- China soft loans fund rail upgrade as part of new Silk Road
- New network may lift economic growth to among fastest in Asia
In Bangladesh, it’s the age of rail.
After decades of neglect and decline, the nation’s railway network, much of it dating back to British colonial times, is being updated under a $30 billion plan to renovate stations and workshops, buy new trains and lay thousands of kilometers of new track.
The renewed enthusiasm for rail in one of Asia’s poorest nations is largely thanks to China, and its ambitious agenda to extend trade tentacles across Asia.
China’s efforts to turn its Silk Road investments into workable projects have been slow-going in more developed countries like Thailand because of a reluctance to become too dependent on Asia’s largest economy. But for Bangladesh, the combination of technology and cheap finance is irresistible.
Beijing is offering $9 billion in loans at 2 percent interest, repayable over 15 years with a five-year grace period, according to a document seen by Bloomberg. The funding plan was discussed at two meetings last year, say officials who were briefed on the talks and asked not to be named because the negotiations are private.
Dhaka wants the cash to build at least six rail projects connecting the capital with key industrial areas and the Indian border. Together with a program of updating existing lines and building bridges, the policy could raise the nation’s economic growth to among the fastest in the region.
“In contrast with trade agreements, which are top down and take time to negotiate, the Silk Road project is a bottom-up project that creates jobs for Bangladesh right away,” Tan Khee Giap, an associate professor at Singapore’s Lee Kuan Yew School of Public Policy, said by phone. “China has the surplus capital and the ability to facilitate this kind of approach.”
Bangladesh’s government on May 3 approved a 172-kilometer (107 miles) rail project that will cost 350 billion taka ($4.5 billion) and will connect Dhaka and Jessore, a district on the border with India, linking the capital to the country’s southwest for the first time by rail.
China will provide 247 billion taka in soft loans, under plans for the project. The track will cross the 6.15-kilometer Padma bridge, which will be the nation’s largest once completed by China Major Bridge Engineering Co. under a 121-billion taka contract.
The bridge is the centerpiece of efforts to connect a nation that’s been fragmented for centuries by some 700 rivers that flow across its vast floodplains. The bridge, over the main channel of the Ganges, should open to traffic by 2018, with the Jessore rail line due to be completed four years later. The two projects would boost the country’s economic growth by 1.5-1.75 percentage point, according to Planning Minister A.H.M. Mustafa Kamal.
Bangladesh has conferred with the Chinese embassy in Dhaka on loans for other rail lines too, including a $4 billion dual track from Dhaka to Chittagong, the largest single railway project in the country.
Bangladesh’s gross domestic product has been growing at a rate of more than 6 percent a year since 2010, helping lift millions from poverty. Raising the investment rate to 34 percent of GDP, from 25 percent now, could see the pace of economic expansion accelerate to 8 percent, according to a study by Sadiq Ahmed, vice chairman of Dhaka-based Policy Research Institute.
China’s success in the country has been supported by Finance Minister Abul Maal Abdul Muhith, who advised the ministry’s Economic Relations Division to accept Chinese loans for one of the rail projects, according to a letter seen by Bloomberg.
It’s part of a 20-year master plan by Bangladesh to spend 2.34 trillion taka on 235 railway projects through 2030. The country has 2,877 kilometers worth of railroads and aims to add another 375 kilometers by the end of this year.
Still, it’s not all plain sailing for China. Chinese President Xi Jinping’s “one belt, one road” trade and investment strategy has met resistance from governments wary of China’s growing influence.
In Thailand, China recently failed in an effort to help build and finance a rail line from Bangkok to the northeastern city of Nong Khai, near Laos. The Thai government balked at China’s request to develop commercial property along the planned line.
Even in Bangladesh, there have been setbacks for Beijing. China Railway Group signed a 2014 memorandum to build a 129-kilometer railroad from Dohazari to Gundum, near the border with Myanmar, via the tourist district of Cox’s Bazar, which boasts Asia’s longest continuous sand beach. Funding for that project now looks set to go to the Manila-based Asian Development Bank, long controlled by Japan and the U.S.
The ADB says it has an agreement in principle to provide three-quarters of the cost, or $1.5 billion, at a variable rate tied to the six-month Libor rate.
Bangladesh “is trying to ensure it does not give too much to one single party or nation,” said Khondaker Golam Moazzem, head of research at the Dhaka-based Centre for Policy Dialogue.
Saifuddin Ahmed, a joint secretary of Bangladesh’s Economic Relations Division, who handles ADB loans, declined to comment on why the government decided against China’s bid for the project. Even with ADB funding, Chinese companies could still be involved in the line’s construction.
In many cases, China’s deep pockets and willingness to take on risky projects is helping it displace Japan as Asia’s major development-assistance provider.
China Communications Construction Co. last year won a contract to build a 3.4-kilometer tunnel under the Karnaphuli River in Chittagong -- part of a $1.1 billion road project in the nation’s largest port, financed with Chinese soft loans.
“China is out-competing Japan, especially in the least developed markets in Asia, in places like Bangladesh and Cambodia,” said Tony Nash, Singapore-based chief economist at Complete Intelligence, which advises companies and institutions on Asia. “The Japanese have had to re-examine their competitiveness in terms of their financing and their whole approach.”