Published: 15:10, July 8, 2024 | Updated: 17:36, July 8, 2024
China-Bangladesh bilateral trade: Leveraging the yuan for economic stability
By Fakhrul Islam Babu

In the face of a persistent dollar crisis, Bangladesh is looking to fortify its economic ties with China by leveraging the Chinese yuan for bilateral trade. Despite the regulatory framework having been in place since September 2022, Bangladeshi businesses have yet to capitalize on this opportunity. Prime Minister Sheikh Hasina’s visit to China from July 8-11 aims to expedite this initiative, which is pivotal for stabilizing Bangladesh’s economy.

Currently, China is a significant trading partner for Bangladesh, accounting for 25 percent of its total imports. However, the trade is heavily imbalanced, with only 1.22 percent of Bangladesh’s exports destined for China. In the fiscal year 2021-22, bilateral trade surged to $20.03 billion from $6.77 billion in 2012-13, highlighting the substantial growth in economic interaction. Annually, Bangladesh’s bilateral trade with China reaches around $19 billion, with imports of approximately $18 billion and exports of $1 billion.

The post-COVID-19 economic landscape has exacerbated Bangladesh’s financial challenges, with declining reserves, a 10 percent drop in garment exports, and soaring inflation rates. Despite a $4.7 billion loan from the International Monetary Fund (IMF) last year, the export sector continues to struggle. This financial strain was underscored when Fitch Ratings downgraded Bangladesh’s credit score in May due to dwindling reserves.

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In a bid to mitigate the reserve crisis, Bangladesh has sought a 36 billion yuan ($5 billion) loan from China. Bangladesh Bank Governor Abdur Rouf Talukder disclosed that this loan, to be taken in yuan, aims to alleviate the foreign exchange shortage and cover import costs. The favorable low interest rate of the Shanghai Interbank Offered Rate makes this loan more attractive compared to dollar-denominated loans.

State Minister for Commerce Ahasanul Islam Titu has proposed using local currencies — the Bangladeshi taka and the Chinese yuan — alongside the US dollar for bilateral trade. This approach could help alleviate the ongoing dollar shortage and promote regional trade expansion. Unlike the Indian rupee, the Chinese yuan is one of the five high-value currencies recognized by the IMF, making transactions in yuan both feasible and internationally accepted.

Chinese Ambassador to Bangladesh Yao Wen emphasized this point while addressing the media after meeting with Planning Minister Abdus Salam at the Planning Commission office. “The fluctuation of the dollar rate is now a worldwide problem, which China is also facing. It’s something that China wishes to work on with Bangladesh,” Yao said. He highlighted that engaging with Bangladesh in using their currencies — the yuan and the taka — for trade could be a viable solution to the dollar fluctuation issue.

In addition to trade, China seeks to collaborate with Bangladesh in development projects. Yao noted that China’s National Development and Reform Commission, which parallels Bangladesh’s Planning Commission, could work together to support Bangladesh’s development goals. “We are finding ways both organizations can work together,” said Yao.

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Salam echoed this sentiment, acknowledging China’s significant role in supporting Bangladesh’s five-year plans. He confirmed that any delays in the disbursement of promised funds from China would be resolved through discussions.

To foster yuan-based trade between Bangladesh and China, several measures need to be implemented.

First, strengthening the banking infrastructure to facilitate yuan transactions is crucial. Banks must be trained to handle yuan-based letters of credit and transactions.

Second, conducting awareness and training programs to educate businesses on the benefits and procedures of trading in yuan can drive adoption.

Third, offering incentives such as reduced transaction fees or favorable exchange rates for yuan-based trade can encourage businesses to shift from dollar transactions.

Fourth, strengthening bilateral agreements to ensure smooth and secure yuan transactions will foster trust and confidence among businesses.

Fifth, establishing a robust monitoring and evaluation system to track the progress of yuan-based trade and address any challenges promptly is vital.

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In conclusion, by implementing these measures, Bangladesh can effectively utilize the Chinese yuan for trade, reducing dependency on the US dollar and strengthening its economic relationship with China. During the prime minister’s visit to China, there is a renewed optimism that these strategic initiatives will pave the way for a more balanced and resilient bilateral trade framework. This move not only aims to stabilize Bangladesh’s economy but also to enhance the economic interdependence between the two nations, fostering a more sustainable and mutually beneficial partnership.

The author is general secretary of the China Bangladesh Friendship Center Ltd, and president of Asian Club Ltd.

The views do not necessarily reflect those of China Daily.