Is Bangladesh really turning away from India and toward China – or is this just a storm in a teacup?

Whenever the Indian media starts writing about the rapid development of Bangladesh, my first impulse is to check the financial newspapers to see if there have been any new deals or treaties. And that never fails: there’s rarely any real basis for the buzz.

For instance, few months ago, when Indian newspapers began to talk up the Bangladesh Story, it turned out that it was just hype about an Indian firm haggling with a French firm about constructing a new refinery in Bangladesh.

So at the end of July, when the Indian media began to talk about the collapse of relations between India and Bangladesh, I was curious about what storm had been brewed in the teacup. It turned out that the Indian construction company Larsen and Turbo had lost a bid to the Beijing Urban Construction Group for the renovation of Sylhet Airport.

Many security consultants will tell you that the government of Bangladesh is angry about the Ram temple being constructed in Ayodhya on the site of the demolished Babri masjid or India’s plan to draw up a National Register of Citizens. The truth is that Sheikh Hasina’s government isn’t overly concerned about these issues. Its primary focus is to maintain the Indian support necessary to keep this deeply unpopular regime in power.

The story behind the story

So what made Indian newspapers claim that Sheikh Hasina did not meet the Indian High Commissioner in Dhaka Riva Ganguli Das for four months despite repeated requests?

Curiously, Indian newspapers published this seeming sign of deteriorating relations between India and Bangladesh, quoting an editor of a pro-government Bangladeshi newspaper, Shyamol Dotto. In fact, the original article by Shamol Dotto quoted Indian newspapers as the first source of this news.

In Microsoft Excel jargon, this is called a circular reference. An Indian newspaper quotes a Bangladeshi editor as saying that Hasina did not meet with an Indian envoy for four months. As it turns out, the Bangladeshi editor actually quoted a source from an Indian newspaper. Whenever Microsoft Excel detects a circular reference, an error message is displayed. But in the case of Bangladesh and India, a host of security analysts who need to remain relevant make a big deal of such circular references.

This have led to massive hype from jingoistic media and nationalist fanatics on all sides. A phone conversation between Hasina and Pakistan’s Imran Khan during that period did not help. Later, it turned out the Bangladesh Prime Minister had not met with any foreigners during those few months due to the spread of Covid-19.

But have relations between India and Bangladesh really cooled down?

The Awami League has deep ties with India. It is a symbiotic relationship that cannot survive without both parties. The problem lies in managing expectations.

Before Bangladesh’s last national elections in 2018, after her visit to India, Sheikh Hasina stated bluntly: “What we have given to India, they will remember for the rest of their lives.”

The problem is that Indian diplomats do not seem to feel the same way. The aggressive, unilateral deals of recent years show that India believes it brought the undemocratic government of Sheikh Hasina to power despite the will of the people. In return, it expects Sheikh Hasina to put India’s interests in Bangladesh first. India has no favours to return to Bangladesh. But as long as Sheikh Hasina is in power, she must always return that favour.

Bangladesh government needs mega projects

Sheikh Hasina has so far accommodated these desires. However, the state of Bangladesh’s finances are a problem. The government spends twice as much each as its revenue. Its borrowings from the banking system in 2019-2020 exceed the accumulated loans of the last 49 years.

Amidst this profligacy, the leadership is satiating the military, the police and the bureaucracy. Over the past decade, the salaries of government employees have risen by 300%, despite a significant deterioration in the quality of services. According to a 2019 index by the Economic Intelligence Unit, Dhaka is the most unlivable city in the world after war-ravaged Damascus and Nigeria’s Lagos. Government employees in Bangladesh are now better paid than those in Russia. They are repaying this favour by showing allegiance to a government that is in power through a transparently fraudulent election.

However, despite repeatedly imposing exorbitant indirect taxes on the people, the government has failed to increase revenues. Now, as a result of the Covid-19 pandemic, the government’s revenues continue to decline.

The government needs money – lots of it. And a significant source of government revenue comes from VAT, TAX and import duties for equipment for large projects. Many other industries, including banks, insurance companies, power, energy, cement, steel, generate direct and indirect revenues for the government around these projects. As a result, the government realises that more new projects are needed to cover the deficit and revive formal and informal industry.

An imaginary Chinese debt trap?

While many security analysts would have you believe that massive Chinese investment projects are underway in Bangladesh and that Dhaka could fall into the Chinese debt trap, the opposite is actually true.

In 2016, during the visit of Chinese President Xi Jinping to the country, 27 memoranda of understanding valued at $24.45 billion were signed. International publications claim that China was investing heavily in Bangladesh because of its Belt and Road initiative to counter Indian influence. In fact, by June 2020, only seven projects worth $5.4 billion had been signed and only $1.54 billion disbursed in four years. To put this in perspective, the government of Bangladesh pays its employees $8 billion a year.

