Chinese Investment in Bangladeshi RMG Sector : Challenges and Opportunities

Ready Made Garments (RMG) sector is one of the most potential sectors of earning foreign capital to improve economic growth. Bangladesh is the great place for Chinese investors to invest in RMG sector as its export trend is increasing day by day. The main objective of this research paper was to find out opportunities and challenges of Chinese investment in Bangladesh. Data were collected from different secondary sources. Low labor rate, labor availability, low government debt, huge gross national savings etc. influenced Chinese investors to invest. Besides, political instability, infrastructural factory premises, low lead time hampers the flow of Chinese investments. If necessary remedies are taken to mitigate the problems including training the labor force, Chinese investment in Bangladesh is going to be enhanced at a large scale.


INTRODUCTION
Investment helps to increase the surplus of capital account, improving balance of payment and macroeconomic stability of the country.Bangladesh received investment of $424 million last year compared to $366 million in 2016.(Bangladesh Bank, 2017).This increase of about 25% is higher than the average 23% worldwide growth of investment (Bangladesh Bank, 2016).By the late 1980s, China not only opened up its economy welcoming foreign capital, technology and expertise but also encouraged its own enterprises to invest abroad.The Chinese investors, who have moved out of RMG sector in their own country because of high labor costs and higher tariff slapped on their products by the developed countries, are particularly interested investing in the Bangladesh RMG sector.
The main objective of this study was to describe the present condition of Chinese investment in RMG sector in Bangladesh.The secondary objectives were to identify the reasons of Chinese investment, to describe the problems and opportunities as well as government rules and regulations of Chinese investment in Bangladeshi RMG sector.Mottaleb (2007) studied the determinants of foreign investment and their effect on economic growth in developing countries.He studied panel data of foreign investment flows of 60 low-income and lower-middle income countries and found that foreign investment has an important effect on economic growth of third world countries by creating bridge between the gap of domestic savings and investment and familiarizing the up to date technology and management skills from developed countries.Lee et al. (2008) analyzed the correlation between foreign investment inflows, exchange rate, and economic growth of Kazakhstan by a multivariate regression model with weighted least squares estimates.The results revealed the minimum significant impact of foreign investment on GDP growth of Kazakhstan.According to Chowdhury (2012), Foreign Direct Investment has been an important part of the economic transition, business liberalization and macro-economic growth story in Bangladesh over the last decade.Furthermore, these results indicate that market size, trade openness/access to international market and quality of labor are the major determinants that have significant effect on the foreign investment inflow.The study also found no effect of market potential and communication facility on the attraction of investment inflow in Pakistan.Quader (2009) applied extreme bounds analysis to the data of the various catalyst variables of FDI inflows in Bangladesh.He found foreign investment and domestic investment have a positive effect on economic growth.Misztal (2010) examined the influence of foreign investment on the economic growth in the Romania in period of 2000 to 2009 using the Vector Auto regression Model (VAR) and found linear relationship between foreign investment and economic growth.

LITERATURE REVIEW
Azam and Lukman (2010) examined the impacts of exports and foreign investment on economic growth of South Asian countries namely India, Indonesia and Pakistan with simple log linear regression model using secondary data ranging from 1971 to 2005 and found that due to promotion of exports, economic growth of each country would increase.Islam et al. (2013) stated that Greenfield investment encourage more Chinese companies to invest in Bangladesh in textile sector; to relocate outward investment and joint venture with Bangladeshi companies could achieve gainful strategies.To capitalize on the comparative advantages, substantial foreign investment from China is highly encouraged.Ahmed and Hossain (2009) suggested that if Bangladesh cannot ensure the safety of the employees at the working place, it will impact severely at one point of time because the international buyers like to purchase products from the company complying with the safety of employees.Ahmed and Nathan (2014) found that after the Rana Plaza disaster, a number of global buyers have come forward to put up some money to improve factory safety conditions.Abdin (2015) stated that absence of efficient physical infrastructure, lack of professional and sector wise trained man power and bureaucratic complexity can hamper the Chinese and overall investment trend in Bangladesh.

