China seeks to convert part of soft loans into commercial credit for Bangladesh

China has asked Bangladesh to convert part of the credit it promised during its president’s Dhaka visit to commercial loans.

Converting soft loans into commercial credit means Bangladesh will have to pay higher interest for the fund.

Bangladesh signed $25 billion deals with China for nearly two and a half dozen projects during President Xi Jinping’s visit to Dhaka in October last year.

Li Guangjun, economic and commercial counsellor at the Chinese Embassy in Dhaka, made the proposal during a recent meeting of the Joint Economic Council, according to a senior official at the Economic Relations Division or ERD.

However, the ERD official said in the face of resistance against such proposal, China showed the sign of softening its stance.

China said it was not promised that all the projects signed between the two sides during the president’s visit would be implemented on the G2G (government to government) basis. So, China proposed to give some of the loans on a commercial basis.

But usually, when the agreements are signed at the state level, especially in the presence of two heads of government, the loans are treated as soft loans.

The Chinese diplomat in Dhaka believed that Bangladesh could contribute to the project implementation fund along with China.

The Chinese official also said they would send ERD a detailed list outlining how much of the $25 billion for 34 projects would be treated as soft loans, how much as commercial credit and how much to be contributed by the Bangladesh government. 

“Any fund promised for G2G agreement implementation is considered a soft loan,” Shah Mohammad Aminul Haq, additional secretary of ERD, who led the delegation to the meeting, told bdnews24.com.

“I categorically told the Chinese delegation that we are not ready for any commercial loan. Since the agreements are signed on a G2G basis, the loan should be treated as the soft loan.”

“After we made our position clear, they apparently softened their position,” Haq added.

For the preferential buyers’ credit, the interest rate is slightly higher than 4 percent while the interest is only 2 percent for concessional government loans.