Despite a decade of generous preferential trade benefits, China has not emerged as a significant export destination for Bangladesh. In contrast, India and Japan have proven to be valuable export markets for Bangladeshi goods over the years.
According to data from the Export Promotion Bureau (EPB), Bangladesh's exports to Japan reached $1.69 billion in the July-May period of the last fiscal year and increased to $1.90 billion in FY2022-23. Exports to India also grew, reaching $1.67 billion in the July-May period and $2.12 billion in FY2022-23. However, exports to China were notably lower, totaling $761.02 million in the July-May period and $677.35 million in FY2022-23.
The limited growth in exports to China comes despite the presence of a zero-duty benefit for 98 percent of Bangladeshi products. Conversely, China has become Bangladesh's largest import source, with annual imports exceeding $23 billion.
In 2015, China extended trade benefits to various least developed countries (LDCs), covering up to 97 percent of their goods. This percentage was later increased to 98 percent for Bangladesh. Consequently, the share of Chinese imports in Bangladesh rose from 10.3 percent in FY2002 to 26.4 percent in FY2022.
Imports from China have grown from less than $1 billion to over $23.5 billion in FY2023. These imports are crucial for Bangladesh's export growth and domestic industries, with a significant portion coming through bonded warehouses duty-free for use in the export industry.
One key factor hindering export growth to China is the lack of product diversification. As the world's largest apparel and textile supplier, China dominates nearly 32 percent of the global market share. Bangladesh's main export item is garments, contributing more than 84 percent to national exports annually. However, China imports only $10 billion worth of garments each year, with Bangladesh holding just a 4 percent market share, compared to another country's 18 percent.
Ongoing dialogues between China and Bangladesh aim to sign a free trade agreement (FTA) to boost trade and investment, with the first round of negotiations expected during an upcoming visit by the Prime Minister of Bangladesh to China.
Currently, Bangladesh accounts for just 0.04 percent of China's imports. Increasing this share to 1 percent would translate to $26 billion in export earnings for Bangladesh. China's investment in Bangladesh's export-oriented sectors could also be beneficial, given the geopolitical tensions making Bangladesh an attractive destination for export-oriented manufacturing production.
An FTA with China could be extremely beneficial for Bangladesh's medium to long-term export interests, particularly in trade in services and technology transfer. The principle of less-than-full reciprocity should be considered in favor of Bangladesh. Once the FTA is signed, the duty-free benefits could be fully utilized, as noted by industry experts.
The trade gap between Bangladesh and China remains significant, largely because local exporters, especially in the garment sector, import raw materials from China to re-export to other countries.
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