Present condition of chinese investment in RMG Sector
There is a great opportunity to invest in Bangladesh, but the investment inflow from China to Bangladesh is increasing slowly due to many reasons.Compared to the other Asian countries, the growth rate of inward investment in Bangladesh is comparatively slow.
Figure 1 shows that Chinese investment in Bangladesh garment sector was 21.38 million USD in 2013 and it increased (35.82%) in 2014 to reach 29.40 million USD.It also increased in 2015 reaching 37.11 million USD which was 26.22% higher than 2014 but unfortunately it declined in 2016 to 16.46 million USD which was 55.64% lower than 2015.In 2017 it increased again to 30.68% than 2016 but not higher than 2015.Chinese investment in the RMG sector increased day by day though in 2016 it declined but the total Chinese investment was still increasing.In 2014, the total investment of China in all sectors was 5.07% higher than 2013 followed by 7.52% in 2015, 8.38% in 2016 and 4.52% in 2017, whereas RMG investment of China declined by 55.54% as compared to 2015.In that year, RMG raw materials price was increased rapidly so that many firms of China owning RMG decreased its production however; other sectors were still operating in a high speed than before.

Reasons of Chinese investment in Bangladeshi RMG sector
Table 1 shows that the number of garments factories in Bangladesh

Labor availability
Several reasons are identified which encourage the Chinese investments in Bangladeshi RMG sector.These are as follows: Low labour rate: Factories in China are not competitive anymore because of increasing wages of labourers and a sharp hike in overall production costs.Bangladesh has comparatively lower rates than China.But China did not choose Afghanistan, Azerbaijan or Democratic Republic of Congo because of their political dispute though their labor rate is lower than Bangladesh.So, Chinese firms are more interested to invest in Bangladesh (Table 2).
Labor hour: Most of the country's labour hours are set at 40 h in a week and some countries like Bangladesh work for 48 h per week.
The highest working labor in the world is Kenya with 52 h per week but its labour rate per hour is 0.53 in a week in USD.In China, it is 40 h in a week, and so China has great opportunity to invest in Bangladesh especially in the Garment sector (Table 3).Gross National Savings on GDP: It indicates the profit and savings condition of any investor or firm.Bangladesh has less national savings (28.8%) than China (45.8%) but it is not worst among the total countries.It is very important in the RMG sector in Bangladesh and for this purpose Chinese investment is enlarging day by day because savings rate is also in the increasing trend (Table 4).

Export trend:
In FY 2015-16, the country's total exports amounted to US$34,257.18million, which was 9.77% higher than the previous year's export earnings.In FY2016-17, total export earnings moderated at US$34,846.84 million, up by 1.72% from the previous fiscal year.Presently Bangladesh is exporting RMG to around 151 countries in the world which include USA, Germany, United Kingdom (U.K), Spain, France, Japan, Netherlands and Australia (Table 5).
Government debt: Bangladesh (33.33%) has much more efficient and capable debt position than many other countries especially in the sub-continent.China invests in garments sector without hesitation and it also increases the investment because different financial organization can help Bangladesh if any difficulties may occur as Bangladesh has low government debt and it can repay the loan if needed (Table 6).
Tax system: Tax rate position of Bangladesh (4.5) is lower than  7).

Problems of Chinese investment in bangladeshi rmg sector
Lending interest rate: Lending interest rate in Bangladesh is higher than China and many other countries.In 2014, Chinese interest rate was 5.6% where Bangladeshi interest rate was 13% that means double to the Chinese investment.But for labor availability and labor rate, China has keen interest to invest in Bangladesh and it is increasing but high interest rate hampers the Chinese rapid investment growth (Table 8).
Working position: Women work mainly as helpers, mechanists and less frequently, as line supervisors and quality controllers.
There are no female cutting masters.Men dominate the administrative and management level jobs.
Corruption: Few years ago, Bangladesh was the number one position in corruption but now-a-days it is improving and people of Bangladesh have changed their habits for being corrupted.But this improvement is not so good as compared to China and some other sub-continent countries.Chinese corruption position is lower than Bangladesh and so China has faced some problems in RMG sector for investment (Table 9).
Factory Premises Infrastructure: As the RMG sector holds major portion in Export earnings and shares a handsome contribution of GDP, infrastructure development is the major challenge in the way of developing safe factories and workplace for workers.The consequences of those unplanned issues are showing off now looking into the happening of destructive disasters like Rana plaza and Tazrin garments which killed almost 2000 people and injured another thousand (Table10).

