Chapter One: Introduction of the Research Context

1.1 Bangladesh - Geographic Location and Political History

In between two big neighbors，China and India, Bangladesh is a small country inSouth Asia on the north shore of the Bay of Bengal, connected to the Indian Ocean.Geographically rich by the fertile Ganges-Brahmaputra Delta, Bangladesh has regularmonsoon floods and frequent cyclones in its coastal area. The area of Bangladesh is 56,977sq miles (147,570 sq km) with a population of 149,772,364 (BBS, 2011). Bangladesh is theworld's 8*h most populated countries and has one of the highest population densities (about1015 people per sq km). This high population created a scarcity of arable land and hasmade it a potential big market for neighboring countries. It borders with the Bay of Bengal in the south; Indian states of West Bengal in the west and north, Assam and Meghalaya inthe northeast, Tripura and Mizoram in the east; and Myanmar in the southeast. On onehand Bangladesh is very important for the national security of India considering theisolation of India's eastern states; on the other hand, the Bay of Bengal is a gateway forEast Asian countries such as China, Japan and the western world. Thus historicallyBangladesh has drawn attention to both east and west.

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1.2 Political System in Bangladesh

Although more than fifty political parties exist in Bangladesh, only two majorparties rule the country most of the time. Of these，one is Bangladesh Awami League theoldest party in Bangladesh that led the liberation war and the other is BangladeshNationalist Party (BNP). The third and fourth largest parties are Jatya Party and Jamat - e -Islami respectively. The BNP finds its allies among Islamist parties like Jamaat-e- IslamiBangladesh，which was against the liberation of Bangladesh. Awami League allies withleftist and secularist parties and recently allied with Jatya Party headed by the formermilitary ruler Hossain Mohammad Ershad. Recently the rivalry between Awami Leagueand BNP has been dubbed as the competition between 'two begums^’ and has made politicsin Bangladesh more violent and bitter. There is a common perception among people inBangladesh that Awami League has stronger ties with India and BNP has stronger ties withChina. Student politics is particularly strong in Bangladesh, a legacy from the liberationmovement era. Almost all parties have highly active student wings，and many studentleaders have been elected to the Bangladesh Parliament.

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Chapter Two: Literature Review

Part OneReview of Aid, Trade, Investment and Productivity in Bangladesh

The objective of this research does not aim to analyze the aid effectiveness but anyaid analysis will require an understanding on this issue and the context of it. To govern theaid flow in developing countries donors have developed a set of principles and institutionalarrangements over the years. Development Assistance Committee (DAC) of theOrganization for Economic Cooperation and Development (OECD) initiated some normsand standards through the Paris Declaration on Aid Effectiveness in 2005 and later, the2008 Accra Agenda for Action. Donors have been persuading for those to be followed, butto date there is no uniformity in norms or standards for improving aid effectiveness. As asignatory to the Paris Declaration, Bangladesh needs to implement the principles endorsedin the declaration.According to the Economic Relations Department under Ministry of Finance (ERD2011)，effectiveness of aid in Bangladesh has been jeopardized by many factors. Some ofwhich are: (a) Aid fragmentation, with the increasing number of donors, both bilateral andmultilateral, aid relationships became diverse. Each donor has its own mandate andprocedure, each one has its own fund size defining strategy. Many development partnersspread their aid budget over 汪 large number of sectors, resulting in considerable aidfragmentation. This fragmentation of aid weakens the aid absorption capacity ofgovernment institutions since huge time and human resources are required. It alsoincreases the transaction cost of aid. For aid effectiveness, Bangladesh needs to considerthe effective use of resources, fragmented national capacity, allocation to national prioritiesand the coherence in aggregate allocation of development assistance.

