Chief advisor of Bangladesh’s interim government, Muhammad Yunus was recently on a four-day official visit to China, the first bilateral engagement since assuming power. The Press Secretary of the Chief advisor termed this “the most important visit” by a Bangladesh leader over last five decades, denoting the significance of this visit for Dhaka. Post Sheikh Hasina Bangladesh is noted for its strikingly different approach when it comes to neighbourhood relations. Its engagements with China, however, have been akin to the previous (fallen) government.

This raises the question: will China’s new engagements open new path for Bangladesh, or will it be a cause of new worry?

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Beijing’s deepening engagement with Dhaka began under Sheikh Hasina’s tenure. It was during her second tenure (2009-2024) that bilateral relations reached new milestones with Bangladesh becoming an “all-weather friend”, a strategic partner and relations elevating to a comprehensive strategic cooperative partnership shortly before Hasina’s deposition last August.

In 2015, China surpassed India as Bangladesh’s largest trading partner, a position it retains till today. Dhaka’s over-borrowing of Chinese loan since the last decade for its ambitious largescale infrastructural projects cost heavy for Bangladesh, edging towards a plausible debt-trap.

The interim government inherited a vulnerable economy battling high inflation (even food inflation); depleting foreign exchange reserve; dollar crisis. This, in addition to the interim government’s changing dynamics with India reflected that a renewed bilateral ties with China felt like the need of the hour.

For China, a post-Hasina Bangladesh seemed like a fresh opportunity to steer a more pro-China Bangladesh, especially in policies where the previous government showed preference for India, especially the Teesta project.

With this intention, China maintained a cautious and calculative approach with Dhaka. As a display of its ‘non-interference’ approach, Beijing has sought engagements with not only the interim government, but also political parties across all factions (except the now ostracized Awami League) via ‘heavy endorsement’.

The message was clear: Beijing is willing to engage with whichever party comes to power in Bangladesh.

Now that election is slated to be held within December-June, although with no clear roadmap, the Chinese Communist Party has already embarked a party-to-party engagement by inviting delegates of several political parties to visit China.

A four-member BNP delegation and a 14-member delegation of four Islamic parties, including Jamaat-e-Islami Bangladesh visited China (separately) last November and a 22-member delegation led by BNP and like-minded parties completed their China visit last month. In this latest visit, the BNP even pledged for stronger ties with China, if elected, “to balance and bring equilibrium to” the country’s geopolitics, considering Bangladesh is encircled by a “big and powerful country”.

China aims to kick-start its long-paused BRI projects in Bangladesh. Beijing has recently expressed desire to invest in Bangladesh’s renewable sector. Bangladesh, on the other hand, hopes of grabbing more Chinese investments, which it believes would help its economy to diversify.

This is the main target of Yunus’ China visit.

On the other hand, Bangladesh is aiming to diversify its trade and investment with China, covering medical tourism, defence and investment in green energy sector.

However, it should not be forgotten that about 59 per cent of Chinese-backed projects in Bangladesh have already revealed to have high ESG risks, resulting in their poor performance.

While talks are doing the round of need for Bangladesh’s increasing defence cooperation with China, given that Dhaka is the highest recipient of China’s global arms export, the reports on quality issues in these imported military hardware should also be taken into account.

Moreover, the high trade deficit, despite enjoying zero-duty trade benefits tell that it is not diversification of economic relations with China that is going to solve Dhaka’s persisting economic issues but a change in economic policies on part of China in its bilateral engagements with Bangladesh.

In January, Bangladesh foreign advisor visited Beijing where he requested China to lower its interest rate from 2-3 to one per cent; waive commitment and management fees and extend loan repayment period from 20 to 30 years.

While Beijing has given its nod of approval in principle to extend the repayment period, the reduction in interest rate remains to be addressed.

It is important to note that Beijing accounts for 10 per cent of Dhaka’s annual borrowing, while its external debt to China amounts to nine per cent ($6 billion) of its total external debt.

Its share of bilateral external debt is highest with China, amounting to 24 per cent. Given the short loan repayment period as compared to other international organisations, coupled with delay in loan approval and disbursement have already led Bangladesh’s cost inflation in its major development projects, such as the Dhaka-Ashulia Expressway.

Therefore, it remains to be seen if China actually addresses Bangladesh’s main economic concerns.

As Bangladesh is hoping to visit to usher in a new transformation and ‘mutually beneficial” bilateral relations, the history of Dhaka’s engagements with Beijing has been heavily favourable to the latter.

Bangladesh should, therefore, take a cautious approach with China. It should not invite more economic distress for itself in name of diversification for its risks facing the same fate as Sri Lanka.