Unskilled workforce:
In Bangladesh, the garment workers are mostly women with little education and training.The employment of an uneven number of unskilled labours by the garment factories results in low productivity and comparatively more expensive apparels.
Lead time: Now-a-days, the lead time has normally 30 to 40 days in the current decade where average lead time of Bangladesh for Woven Garments is 90 to 120 days and 60 to 80 days for Knitwear Garments while in China the lead time for Woven Garments are 40 to 60 days and 50 to 60 days for Knitwear Garments (Table 11).
Inflation rate: Inflation rate hampers the trend of investment to the foreign countries.Chinese inflation rate is so low that it cannot bear so much inflation rate in any country where China invests.So, Chinese investment of RMG sector is impeded for higher inflation rate of Bangladesh (Table 12).

Facilities of Chinese investment in RMG sector of Bangladesh
Quota-free Market: The greatest opportunities lie in the apparently unlimited market outside of Bangladesh.In a quota-free world, the United Nations Commission for Trade and Development (1999) estimated that removal of the Multi-Fibre Agreement (MFA) and tariffs by developed countries will expand exports of clothing by 135% and textiles by 78%.In the knitting sector, Bangladesh gained substantial competitive advantage over her competitors.
Duty advantages in export industries: Bangladesh is getting GSP facilities in 38 countries including EU (28 countries) and some other (10 countries) selected countries.EU countries are importing 90% of garments from Bangladesh, so if China increases more RMG industries in Bangladesh or increases its investment in Bangladesh then it captures the EU countries market more and more.
Geographic and demographic advantages: Bangladesh has very convenient access to international seaports, air routes and others.It has 3 seaports (Chittagong, Mongla and Payra), 3 international airports (Dhaka, Chittagong and Sylhet) and 22 land ports.The port of Chittagong in Bangladesh will be handed over to the foreign operator including China which will reduce lead-time as well as total cost will be decreased.
Growth rate acceleration: Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period of time.GDP rate in Bangladesh is increasing and therefore investment rate is also increasing.
Chinese RMG firms get these facilities to invest in Bangladesh though Bangladeshi GDP rate is lower than China and India but it is higher than many other countries (Tables 13 and 14).
Trade tariffs facilities: Bangladesh provides 13.10% trade tariffs that can't provide any developing and developed countries even China or India or USA (Table 15).
Strong Forward and Backward Linkage: Now-a-days maximum raw materials are available in the local market.85% of knitted fabrics demand met by locally.Over last few years Bangladesh's strength in producing cotton based yarn and fabric has increased significantly.China also gets these opportunities for investing the

Government rules and regulations for Chinese investment
Infrastructure: BSCIC provides infrastructural facilities by establishing 79 industrial estates throughout the country:  which were scheduled to complete by March 2014.
Machineries and equipment's: Depreciation rates are determined by the legislation and vary from 10% for buildings to 30% for aircraft and computers.Depreciation at the rate of 2% is available for physical infrastructure undertakings (bridges, roads or flyovers) from the tax year 2011/2012 (previously 1%).The cost of replacement of plant with a useful life of not more than a year is immediately deductible.According to the Income Tax Ordinance, 1984 the govt.for the purpose of computation of tax, is pleased to allow accelerated depreciation to any machinery or plant, other than office appliances and road transport vehicles, which have not being previously used in Bangladesh, has been or is being used in such hi-tech electronics industries as may be specified by the board and set up in any export processing zone declared under section 10 of BEPZ Authority Act.Raw materials: Prices of cotton and other raw material used in textile industry fluctuate rapidly in Bangladesh.According to the report of BEPZA in 2016, import of construction materials are duty free for Chinese investors and import of machineries, office equipment and spare parts are also duty free.