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2.2 Changes in Motives and Focus of Foreign Aid in Different Decades

Foreign aid is considered an important determinant of development but it dependson various characteristics，the surrounding environment where it is delivered and theeffective use of it. There is no simple answer about how and to what extent aid is effective. Despite the diversity of aid recipient、characteristics, the objectives or motives of thedonors also vary over time. Evolution of aid thoughts and motivation for aid giving hasevolved since the end of the Second World War. Decade wise the aid motive and focus canbe categorized as in Table 2-1 below: Questions may be raised about who changes the focus? The changes should bedictated by those on whom it has impact，however，the above motives are mostly donordriven or from the supply side of aid in response to global crisis at different times. If thedemand side or the motivation of aid recipients for foreign aid were analyzed, entirelydifferent dimensions would emerge. Clearly the aid contract can be categorize in the twofold - supply side and demand side. Supply or the donor's side of aid depends on motivesand resource availability. Donor motives may be humanitarian or developmental.Humanitarian motives support food aid and emergency relief whereas developmentalmotives support global public goods such as peace and security，fair international traderales，control of communicable diseases, financial stability, biodiversity, and global climate(Kanbur，Sandler et al. 1999)，(Azam and Laffont 2003)，(Cordelia and DeU'Ariccia 2003);(Gunatilake, Fabella et al. 2010).

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CHAPTER THREE: OVERVEW OF CHINESE FOREIGN AID IN BANGLADESH......... 57

3.1 Debate, Combination, Perspective in Defining Chinese Foreign Aid......... 57

3.2 Challenges in Determining Grants and Loans Combination.........59

3.3 General Perspectives on Foreign Aid, ODA and Concessional Loans......... 60

3.4 Bangladesh Perspective on Foreign Aid and Concessional Loans......... 61

3.5 OECD Perspective on ODA and Concessional Loans .........62

3.6 Chinese Perspective on Foreign Aid and Concessional Loans......... 63

CHAPTER FOUR: FINDINGS AND RESULTS......... 78

4.1 Motivation for Cooperation through Foreign Aid between China ......... 78

4.2 Contribution of Chinese Foreign Aid to the Strategic .........91

4.3 Contribution of Chinese Foreign Aid to Economic Input.........104

4.4 Contribution of Chinese Foreign Aid to Technology.........118

4.5 Consolidating the contributions through Determinants Matrix......... 123

CHAPTER FIVE: CONCLUSIONS, RECOMMENDATIONS AND LIMITATIONS .........125

5.1 Conclusions .........125

5.2 Recommendations .........131

5.3 Limitation of the study .........133

Chapter Four: Findings And Results

Chapter four contains analytical findings of this research in response to the researchquestions. The chapter starts with an analysis of China's motivation to provide aid andfinancial assistance to Bangladesh. The analysis looked at the geo-political, geo-economicand China's understanding of South-South cooperation and how it links with strategicneeds of Bangladesh. This chapter further analyzes the resource gap in productiveinfrastructure such as power generation, telecommunication network and agricultural input.With a declining dependency on foreign aid Bangladesh is in a high demand for integrationwith global market, external investment and technological development in achieving thetargeted GDP growth. Over the years Bangladesh has achieved significant achievement inpoverty reduction and social development but has yet to reach a high level of productivitywhich can increase and sustain the income level of poorer and middle class segments of thepopulation. This chapter found positive contributions of Chinese aid in improvingproductive infrastructure particularly in the area of power generation, telecommunicationand fertilizer production as agricultural input. The contribution improves the productivitythrough increase of productive capacity and introducing technological resources throughaid, trade and investment.

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Conclusion

The central question of this research was to answer the question "to what extentdoes Chinese Foreign Aid contribute to the productive sectors in Bangladesh". This broadquestion was split into four specific questions related to productive capacity, productivity,priority need of Bangladesh and motivation of China for providing foreign aid toBangladesh.To find the answers to the research questions, first a 'productivity determinantsframework' for analysis was designed through literature review on productive capacity andthe determinants of productivity. From the literature review this research found thatvoluminous researches have been done on productivity determinants and its relationship tovarious economic factors such as aid, trade and FDI. Bringing all the determinants intofour categories; a matrix was developed to understand the productivity determinants inselected sectors in Bangladesh mainly power sector, telecommunication sector andagricultural input industry.

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Reference (omitted)