Bangladesh in China’s Orbit? Why India Must Reimagine Strategy

Bangladesh has gained prominence in the foreign policy architecture of both India and China, given its geographic location and rising economic salience. It is one of the fastest-growing nations in South Asia. Though its GDP slowed down in FY2025 to 3.5 per cent from 4.2 per cent in FY2024, mainly due to political instability, along with various restrictive macroeconomic policies, recurring floods and along with ongoing global disruptions in West Asia and the Russia–Ukraine conflict, the growth is expected to recover in FY2026 and FY2027 with projected growth rates of 4.0 per cent and 4.7 per cent respectively, as consumption and investment pick up, and especially as political uncertainty recedes after the general elections.

Bangladesh was slated to graduate from the Least Developed Country status in 2026. However, the new government requested that the UN CDP extend the status for an additional three years, citing the geopolitical conflicts that have impeded its growth. The immediate graduation would result in the gradual removal of preferential market access for its merchandise exports under the LDC scheme, rendering it more susceptible to competition. These three years would allow Bangladesh to implement deep structural reforms to diversify the export basket beyond ready-made garments (RMG) by developing high-value manufacturing like pharmaceuticals, electronics, shipbuilding, agro processing, enhancing technological capability, logistics infrastructure, export diversification, and institutional reforms. The emerging requirements of Bangladesh have driven up the demand for foreign investments, technology, infrastructure financing, and industrial partnerships, with China establishing itself as a significant contributor.

The demographic profile of Bangladesh further strengthens its economic prospects. In 2025, the population reached 175.7 million, with 66 per cent aged between 15 and 60 years. As per some studies, the demographic dividend peaked in the 2020s and is expected to persist till 2030.

This economic rise of Bangladesh, coupled with its strategic position north of the Bay of Bengal, linking South Asia and Southeast Asia, has enhanced Bangladesh’s geopolitical importance, establishing it as a vital hub for regional connectivity and maritime trade. Bangladesh is now deeply entwined with the larger geopolitical rivalry between nations like China and India, which see it as an essential component of their different frameworks for regional economic integration with diverse interests.

China’s Expanding Investment Footprint

In 2016, during the visit of Chinese President Xi Jinping, Bangladesh joined the Belt and Road Initiative of China by elevating their relation from comprehensive partnership to strategic partnership. Since then, China has become a significant investor in Bangladesh by investing extensively in energy and infrastructure projects. Today, China has become deeply embedded in Bangladesh’s economy, with over 240 Chinese companies holding a dominant position in critical sectors like major road, rail, and port infrastructure projects, energy generation, digitisation, defence cooperation and many more.

Some of the major infrastructure projects undertaken by China are: the Padma Bridge Rail Link project connecting Dhaka with Jessore through the Padma Bridge is the single largest bridge project to be undertaken by a Chinese company overseas in terms of both scale and investment, with 85 per cent of Chinese funding; the Bangabandhu Sheikh Mujibur Rahman Tunnel connecting the east and west banks of the Karnaphuli River; Chattogram seaport, which handles 92 per cent of the country’s overseas trade; developing the Mongla seaport with a government-concessional loan of USD 400 million; Payra seaport. Further, China's total FDI stock increased by 700 per cent to nearly USD 2 billion in 2025, up from USD 241 million in 2016, while India’s total FDI stock increased to USD 922.92 million in 2025, up from USD 341 million in 2016.

Chinese firms have started increasingly investing in labour-intensive manufacturing sectors, industrial parks and SEZs. The emphasis has increasingly been on relocating Chinese factories to Bangladesh, targeting sectors where the country possesses a sufficient labour force and technical expertise. Similarly, in the digital domain, Chinese giants like Huawei and ZTE have strengthen its foothold by expanding Bangladesh’s telecommunication infrastructure and 4G/5G readiness under a broader framework of the Digital Silk Road initiative.

Similar dependency can be seen in the defence sector as well, as China is the largest supplier of military hardware to Bangladesh. The Bangladesh Navy is also a key buyer of Chinese naval platforms, having received two refurbished Ming Class diesel-electric submarines, Type 053 (Jiangwei-II) frigates, four C13B-class corvettes, petrol boats, naval guns, anti-ship missiles, and surface-to-air missile systems. Chinese military cooperation with Bangladesh extends beyond the exportation of guns and equipment. It has facilitated indigenisation initiatives in Bangladesh's naval industry through technological support, as evident through the production of Padma-class inshore patrol vessels, the production of Durjoy-class large patrol craft under a technology transfer agreement with China and the construction of the first submarine base in Cox’s Bazar, potentially positioning Chinese submarines near India’s Andaman and Nicobar Command.

