The sluggish economic situation in China may help stimulate to some extent the manufacturing sector of Bangladesh that largely depends on raw materials and intermediate goods from the world's second largest economy.
Most of the local industrial outputs both for exports and domestic markets are based on imported inputs mainly from China, according to businesses and economists.
They argued that the economic slowdown in China may make raw materials and intermediate goods cheaper and help boost manufacturing in Bangladesh.
However, there is also a scepticism about a possible setback that may raise the cost of goods due to scarcity amid production cuts, they added.
The Chinese economy slipped into a deflation in July for the first time in more than two years while its producer price index (PPI), a gauge of the prices of goods as they leave factory gates, was also down 4.4 per cent.
Deflation is a decline in prices of goods and services in an economy or just the inverse of inflation. This occurs when consumption becomes weaker.
People familiar with the matter told the FE that any economic changes in China would have an impact on economy.
In 2021-22, China's share in Bangladesh's imports was 25.59 per cent.
"First of all, the manufacturing enterprises will get goods at cheaper rates during this time of deflation which may help spur it," said Dr. Ahsan H. Mansur, executive director at the Policy Research Institute of Bangladesh or PRI, a privately-owned think-tank in Bangladesh.
He said China's exports fell by over 14 per cent in July last compared with the same period a year earlier in one of the starkest indicators facing the Chinese economy.
"China will now make aggressive marketing to boost its exports and Bangladesh may gain."
People having businesses with China told the FE that it (deflation) would lead to a fall in prices of Chinese products. Around 87 per cent of Bangladesh's total imports consist of materials for consumer goods and capital goods. And a significant part of it comes from China.
"So deflation is expected to leave a notable positive impact on the Bangladesh's manufacturing sector," said one of them.
Secretary General of Bangladesh China Chamber of Commerce & Industry Al Mamun Mridha said it will help reduce the prices of imported goods from China.
"But, there is a little to cheer about because of the growing appreciation of the greenback against Bangladeshi Taka as it is likely to eat into benefits," he added.
When things started showing some improvement, he said, the Russia-Ukraine war along with volatility in foreign exchange and oil prices worsened the situation further fuelling the inflation globally.
To rein in the growing inflationary pressure, the Chinese government took various measures as part of their long-term plans and the deflation is probably the result of it, he said.
However, economists say that if the deflation continues for a long time in the Chinese economy, it may create havoc not for Bangladesh but for the rest of the world.
Chairman of the local think-tank Policy Exchange of Bangladesh Dr M. Masrur Reaz said Bangladesh has long been trading with China but it has become multidimensional and stronger since 2016.
China is now the largest import destination for Bangladesh as the country's manufacturing sector largely depends on imported raw materials and intermediate goods from China.
The deflation in the Chinese economy indicates a slowdown of industrial outputs, which would have an impact on the availability and prices of Chinese products. So it might raise the import costs by creating a scarcity of goods.
The economist said the cash flow of many Chinese companies would be weaker because of the economic slowdown and it, ultimately, could affect the FDI (foreign direct investment) inflows.
If the deflation persists for a more extended period, it might cause lower demand and slower consumption in the Chinese economy. So, the sector having immense export potential to the Chinese market would face a setback as it would hold back its prospects.
There is another flip side that once China starts aggressive marketing the local clothing sector may face troubles.
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