Why India must not allow its relationship with Bangladesh to be viewed through a Chinese prism

Journalists who describe China’s influence in Bangladesh, or frame China and India at odds in the country, often participate in what international relations scholars call “securitisation”.

Securitisation describes a process where stakeholders – typically in government, but also third-parties, in consultancies, think tanks, or the media – construct threats socially.

It’s an important distinction because it shows that threats are not necessarily objective. Stakeholders can, and do, play a role in defining what constitutes a threat.

The process begins when stakeholders identify a political, or economic, interest that they believe has been threatened. They then advocate extraordinary, or even rule-breaking, “counter” measures. Their audience can then either reject the construction, or accept it, which closes the loop.

If successful, the non-security issue becomes re-interpreted as a matter of survival.

Stakeholders can use the process for both altruistic and selfish purposes.

At best, stakeholders securitise the environment to generate resources and urgency against climate change. At worst, stakeholders securitise migration to instill fear and racism against immigrants.

The concept helps show how normal economic activities – a trade concession, development loans, or contractors – can become security threats – an effort to compromise a government or market.

What is less clear is why stakeholders are trying to securitise Bangladesh’s economic relations.

Public discourse on Bangladesh doesn’t reflect much more than a mistrust of Beijing, and a belief that New Delhi and Dhaka should enjoy closer relations relative to Beijing.

Perhaps it is because India and Bangladesh just do not have a captivating narrative anymore.

Ironically, stakeholders’ effort to securitise economic relations with Bangladesh shows there is credible interest in India, and further abroad, in re-defining relationships with the country.

That’s because securitisation often happens when new dynamics emerge and stakeholders don’t have the expertise, policies, or support they need to deal with it.

Staid appeals to shared history and culture have little meaning to a generation of Indians and Bangladeshis that has only experienced unprecedented economic growth.

Bureaucrats who tout the success of Neighbourhood First and Act East polices in India, or the street-smarts of non-alignment in Bangladesh, do not generate page-views like China’s big buck investments.

This has allowed polemicists to carry the day.

Their portrayal of a zero-sum competition between China and India has dominated public discourse. But their implicit message – that India is not doing enough of what China is doing – is a dead-end.

Bangladesh’s economy is more diverse than popular narratives suggest. And India can’t offer what China offers Bangladesh. The China versus India construct is just a poorly designed thought experiment.

Take, for example, China’s investment into Bangladesh.

It didn’t grow consistently until after 2013, when the Belt and Road Initiative was unveiled. It didn’t grow dramatically until after October 2016, when China’s president Xi Jinping visited Dhaka.

Still, the pace and scale of China’s investments seems to have caught observers off-guard.

Without the benefit of past coverage detailing China’s investments in Bangladesh, and an apparent mistrust of resources from China or Bangladesh that could provide context, journalists framed China’s investment as a risk for Bangladesh, and competition for India.

There was data that could have made these speculative and opinionated stories fact-based.

The big picture

Bangladesh’s FDI stock shows how much China has invested cumulatively, and its investment relative to other foreign investors. Journalists could have used this data to understand if China’s investment had, or would, become more influential than others’ investment.

In 2020, China held 1 billion in Bangladesh’s FDI stock – 5.5% of the total.

That’s not a controlling stake. It’s just more than India’s US $794.37 million, a 4.2% share.

If the FDI stock of Hong Kong – a popular indirect route for Chinese and Western capital into Asian markets – is generously added on to China’s total, it increases to US $1.9 billion, or 10.6% of the total.

That’s not more than the UK’s $2.38 billion, a 12.7% share.

If the FDI stock of Singapore – another popular investment route – is very generously added to the combined FDI stock of China and Hong Kong, it increases to US 3.1 billion, a 17.3% share.

That’s still not more than the Bangladesh’s largest foreign investor, the US, which has invested $3.9 billion, achieving a 20.9% share.

Foreign investment share doesn’t create meaningful influence over Dhaka.

If it did, Washington might have convinced Dhaka to enact labour reforms by now. They have advocated them since 2013, when the US in the aftermath of the Rana Plaza disaster in Dhaka removed Bangladesh’s trade privileges under the generalised system of preferences programme.

Given successive US governments’ failure to achieve those reforms, it’s difficult to believe that Beijing, or China’s state-owned enterprises, could use their modest investment share to dictate Dhaka’s decision-making, or more absurdly, encourage Dhaka to align with China in a hypothetical conflict.

Still, the US’ presence in Bangladesh appears to worry China as much as China’s presence in Bangladesh worries India. China’s ambassador to Bangladesh has laid these insecurities bare.

Last year, ambassador Li Jiming warned Dhaka against US efforts to coerce “countries to join the anti-China camp”. The warning came after Nikkei Asia reported a US interest in defence deals with Dhaka.

More recently, Li said Bangladesh should not join the Quadrilateral Security Dialogue (or “Quad”). He said it would cause Bangladesh’s relations with China to suffer. This statement followed high-profile US state visits to New Delhi and Dhaka.