DISCUSSION
The next set of Tables (Tables 18 to 21) provide a realistic view of the opportunity to invest in Bangladesh whereby a SWOT analysis is performed offering firsthand view of all possible facilitations accompanied by the different performance evaluations expectations to investors from China.

SWOT analysis
The SWOT analysis is shown in Tables 18 to 21.

Conclusion
Bangladesh is the second largest garments producer and

Infrastructural Advantages
Duty free import of construction and factory setup materials, duty free import and export of raw materials and finished goods and duty free import of machineries, office equipment and spare parts get Chinese investors attracted more to invest in RMG sector.

Geographic and Demographic Advantages
Bangladesh has very convenient access to 3 international seaports, 3 international air routes and others to move easily.

Trade Tariffs Facilities
Bangladesh provides 13.10% trade tariffs that can't provide any developed countries even China or India or USA.

Market Competitors
Top readymade garment exporter in the world, Bangladesh will beat India and China in near future because of its low labor rate and high labor availability.Bargaining Power of Buyers Quota system, GSP system and low labor cost are making balances in the market for Bangladeshi Chinese firms to do business and invest more in future in Bangladesh.Bargaining Power of Suppliers Due to cheap labor, Bangladeshi factories provide the shipment of products timely and use the cheap labor as overtime and produce more goods in time.

Political Instability
The political unrest, complicated policies, backed by corrupted administration is badly damaging the productivity and goodwill of the RMG industry.
Environmental Factor Recent fire accident in Rana Plaza and Tazrin Fashion Garments which killed almost 2000 workers and injured another 1000 people is the main headache of Chinese investors of garments industries

Lack of Social Responsibilities
In the corporate world in Bangladesh the social responsibilities are not yet so widespread and Chinese companies are not so interested in emphasizing on commercial, technical and corporate social responsibilities in the local market as well.

High Rate of Interest and Inflation
Lending interest rate in Bangladesh (13%) is higher than China (5.6%) where Chinese inflation rate (2%) is so low than Bangladesh (6.4%).

Imbalance Workforce
Uneducated or somehow educated and not much more trained workers work through imitating others for the first few days and then do their own way.Corruption Improved position but not equal or lower than China.
exporter in the world while China is the first position in this field.Bangladesh is the target place of Chinese investors as Bangladesh has a huge amount of labor availability and low labor cost though workers are not properly educated, trained and skilled.For investing and doing business in Bangladesh, Chinese investors get quota free market, tax exemption facilities, tariffs advantages etc. for RMG sector investment.Lending interest rate should be reduced through diversification of investment, to make digitalization of all official documents and data to reduce corruption and poor infrastructure system should be changed and developed by improving government infrastructural system for better investment in RMG sector in Bangladesh.
Tax exemption: 10 years tax holiday for the Industries to be established before 1st January, 2012 and Duration and rate of tax exemption for Mongla, Ishwardi and Uttara EPZ for the industries set up after January 01, 2012 are 100% for first 03 years and 50% for next 03 years where tax exemption for Chittagong, Dhaka, Comilla, Adamjee, and Karnaphuli EPZ are 100% for first 02 years and 50% for next 02 years (Tables16 and 17).
To get satisfactory amount of foreign

Table 1 .
Number of garments factories and workers.

Table 2 .
Different countries labour rate in yearly and per hour basis.

Table 3 .
Different countries hours of labour in a week.

Table 4 .
Different countries gross national savings rate.

Table 5 .
Different years exports in Bangladesh.

Table 6 .
Different countries government debt.

Table 7 .
Tax rate score of different countries.

Table 8 .
Different countries lending interest rate in different years.

Table 9 .
Different Countries Corruption Score.
Source: The Global Competitiveness Report 2017-2018.China (7.8) and many other Asian Countries and for this reason, China is more interested to invest in Bangladesh (Table

Table 10 .
Inadequate supply of infrastructure with its world position.

Table 11 .
Lead time of Bangladesh and Chinese garments industries.

Table 12 .
Distribution of Inflation rates versus world scores.

Table 13 .
Total GDP and GDP Per Capita in Different Years.

Table 15 .
Distribution of trade tariffs.