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Bangladesh - Bank & Finance - Diplomatic - World wide - February 3, 2024

China reluctant in fresh loan

Interested for trade in Chinese currency

Rabiul Haque : Chinese loan discount for Bangladesh reduced. Again, the country has not given any new promise of financing any project in recent times. China’s debt relief has been brisking in the past two fiscal years. At this time, big projects were also taken with loans from Beijing. But in the first six months of the current financial year (July-December) the money has been discounted by one-third compared to the entire period of the previous financial year.
According to the sources of Economic Relations Department (ERD), China released a total of $360 million last July-December. At the current market rate, the amount is about 4 thousand crore rupees. In the same period of the last financial year, China released $540 million or about Tk 6,000 million. As such, the monetary exemption has decreased by $18 million or Tk 2,000 million.
On the other hand, the Chinese government did not promise to give loans to any project last July-December. However, negotiations to finance a project to buy the ship are currently underway. In total, six months of ‘default’ on Chinese debt have passed and loan defaults have fallen by 32 percent.
Talking to the officials of ERD, it is known that China gives loans to Bangladesh in two currencies, dollar and yuan. However, the amount of loans given in yuan is relatively small.
However, it is not known in detail whether the reduction in the disbursement is due to the lack of interest from China or the slow implementation of projects in Chinese loans. As per the rules, in case of loan agreement, the loan amount has to be repaid at regular intervals as per the agreement.

As such, ERD-related sources could not provide any detailed information about how much debt was supposed to be waived by China during the last July-December period. However, the issue of loan exemption often depends on the speed of project implementation. Several ERD officials said China is now more interested in lending in its own currency, the yuan, than in dollars.
Therefore, some of the officials think that China has adopted a strategy to reduce the loan discount in dollars so that Bangladesh is interested in taking loans in yuan. In the last financial year 2022-23, China had given a total of $113 billion.
Talking to the officials of ERD, it is known that China gives loans to Bangladesh in two currencies, dollar and yuan. However, the amount of loans given in yuan is relatively small. Because, Bangladesh is interested in borrowing more dollars.
Loan agreement with China. So why the delay in releasing money to the ongoing project? According to the contract, there is a legal obligation to discount the money. China is not short of money. What does China think, we can’t pay the debt? If so, it is “mysterious
Ahsan H. Mansoor, Executive Director, Policy Research Institute (PRI), a private research institute says:
China wants to strengthen its currency, the executive director of the private research institute Policy Research Institute (PRI) Ahsan H. Mansoor said, “The loan agreement with China has been done. So why the delay in releasing money to the ongoing project?
According to the contract, there is a legal obligation to discount the money. China is not short of money. What does China think, we can’t pay the debt? If so, it is “mysterious”.’ According to him, Chinese contractors work on China’s loan projects. Contractors can be billed in yuan. However, it will not be right to slow down the discount rate.
In total, 14 projects including elevated expressways, railways, roads are currently being implemented with Chinese loans. The contribution of Chinese loans to these projects is as much as one thousand billion dollars. According to ERD sources, China’s loan concession has been reduced in two separate projects of Rajshahi WASA and government ship purchase. Due to this, the implementation of the two projects was somewhat slow.
China has already entered the list of top creditors of Bangladesh. Among the 32 countries and organizations that provide loans to Bangladesh, China is now fourth. Only Japan, the World Bank and the Asian Development Bank (ADB) are above China.
The repayment period of Chinese loans is also quite short. Excluding the grace period, this loan has to be repaid in 10-15 years. This increases the amount of money in each installment, which puts pressure on the overall loan repayment.
Yao Wen, the Chinese Ambassador to Dhaka, met with Planning Minister Abdus Salam last Tuesday and expressed his interest in dealing with Bangladesh in Chinese currency Yuan. At the end of the meeting, the Chinese ambassador Yao Wen told reporters that the problem of the dollar currently exists worldwide. The price of dollar fluctuates due to US monetary policy. Almost all developing countries including China are suffering from this.
On the other hand, the planning minister said that such minor problems will be resolved through discussion.
A senior official of ERD told, “If Chinese loans are taken in US dollars, the cost of borrowing is slightly higher than in yuan.” So, China is more willing to lend in yuan instead of dollars. We have already asked the Ministry of Finance and Bangladesh Bank for their opinion on this matter. He also said that the speed of Chinese loans has not decreased much. Major projects are ongoing with their funding.
With the speed of implementation of big projects, the discount usually increases. Therefore, China’s monetary concession almost doubled in 2022-23 compared to 2019-20. According to ERD sources, China’s debt write-off in the fiscal year 2019-20 was $600 million. In the financial year 2022-23 it increased to $113 crore. Of this, however, due to Covid, the loan waiver in 2020-21 fell to $240 million. For the first time in the 2021-22 financial year, China entered the billion-dollar club or the club of hundreds of millions of dollars.
After independence in 1975, China gave a loan to Bangladesh for the first time. After many years China’s debt did not get much. Chinese President Xi Jinping visited Bangladesh in 2016. Then he announced to increase loan assistance in various projects of Bangladesh. Since then, China’s debt has accelerated.
A major disadvantage of Chinese debt is that it is all supplier debt. The contractor is appointed by the Chinese authorities. Again, at the stage of loan negotiation, the contracting company finalizes the price. It often raises questions about the quality and cost of work. In the case of Chinese loans, there is no opportunity to see bids from multiple bidders through tenders.
The repayment period of Chinese loans is also quite short. Excluding the grace period, this loan has to be repaid in 10-15 years. This increases the amount of money in each installment, which puts pressure on the overall loan repayment.

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