed, President of the Federation of Bangladesh Chambers of Commerce & Industry, gave a detailed introduction to the economic environment of Bangladesh to representatives of Chinese enterprises. He said that Bangladesh was experiencing rapid economic development with an annual GDP growth of about 7%, its banks had rich foreign exchange reserves and labor was abundant. At the same time, the government has developed fairly favorable policies to attract foreign investment, making Bangladesh one of the best investment destinations in Asia. At the seminar, he signed the Framework Agreement on Economic and Trade Cooperation between Yunnan Province and Bangladesh on behalf of the Federation of Bangladesh Chambers of Commerce & Industry, with the Commerce Department of Yunnan Province. Regarding this agreement, he said that China had many advanced technologies which could help boost Bangladesh’s economy, so Bangladesh looked forward to capacity cooperation with China. He also said that by signing this cooperation agreement with Yunnan, Bangladesh gained opportunities to learn China’s advanced technologies and carry out production capacity cooperation with China, which will not only benefit Bangladesh, but also bring opportunities to Chinese enterprises, securing win-win results.

Only by knowing itself and its partner can China achieve win-win cooperation. In recent years, in order to attract more foreign investment, Bangladesh has introduced a series of preferential policies to create a favorable investment environment for foreign enterprises. It offers the most flexible choices of investment models for foreign investors among all South Asian countries, and treats foreign enterprises in the same way as domestic companies, allowing a wide variety of investment models. Foreign investment may come as direct investment, joint ventures, joint-stock companies or non-entity investment (technology transfer, franchising, contractual operation, etc.). Foreign enterprises may also borrow from local banks in Bangladesh and enjoy preferential tax policies.

RISK ANALYSIS

• • Political risk: since the 1990s, Bangladesh has been ruled alternatively by the BNP and the Bangladesh Awami League. The fight between the two political parties for power has been a major cause of instability in Bangladesh.
• • Economic risk: Bangladesh has a weak economic foundation and is one of the least developed countries in the world. It has a large population but a lack of resources. International assistance is the main source of funds for investment projects. In Bangladesh, the past two administrations have advocated market economy and privatization, striven to improve investment conditions and attract foreign investment, actively developed export processing zones, given priority to the development of agriculture and maintained years of rapid economic growth. As a result, Bangladesh has become the second largest exporter of fabrics after China.
• • Business environment risk: the business environment in Bangladesh is generally not very good. It ranks 173rd out of all 189 economies in the World Bank’s Doing Business 2015 report. Bangladesh imposes few restrictions on foreign investment, has an abundant cheap labor force, and offers tariff exemptions or reductions for exports to the United States, Europe and other developed countries and regions. Also, it is expected to maintain an economic growth rate of about 6% in the coming years. However, it must be noted here that Bangladesh has poor infrastructure, insufficient water and power supplies and low administrative efficiency, and local people tend to be not so trustworthy. These arc all risk factors.
• • Legal risk: Bangladesh’s legal system is generally sound. Laws are in place for trade, investment, intellectual property rights, labor rights, environmental protection and anti-commercial bribery. However, for foreign investors, the cost of law enforcement and exit has been high, and Chinese investors should be clearly aware of this.

Cooperation cases

In November 1983, China and Bangladesh established the Joint Commission on Economy, Trade and Science & Technology. In principle, meetings of this commission arc held alternately in the capitals of the two countries. To date, there have been 13 such meetings. Since January 2006, China has offered zero tariff treatment to 84 categories of goods from Bangladesh under the framework of the Bangkok Agreement. Starting from July 1, 2010, a zero tariff applied to 60% of Bangladesh’s exports to China. A further agreement has been reached to apply a zero tariff to more than 95% of Bangladesh’s exports to China.

Bangladesh is a major recipient of assistance from China, and China has so far provided Bangladesh with a total of 3.795 billion yuan in assistance. Bangladesh is a traditional market for Chinese contractors in South Asia. By the end of December 2012, China had signed agreements for contracted projects valued at US$8,884 billion in total and achieved a total turnover of USS8.764 billion. China’s stock of non-financial direct investment in Bangladesh was US$121 million and Bangladesh’s actual investment in China was US$40.48 million.

Transportation

The Kamaphuli River Tunnel project, undertaken by China Communications Construction Co., is located in the city of Chittagong in the south of Bangladesh. The tunnel connects the eastern and western banks of the Kamaphuli River, and involves an investment of US$705.8 million. Designed according to Chinese standards, the tunnel has four lanes, a design speed of 80 kilometers per hour and a full length of 9.2 kilometers. As the first underwater tunnel in Bangladesh, the project will strengthen connectivity between Chittagong and the east bank of the Kamaphuli River, boost economic development of the cast bank, relieve the pressure caused by the rapidly growing population in the city center of Chittagong, build a second center for the city and better balance the economic development of the region. In addition, the project is an important part of the economic corridor linking Bangladesh, China, India and Myanmar; serves to improve the Asian highway network and the connectivity between Bangladesh and its neighboring countries; and will help boost the internationalization of Bangladesh.

On August 8, 2016, China Railway Engineering Corporation and Bangladesh Railway Authority signed a contract in Dhaka for the Padma Bridge Rail Link project, involving a total investment of US$3.14 billion. Extending from Dhaka to Jessore through Padma Bridge, the project is a major route for passenger and cargo transportation between the eastern and western parts of Bangladesh and a trunk line in the railway network of southwestern Bangladesh. The total length of the rail link is 168.6 kilometers and the maximum design speed is 120 kilometers per hour.

Energy’

China Petroleum Pipeline Bureau has been doing business in Bangladesh for five years and worked on a number of projects. A single-point mooring project in Bangladesh is a priority project for which Bangladesh’s Prime Minister Hasina asked the Chinese government for support in 2014. After the project is completed, the time required for crude oil unloading will be shortened from 11 days to 48 hours, significantly improving production efficiency and avoiding the risk of pollution. The project is expected to save US$120 million a year for Bangladesh and be of great help to Bangladesh’s only refinery, helping it create more jobs.

Power

A consortium composed of Jiangsu Etern Co., CCC Engineering and Fujian Electric Power Engineering Co. signed a memorandum with Power Grid Co. of Bangladesh in February 2015 for the upgrading, expansion and renovation of Bangladesh’s national power transmission and transformation network. The project includes 100 substations, 1,000 kilometers of transmission lines and seven regional inspection and maintenance centers; involves a total investment of US$1.3 billion; and spans three years.

The Bangladesh government been promoting the building of infrastructure, including power plants, and plans to double the power generation capacity to 24,000 megawatts by 2021. With a sharp increase of power generation capacity expected, the upgrading, expansion and renovation of the power transmission network is very important. When the project is completed, the problem of industrial power supply will be solved and the increment in power supply will be transmitted to more households.

Bangladesh is an important country in South Asia and in the Indian Ocean region. It lies at the intersection of South Asia and East Asia, and is a place where the land and the maritime Silk Roads meet. Under the framework of the BRI, China and Bangladesh are working to improve coordination between their development strategies, promote development through pragmatic cooperation and bring tangible benefits to the people of Bangladesh and South Asia. The investment of Chinese enterprises in Bangladesh shows the trend of diversification of investment subjects and investment fields. Many Chinese enterprises have made investments in Bangladesh in various fields. Further Chinese investments in the country have good prospects, and now is the right time for enhanced economic and trade cooperation between China and Bangladesh.