Although India media often claims that 28% of the country’s development budget – $10 billion – goes to Bangladesh, the reality is that in the last decade of Sheikh Hasina’s government, Dhaka has signed three commercial credit lines with New Delhi amounting to $7.36 billion. Of this, $604 million is from the first line of credit worth $862 million and $8.42 million from the second worth $2 billion. Not a penny from the third one, worth $4.5 billion, was released. The status of a fourth line of credit in the defence sector worth $0.5 billion is also unclear.

This meagre outflow of funds from both India and China, along with a massive deficit and declining revenues, has left the government in need of a good number of large projects to balance its budget.

After the 2008 global financial crisis, US bond rates fell, and global capital flowed into developing countries. As a result, Bangladesh has received large amounts of capital from various financial institutions over the years. In addition, thanks to the sacrifices made by the Bangladeshi people over the past three decades, Bangladesh’s external debt has been kept to a minimum. Its credit rating is better than many of its peers among the developing world.

But because of coronavirus, global capital is now seeking a safe haven in the Western hemisphere. And everyone is aware that Bangladesh’s official financial data is heavily manipulated and unreliable. Thanks to Covid-19, most countries around the world are on the brink of a financial crisis as well.

There is only one country that is interested in Bangladesh and can fund such a large-scale project as well. So it is no wonder that during the months of lockdown, the Bangladesh government sent a letter to China asking for 26 projects worth over $16 billion, nine of which are new.

Jarring reaction

Under the present circumstances, this is a huge amount of money. No country in the world would invest $16 billion in a country like Bangladesh unless it had strategic reasons. As a result, the Bangladeshi government may have signaled to China that it is ready to dance to the Chinese tune.

The curious thing is that the wish list sent to China also includes a $853.05 million project for the integrated management and rehabilitation of the Teesta River. This project’s appearance on the list may have shaken the confidence of the Indian security apparatus in Sheikh Hasina. However, this project is not new. The Bangladesh Water Development Board signed a Memorandum of Understanding with China Power in 2016 for technical studies on the Teesta. This irrigation project has no security bearing for India.

But the jarring reaction of India’s security establishment to a downstream river project designed to protect the farmers of Bangladesh only shows how much Bangladesh’s dignity as a nation has been lost to India.

As many people speculated, the visit by Indian foreign secretary Harsha Verdhan Sringla to Dhaka last week was to restore these discord. But, his visit was interpreted differently by different people. Some very highly respected journalists in Bangladesh claimed Sringla’ss visit didn’t break the ice as it was claimed in Indian media rather he had treated coldly.

This kind of speculation has helped sow a seed of doubt that Bangladesh is making a fundamental policy change from India towards China, resulting in a buzz in the media.

Best case scenario

In truth, the Awami League government would not be very unhappy about this. The Hasina government can see three advantages of this media frenzy.

1. If this media hype helps to convince China to dole out more cash, that is a good thing.

2. With this sudden strengthening of the backbone against Indian influence, the government can show the people of Bangladesh that have a more equitable relationship than most are willing to credit them for.

3. These actions could encourage India to expedite the projects. And Indian Foreign Secretary Harsh Vardhan Shringla’s in his latest Dhaka visit committed to do exactly the same.

But what could happen?

There are three possibilities.

1. Beijing is well aware that Hasina’s government needs money to sustain itself. They will be willing to open up their coffers a little, but they will know very well that the regime will always look after Indian interests when it matters. This loyalty is more than strategic.

It is unlikely that China will forget the Bangladesh government’s deviousness after the 2013 elections. After a flawed election that was rejected by every significant power except India, Bangladesh lured China to lend it international legitimacy by offering Beijing the Matarbari deep seaport. However, after the international community slowly accepted the reality of Bangladesh’s unelected government, after all the initial works were completed, the government backed off from the contract during the final stage, citing higher interest costs. One does not need to be a diplomatic genius to know that this was due to pressure.

Beijing’s response to Dhaka is very likely to be based on these experiences.

2. At home, the ruling party’s media propaganda machinery will be hyper-driven to show how willing Hasina is to show India the door to protect Bangladesh’s interests. But apart from the party loyalists, even the four-year-olds are unlikely to be convinced.

3. In the Indian landscape, the Indian media and public will loudly decry Chinese interference in the country they see as their playground. But in time, the Awami League should be able to convince the seasoned diplomats in the South Block of the party’s need for large projects to sustain its regime. It should be able to show that their relationship with China is purely financial as India has only a limited capacity to fill a bottomless pit in the form of Bangladesh’s annual budget shortfall.

As such, in the mid term, they may happily allow Hasina to act like she has changed direction towards China if this position brings her some much-needed investments. However, in return she has to abandon any projects that are sensitive to India.

As this information is symmetrical and all parties are aware of this reality, the status quo in relations between Bangladesh, India and China is very unlikely to change.

Zia Hassan is a political and economic analyst based in Europe. He regularly publishes in local and international media outlets.