Dhaka was unimpressed. But if there really was a choice between Beijing on the one hand, and a theoretical “anyone but China” club on the other, would Dhaka really lump it all on China?

The FDI stock of the Quad – an informal military relationship between the US, Japan (2.2%), Australia (4.5%), and India – accounts for over 30% of Bangladesh’s total foreign investment.

This is exempting fellow travellers who have invested in Bangladesh over the long-term.

Investment from South Korea (5.7%), Norway (1.8%), the Netherlands (7.7%), and the UK would bring the anyone but China club’s investment to more than 55% of the total foreign investment in the country.

Misguided intrigue

Misguided geopolitical intrigue has stifled public discourse on Bangladesh.

This speculation has left little space for what appears to be the most genuine concern: the number of engineering, procurement, and construction companies from China winning contracts – regardless of the source of funding – for infrastructure projects that are symbols of Bangladesh’s growth.

This became a source of insecurity because it doesn’t fit with how many in India see their country’s role in Bangladesh. Nor how many in the rest of the world see India’s role. It is, however, the role that Beijing has sought for itself in countries like Bangladesh, and one that New Delhi has not pursued effectively.

The Belt and Road Initiative was partly inspired by the financial interests of state-owned enterprises in the aftermath of the global financial crisis of 2007 to 2008.

Beijing spent heavily on its stimulus during the great recession. The stimulus encouraged investment, buoyed demand – and produced world-class infrastructure.

The country’s infrastructure improved from 60th globally in 2007 to 46th in 2010, according to the World Economic Forum’s Global Competitiveness Report. In 2019, China achieved 36th place.

High road, airport, and seaport connectivity scores buoyed the ranking.

But the stimulus also created problems. Like commodity surpluses, revenue shortfalls, and dim lending prospects. “White elephants”, “zombie companies” and “shadow banking” proliferated.

The BRI grew out of concerns about overcapacity in a maturing market. Beijing needed to transition from its domestic focus to find new markets abroad for its largest state-owned enterprises.

India hasn’t experienced anything similar.

New Delhi hasn’t pursued infrastructure development campaigns on the scale of Beijing. Moreover, its own development efforts haven’t been as successful.

The Global Competitiveness Report shows the quality of India’s infrastructure has fluctuated relative to its peers. From 62nd globally in 2007 to 76th in 2010, and most recently, 70th in 2019.

New Delhi is a tough customer for engineering, procurement, and construction.

Researchers have found that New Delhi amends tenders frequently. More recently, researchers examined the high number of public contracts that end up in court.

There remain more common concerns too. The government’s inability to pay bills and the structure of the procurement system are chief among them.

Some of these issues are carried over into India’s line of credit programme. The programme provides concessional loans to developing countries for infrastructure projects built by India’s engineering, procurement, and construction companies.

Bangladesh is the single largest recipient of India’s lines of credit. But like China’s BRI projects in Bangladesh, India’s line of credit projects have not been going that well.

India disbursed just $739 million of the $7.36 billion total promised since 2010, according to a recent report from The Daily Star, an English-language daily published in Dhaka.

One line of credit recipient told The Daily Star that companies from China work aggressively to finish projects, but that Indian companies took longer. The official suggested it was because of India’s tendering process, and subcontractor management, adding “the bureaucracy in India is almost the same as in Bangladesh”.

Public procurement

That remark is supported by the World Bank’s Benchmarking Public Procurement 2017. The report gave India’s procurement system a score of 61.5 score out of 100, and Bangladesh’s system 58.5.

While the countries scored similarly, Bangladesh scored higher on two metrics because it has a national public procurement law, and India doesn’t. Public procurement in India is governed by laws, rules, and directives administered by federal, state and Union Territory government bodies.

Actually, New Delhi has a problem with how procurement is managed in Bangladesh.

Since December 2016, two months after Xi visited Dhaka, New Delhi has objected to rules of origin stipulations made by Bangladesh government procurers, according to a Syful Islam, a journalist at The Financial Express, an English-language daily in Dhaka.

The article reports that Indian companies haven’t participated in Bangladesh-financed projects because some procurers request contractors to use goods manufactured in a country with a human development index above 0.8. India’s best HDI to date was the 0.645 recorded in 2020.

If Dhaka were to issue a directive, or amend its Public Procurement Rules, 2008, it would presumably allow India’s engineering, procurement, and construction companies to expand beyond line of credit-financed infrastructure projects in Bangladesh.

But it appears unlikely. The issue was raised and dismissed at the recent meeting between India’s prime minister Narendra Modi and Bangladesh’s prime minister, Sheikh Hasina, in Dhaka.

Even if India’s engineering, procurement, and construction companies could bid for more Bangladesh-backed tenders, it’s not clear that they would be in a strong position. They would be bidding against firms from developed economies like Japan, South Korea, the European Union and China. Their revenue and project experience are on another level.

The Sylhet airport project – the source of media contention last year – offers a good example.