Building further on decades of ground work done by China and with the election of a new government under Tarique Rahman’s leadership, Bangladesh has actively sought to elevate bilateral ties to a new strategic level. The recent visit of Bangladesh’s PM Tarique Rahman to China in June has laid the groundwork for a long-term strategic partnership through infrastructure investment, connectivity projects, industrial investments and trade concessions. China has also committed approximately $300 million in grant aid. It has also reiterated its commitment to jointly undertake modernisation of Mongla Port Facilities and expansion projects, along with the establishment of the Chinese Economic and Industrial Zone in Chattogram. This would strengthen Chinese influence over critical maritime infrastructure close to maritime trade routes in the region.

There is a huge trade imbalance in China’s favour, which both sides agreed to reduce by expanding manufacturing capability and diversifying Bangladeshi exports. Bangladesh embraced China’s zero-tariff policy for all Bangladeshi exports and committed to enhancing the investment environment for Chinese investors, reinforcing Bangladesh's economic dependency on China for short-term gains. The CEOs of various Chinese companies met the PM and proposed a USD 11 billion investment in hydrocarbon exploration and development, development and operation of the Mongla Port Economic Zone, cold chain logistics, a bonded warehouse to support e-commerce and export industries in Mongla port, manufacturing of lithium batteries, and construction of a solar power plant in Payra port industrial zone, Dhaka – Chattogram highway PPP project and many more. Further, the strategic China-Myanmar-Bangladesh Economic Corridor (CMBEC), linking China to Bangladesh through Myanmar, leaves India out of the primary strategic architecture of the originally conceived BCIM corridor. China also agreed to assist Bangladesh’s Teesta River Comprehensive Management and Restoration Project, in addition to enhancing collaboration in flood mitigation, river dredging, hydrological forecasting, and irrigation systems.

China is not investing in Bangladesh just to counter India’s influence in the region; it is part of a broader strategy to restructure its manufacturing base and integrate partner economies into its regional and global value chains. China’s growth lies in the continuity of its trade flows, which largely transit through the Indian Ocean via the Malacca Strait, and it is yet to find solutions to its Malacca dilemma. Thus, the strategy of creating economic dependencies enables China not only to establish its foothold but also to consolidate its position and subsequently become well-entrenched to project influence in foreign policy matters of the smaller nations, favouring its regional aspirations.

Implications for India and Way Forward

These developments highlight Bangladesh’s regional engagement away from India. This would have considerable implications for India as it would reduce its competitiveness and market share in Bangladesh. Chinese-backed industrial zones and connectivity infrastructure projects would gradually reorient them towards a Chinese-led regional value chain, which would further exacerbate India’s trade imbalance with Bangladesh. China would gain strategic leverage in India’s immediate neighbourhood through connectivity projects, near India’s east and northeast states, which would further complicate India’s security calculus. These developments have ramifications for India in the long term, and it can no longer afford to opt for strategic patience while other players draw the regional geopolitical and strategic contours in its backyard. India’s traditional advantages carry weight but are no longer sufficient. India needs to look into its current approach towards Bangladesh and fill the gaps that persist, which have been exploited by China, for instance: slow implementation of the proposed projects, limited private sector investment, border-centric approach and reactive diplomacy.

The ouster of the Sheikh Hasina government and the electoral win of BNP under the leadership of Tarique Rahman, has changed the dynamics in bilateral ties between the two nations. This shift could probably be the outcome of India’s hesitation to deal with the BNP since 2006, when it was last in power; thus, there is a need to re-engage with every political party. Though Bangladesh is a sovereign nation to take its foreign policy decisions and choose its economic partners, it does not exist independent of broader geopolitical realities. History has shown that major powers have prevented aggressive powers from gaining military or strategic footholds in the immediate neighbourhood.

Disclaimer: Views expressed are of the author(s) and do not necessarily reflect the views of The Statecraft Institute.