Sharing the Chinese prosperity

A  Chinese proverb runs like this: "Not only clean air passes through open windows but also flies and mosquitoes." Thus, openness of the economy may have both advantages and disadvantages. China has opened up its economy to turn itself into an economic giant in the world. But trade is a positive sum game and other countries such as Bangladesh could also gain from export to and investment from China.
Gustav Papanek, a world renowned economist from Harvard, visited Bangladesh in 2010 - almost immediately after the present government assumed power. The purpose of his visit was, inter alia, to deliver a key-note speech on FDI (foreign direct investment) in Bangladesh. The seminar was organised by the Policy Research Institute (PRI) and the paper was titled 'Bangladesh Labour Force and Foreign Direct Investment -Major Asset or Biggest Problem?"  In that speech lasting more than one hour, the 80-year-old economist succinctly summarised the main source of rapid growth: Bangladesh could immensely gain by the labour-intensive exports to the Chinese market.  Labour should be turned into asset from liability by employing them in productive pursuits. The socio-economic change in China after it opened its windows comes as a blessing for Bangladesh.  It could capture a part of the Chinese market by exporting ready-made garments (RMGs), sports shoes, cars etc., in which China has apparently been losing comparative advantage in the wake of steeply rising labour cost.
In 2008, China had 30 per cent share of world garment and textile export. A 1.0 per cent from that for Bangladesh would mean exports worth $2.0 billion cashing in on cheap labour force. According to Papanek, in two years' time, with expansion of labour-intensive exports on the heels of judicious policy-mix, Bangladesh  would be able to generate 3.5 million jobs every year  or 7.0 million with a multiplier of 2 to feed 35 million hungry mouths.
The story does not end here. Employment of 3.0 million would add 1.0 per cent to GDP (gross domestic product growth or $ 1.0 billion as income. Papanek is right in his prescription about Bangladesh as, unless productive jobs could be created, problems would mount manifold.
Paul Samuelson once remarked: "The problem is no longer that with every pair of hands that comes into the world there comes hungry stomachs. Rather it is that, attached to those hands are sharp elbows". It is good news for Bangladesh that low fertility, increased food production and better farm management have helped feed hungry stomachs and foil sharp elbows.
After three years of Papanek's projection, in 2013-14, the volume of trade between Bangladesh and China stood at $8.0 billion. But the balance is heavily tilted in favour of China. Bangladesh imported goods worth $7.5 billion but exported goods worth $750 million only. The products are mostly RMG followed by jute and leather. China offers a huge market for low-end garment products.  Low export from Bangladesh is alleged to be on account of strict rules of origin (RoO) applied by China where 40 per cent value addition in export items is a must. Bangladesh has to buy almost all raw materials and intermediate inputs from outside that make it difficult to show higher value addition. China could show a gesture by reducing it to 25 per cent. Then, within 2-3 years, exports could cross $1.0 billion, other things remaining the same. But it is not a gift from China's end. The average wage in garments in China is $500 per month as against $70- $100 in Bangladesh.  The retail customers are reported to reap a gain by 15-20 per cent on every item of Bangladeshi origin. Labour is an asset in that sense and Bangladesh should seize upon this opportunity to take a larger slice of the Chinese garments and textile market.
There is another window opened by China that should not be lost sight of.  According to available information, within the next five years, China is poised to invest $500 billion in different countries of the world, import goods worth $10 trillion and export products worth $20 trillion. Given Bangladesh's geographic proximity and decades-old trade with China, Bangladesh should be ready to access a respectable proportion of that investment and trade. If that happens, creation of three million jobs would not be so difficult.
However, Bangladesh seems to be locked in 6.0 per cent growth trajectory. This writer thinks that reforms and  infrastructural development of the last two decades enabled Bangladesh to cross 4.0 per cent growth rate and reach 6.0 per cent plus. The old-fashioned reforms and infrastructural development would not help to meet a target of higher growth trajectory such as 7-8 per cent per annum.
Bangladesh needs to deepen its reforms and quickly complete the on-going mega projects. Until then, attainment of 7-8 per cent growth would remain a wish but not the reality on the ground.
During the last 5-6 years, the government targeted to raise GDP-investment ratio by 6.0 percentage points but only one percentage point could be achieved. FDI accounts for only 1.0 per cent of GDP, and domestic investment has not been picking up. In this grim scenario, taking investment to 28-32 per cent of GDP to generate 7-8 per cent growth rate would be an uphill task. The 'once in life-time opportunity' - as Gustav Papanek posits it - is knocking at Bangladesh's door with China offering a golden opportunity to expand trade and investment.
Be it from China or elsewhere or within the country, four major bottlenecks tend to bedevil investment in Bangladesh: political instability, regulatory regime militating against increased investment, infrastructural deficiency in terms of mega-projects, and a developed human resource base. The sooner we solve these problems the better would taste the Chinese soup.
The writer is a Professor
of Economics at
Jahangirangar University.  [email protected]