China has always been an opulent heaven of cheap raw materials for developing and emerging industrial producers like Bangladesh, India, Myanmar, Cambodia, Vietnam and many other countries of the world.
For long, China has been the epicentre for exporting primary, intermediary and finished products and services – thus dominating the global market for the last three decades or more.
The Chinese economy grew incredibly over these years by supplying cheap products and services – and it left no scope for any other country to become an alternative source in this regard.
However, what if China is performing poorly in economic growth – subsequently becoming unable to supply their products and services to the global community?
What would be the future of industries in the countries that depend heavily on China for sourcing primary and intermediary materials, and will these countries lose competitive ground as a result?
What would happen to Bangladesh under such circumstances – a terrifying thought, but there are other determining aspects to consider.
Bangladesh has been an outstanding economic performer over the last decade in terms of GDP growth. The country has managed to retain its economic growth of more than 6 per cent and has been putting relentless effort to keep the growth trajectory up in all areas of development.
However, economic development depends on many things – easy access to global market, a sizable global market share via competitive advantage, effective bilateral and multilateral trade agreements for delivering products and services containing the national tag, and so on.
To ensure uninterrupted supply of commodities to the global community, Bangladesh needs to ensure seamless production to meet global demands. The country has to source a huge volume of accessories, raw or processed materials, to produce final products for end-users around the world. Cheap raw materials and low production cost result in low-priced products which gives Bangladesh a competitive advantage in the global marketplace.
What went wrong with China
Many think that China's recent economic slowdown is the result of a trade war triggered by America after President Trump assumed the administration, but the reality is slightly different.
The economic meltdown starting after 2010 in China as it economic growth shrunk to 6.2 per cent from a ten-digit growth in earlier years.
President Xi Jinping's ill-advised policy choice of allocating credit and other resources to less efficient state firms, rather than to the productive private firms has initiated the meltdown, and not the tariff imposition by the USA.
In addition to this, China has squeezed the overall credit growth in the country since 2017 for mitigating financial risk at a time of growing corporate indebtedness – which hurt the growing corporates - slowing down growth throughout the economy.
A report by Peterson Institute for International Economics (PIIE) shows only half of the Chinese products exported to the USA come under the imposition of tariff – which hits merely one per cent of China's total GDP. This indicates that it is China'sinternal economic crisis that has hit the global supply chain enormously.
Ceteris paribus – all other things being equal
Economists believe that the effect of one economic variable has implications on another variable, given that all other variables will remain unchanged, a theory they call ceteris paribus.
Due to the outbreak of Novel Covid-19, all kinds of trade deals and transactions with China were closed to stop the rapid spread of the virus to other countries, which decelerated global economic activities significantly.
Economists today are discussing the incorporation of epidemic shocks into novel economic models.
If such economic halts linger further it will put many countries in distress, resulting in mills and factories to halt production, or eventually stop their production process. Bank debts will soar exponentially. The prices of daily commodities will rise. Policymaking at private and government levels would be influenced by this scenario.
How Bangladesh can remain competitive in the global market
So is it wise to depend heavily on China? If not, then how do we go about it? Here we devise some recommendations for Bangladesh to ponder over immediately, to remain competitive in the global marketplace.
Firstly, the government must incentivise agricultural and industrial sectors. Its emphasis should be on producing primary, intermediary and supportive small technology products and services for companies like pharmaceuticals, garments, electronics brands, software firms, vehicle companies, food producers, and many more. In the end, these companies will produce high-value finish products in the country for exporting to destinations around the world.
Secondly, Bangladesh has not explored the Latin America and Caribbean markets for sourcing unique materials that can support our pharmaceutical and heavy industries. The government and business owners can consider the prospects of developing partnerships with these countries for extended diplomatic and trade missions.
In the meantime, South Asia, East Asia and African countries can also be a potential hub to bypass the heavy dependency on China in the long run, and for initiating robust trade deals, ensuring balanced trade transactions.
Thirdly, banks and financial intermediaries should invest in SMEs with a single digit interest rate to develop a much-needed support sector for the heavy and exporting industries in the country.
Fourthly, the government and corporate entities must fund research and innovation projects in the universities and research centres in Bangladesh, so that we do not have to seek high technological support from the developed countries.
China no doubt holds supremacy in providing products or services (raw, processed or finished) to international buyers. However, in case China fails to serve the requirements of the buyers, taking the recent situation as a lesson, Bangladesh must find alternative sources to reduce heavy dependence on China for future protection from moments of crisis.
Mr. Md Sohel Rana is a Phd scholar at the Faculty of Business and Accountancy, University of Malaya and Dr Hasanul Banna is a Research Fellow, UAC, Faculty of Economics and Administration, University of Malaya