How China overtakes US, India to become Bangladesh's top investor, private creditor
In the decade since that state visit, China has emerged as a major investor by heavily financing large-scale energy and infrastructure projects, outpacing both the United States and India.
China was not even among the top 10 investor countries in Bangladesh until 2016, when Chinese President Xi Jinping visited Dhaka and pledged approximately $40 billion in investment and financing commitments.
In the decade since that state visit, China has emerged as a major investor by heavily financing large-scale energy and infrastructure projects, outpacing both the United States and India.
Although the promised investments were not released as rapidly as initially expected, the sheer scale of Chinese capital has transformed the country into one of Bangladesh's top foreign direct investment (FDI) sources and its largest private-sector creditor, leveraging deep financing for mega-infrastructure projects like the Padma Bridge.
Closing the gap
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China ranked 16th among investing nations in 2016, holding a modest 1.6% share of total FDI stock at a time when the US was the top FDI source and India ranked 11th. However, China rapidly closed the gap, rising to become the third-highest FDI source in Bangladesh by 2025 and increasing its share to nearly 10% of the country's total FDI stock.
According to Bangladesh Bank data, China's total FDI stock surged by 700%, reaching nearly $2 billion by the end of 2025, up from just $241 million in 2016. In 2025 alone, China stood as the second-largest source of FDI for Bangladesh, registering $321.15 million in net single-year inflows.
Conversely, the US slipped to seventh position as its share of total FDI stock fell sharply to 5.36% in 2025, down from 22% in 2016. In absolute terms, the total US FDI stock contracted to $1 billion at the end of 2025 from $3.3 billion in 2016.
Neighbouring India stood just behind the US as its share of total FDI stock grew modestly from 2.3% to 4.6% over the same period. India's total FDI stock rose to $922.92 million at the end of 2025, up from $341 million in 2016.
However, Indian investment subsequently slowed following the domestic uprising as India-backed initiatives encountered severe execution bottlenecks that led to the cancellation or suspension of multiple projects.
Prominent among the China-backed mega-projects were the Padma Bridge Rail Link, the Karnaphuli Tunnel, the Chattogram-Cox's Bazar railway line, the Payra Thermal Power Plant, the Chattogram Elevated Expressway, and the Dasherkandi Sewage Treatment Plant.
This multi-billion-dollar influx of Chinese financing into major infrastructure projects underpinned an era of massive development, helping sustain an annual economic growth rate of 6% to 7% and positioning Bangladesh as the fastest-growing economy in South Asia.
Largest private-sector creditor
China, which was not even among Bangladesh's major creditor countries a decade ago, emerged as the country's largest private-sector creditor in 2025. By contrast, the US fell to fourth position, while India did not place among the top 10 creditor nations tracked by the Bangladesh Bank.
Central bank data show that China's share of Bangladesh's total private-sector, long-term external debt jumped to 34.20% in 2025, a dramatic increase from the 7.5% share it held in 2020 when it was only the fifth-largest creditor. In absolute terms, total private-sector external debt owed to China stood at $3.37 billion at the end of 2025, up from just $422 million in 2020.
In contrast, the US slipped to fourth place on the top creditor list in 2025, down from the second position it occupied in 2020. The US share of Bangladesh's total private-sector external debt halved to 7.6% over this period, with the total outstanding debt falling to $751 million by the end of 2025.
Why Chinese investment expanded
Speaking to The Business Standard, experts attribute the popularity of Chinese investment to its competitive pricing and accessibility.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said Bangladesh imports substantially more goods from China than it exports, while Chinese industrial machinery and capital equipment have become increasingly attractive because of their competitive prices and improving quality.
He said many Bangladeshi businesses that previously relied on European suppliers now source machinery from China because comparable products are available at considerably lower prices.
Mahbubur said Chinese financing has also become attractive because of its accessibility and the availability of large pools of capital. Although Chinese loans may carry higher interest rates or shorter repayment periods than some international lenders, they are often viewed as more flexible.
Unlike financing from institutions such as the International Monetary Fund, Chinese funding generally involves fewer policy conditions or reform requirements, making it appealing for countries seeking quick access to capital for major infrastructure projects, he said.
Mahbubur also noted that Chinese companies and professionals have established a growing presence in Bangladesh, particularly in industrial areas around Dhaka, while China's large trade surplus enables it to finance overseas investment on a significant scale.
Deepening the Belt and Road Initiative
M Masrur Reaz, chairman of Policy Exchange Bangladesh, said Bangladesh formally joined the Belt and Road Initiative in 2016 during Xi Jinping's state visit, when China announced commitments of about $26 billion for Belt and Road projects and $14 billion for joint ventures, bringing the total to around $40 billion.
He said Belt and Road projects in Bangladesh have primarily focused on transport and energy infrastructure, addressing critical development gaps while supporting trade efficiency and strengthening Bangladesh's potential as a regional connectivity hub.
China has also become Bangladesh's largest trading partner, supplying machinery, capital equipment and intermediate goods used by key export industries, including garments, leather and electronics.
Looking ahead, Reaz said Bangladesh's long-term development would depend on expanding renewable energy capacity and modernising its industrial base.
He added that the benefits of Chinese investment would depend on transparent procurement, stronger public-private partnerships, effective regulatory oversight and greater emphasis on local capacity building and technology transfer.
Debt sustainability concerns
Reaz cautioned that debt sustainability should remain a central consideration as Bangladesh expands infrastructure financing.
He pointed to Sri Lanka's experience with the Hambantota Port and Pakistan's experience under the China-Pakistan Economic Corridor as examples of how heavy external borrowing can create fiscal pressures if projects are not economically viable.
He said Bangladesh should ensure rigorous feasibility assessments, transparent loan terms, diversified development partners and strong regulatory oversight to maximise long-term economic returns while avoiding excessive dependence on a single source of financing.
BNP govt strengthens economic engagement
The BNP government has moved to deepen economic cooperation with China. During his first official visit to China as prime minister, Tarique Rahman prioritised trade, investment, infrastructure and regional connectivity while seeking greater Chinese investment.
Bangladesh signed a series of investment agreements with China, including cooperation on the proposed Teesta River project and the China-Myanmar Economic Corridor.
The two countries also agreed to develop the China-Bangladesh Mongla Port Economic Zone on land that had previously been allocated for a proposed Indian economic zone after the Indian project failed to progress within the agreed timeframe.
In addition, China's Handa Group secured land in the Keraniganj Economic Zone for a planned $220 million investment, while Bangladesh signed a developer agreement with China Road and Bridge Corporation for the Chinese Economic and Industrial Zone in Anwara, Chattogram.
Bangladesh and China also signed 13 memoranda of understanding on 25 June, following talks between PM Tarique and Chinese Premier Li Qiang in Beijing, further strengthening bilateral economic cooperation.