Amid the media controversy, Bangladesh’s foreign minister said, “From what I have heard, the Chinese are technically qualified and have the lowest rates.”

Dhaka awarded the project to state-owned Beijing Urban Construction Group Ltd over privately owned Larsen & Toubro.

Beijing Urban Construction Group is ranked as the 13th largest in the world according to gross construction revenue globally, and the 105th largest in terms of gross construction revenue earned outside of their home country, according to the Engineering News-Record, a leading industry publication from the US.

Larsen & Toubro, meanwhile, was the 22nd largest globally, and 27th largest in international revenue.

There are five Indian companies in Engineering News-Record top 250 companies for international revenue. Three have recently worked on projects in Bangladesh – Afcons Infrastructure Ltd, Ircon International Ltd and Larsen & Toubro.

In contrast, four of Japan’s 13 top earning companies, five of South Korea’s 12 top companies, six of Europe’s 45 top companies, and 24 of China’s 74 top companies have recently worked in the country.

Regardless of whether India’s biggest , procurement, and construction companies enter Bangladesh en force in the coming years – with or without rules of origin exemptions from Dhaka, or even an increase in lines of credit from New Delhi – they would still be bidding against larger companies for work.

Many with a high level of technical expertise gained in more developed countries.

This context shows the challenges that await India’s engineering, procurement, and construction companies in Bangladesh’s procurement market. But the disparities have, paradoxically, strengthened the allure of China-India competition narratives.

Distorted decision-making

Stories that describe a conflict of interests, or race for opportunity, allow journalists to present a wider array of viewpoints. Familiar China-India themes also help journalists meet audiences halfway. Especially when reporting on less than exciting economic developments in unfamiliar markets.

The construct can, however, distort decision-making.

When stakeholders present a foreign market as a choice between Beijing and New Delhi, the consequences of inaction may appear to outweigh the consequences of overreach.

This lowers decision-makers’ resistance to goals that are beyond their means, which can cause those in government, and even the private sector, to re-assess their options with hubris.

Some of this already played out in the late 2000s, and early 2010s. At that time, the pace and scale of China’s investment into Africa became seen as a threat to India’s relationships in the continent.

A competition narrative took root in the media. Two fast-growing countries, with two very different models of economic development, were set for a new scramble for Africa.

It was not long before concerns arose about whether private Indian companies could compete.

Harry Broadman, an expert on investment in Africa, explained the mismatch. Chinese companies were often medium- to large-sized state-owned enterprises, owned by provincial and state governments. Indian companies were typically smaller, and privately-owned, sometimes by families, or a public-private concern.

This should have discouraged the idea of India’s private companies competing with China’s state-owned enterprises. Especially for large engineering, procurement, and construction tenders. But it had the opposite effect.

Ministry of External Affairs officials felt they needed to leverage lines of credit to help businesses compete; India-based engineering, procurement, and construction companies sang to the choir.

Line of credit rules were relaxed in 2010 when the program came up for renewal.

Private Indian companies began directly lobbying African governments for work. They designed projects, and even signed MoUs prior to obtaining approval from the Ministry of External Affairs, according to Barnaby Joseph Dye, a researcher at the University of Manchester.

This appears to have been made possible by the new rules.

Devirupa Mitra, The Wire’s diplomatic editor, wrote that the rules allowed companies to develop project plans for borrowing countries if their bureaucrats didn’t have the capacity to do so themselves.

The reform allowed Indian companies to replicate the kind of vertical integration Chinese state-owned enterprises maintained. But it also increased the scope for fraud and corruption.

In 2015, the Export Import Bank of India raised a “red flag” notice. Rot had set in.

P Vaidyanathan Iyer wrote in The Indian Express that the government had propped up four obscure engineering, procurement, and construction companies in Africa. Dye estimated the four firms cornered 57.5% of the line of credit’s total value.

The Enforcement Directorate raided one of the firms, Angelique International, looking for evidence of kickbacks. Later, the Enforcement Directorate issued the firm a show-cause notice regarding expenses that appeared to pad out project costs for overseas work.

The World Bank, for its part, debarred Angelique International for corruption and fraud in 2017.

The media trail stops there.

New Delhi couldn’t audit borrowers’ line of credit use, according to Mitra’s report, only foreign exchange violations. Dye’s interviews suggest the four offending firms were quietly boxed out of further work, part of an effort to re-direct line of credit projects to larger firms.

An Ministry of External Affairs official told Mitra they had to walk-back half-baked projects, hat-in-hand, across Africa.

It all looks like a kind of jugaad in hindsight

Decision-makers inflated state security concerns before conflating them with private financial interests. They pursued a goal greater than the sum of its parts – parity with China.

The fact that stakeholders have now framed another China-India competition in Bangladesh – with investment and engineering, procurement, and construction market share at its heart – should give observers pause.

This is the four of a five-part series on the India-Bangladesh relationship. Read the rest of the series here.

Adam Pitman is an analyst and editor based in South Asia. His Twitter handle is @ar_pitman.