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China has been going around the world lending people more money than they can pay back and signing deals that are clearly in their counterparty's favour. Do not be fooled by this unnatural generosity though!
The quid pro quo in Chinese favours is anything but subtle, and everyone from African countries providing support in the UN, to neighbours in our subcontinent "acting out" are victims of this! In today's post, we look at what the recent China Bangladesh deal includes, and why it is especially worrisome.
The deal that keeps on giving
For the longest time now the US President has been complaining about China doing unfair trade deals. Well, they seem to be on it again! This time however they are doing a deal that some might say is “unfair” to them!
The Bangladesh economy, like most developing economies, has been badly hit in the wake of COVID 19. It is in this scenario that China emerges as a saviour, by giving them a rather attractive trade deal! The country has provided tariff exemptions to a whopping 97% of Bangladeshi products, in a move that could provide a huge boost to the struggling economy! The country which earlier had tariff exemptions on 3095 items, will now have it extended to 8256 goods!
More than just a trade deal
China, however, is unlikely to do a deal without demanding its pound of flesh. For Sri-Lanka, our neighbour to the south, this came in the form of the Hambantota port. For Pakistan, it came in the form of Gwadar port. For Nepal, it came via a map edit, and sooner rather than later it will have a bearing on Indo-Bangladesh relations as well.
More importantly, though, it provides China a firm hold over a country that could potentially be one of its disruptors! As the wage rates in China rise and trade tensions move some manufacturing away from the country, China is doing what any aspiring monopoly does, buy stake in its most potent competition.
With one move having a minimal financial impact on China, but significant benefit for Bangladesh, the country has achieved two goals - strengthen diplomatic relations with the country, and partially protected its economic downside.
Why India needs to be careful
Allies in the vicinity are critical for geopolitical stability and therefore economic growth of any country. For years we had belligerent neighbours in the form of Pakistan and China, but relations with the others were cordial if not pleasant. The recent bunch of deals has the potential to change that, permanently worsening our relationships with some of our closest neighbours.
Geopolitical stability is a key determinant of inflows of external capital, and therefore growth for the country, and India would do well to guard itself against China’s aggressive advances.