Authors: Forrest Cookson, Dhaka and Tom Felix Joehnk, Bangkok

A battle for influence in Bangladesh is on between Asia’s giants, China and India.

The Indian government sees Bangladesh as an important neighbour for political, national security and religious reasons. Bangladesh is a transport corridor to India’s northeastern states and a vital alternative route to the vulnerable Siliguri corridor that in the past has been threatened by China’s military, isolating all of northeast India. India also fears that Islamic fundamentalism and jihadism in Bangladesh may spill over the border.

China’s broader program of developing influence throughout Asia through trade, finance, military cooperation and soft power includes Bangladesh. Bangladesh is the world’s seventh most populous country and the only one bordering India (except Bhutan) where Chinese influence is not dominant.

Both countries’ main influence over Bangladesh is in the area of trade — both run huge current account surpluses with Bangladesh.

China exported US$16–17 billion worth of goods to Bangladesh (once official data is adjusted for massive under-invoicing) and imported only US$750 million in 2016–17. China’s foreign assistance to Bangladesh amounts to about US$1 billion a year and a large US$24 billion lending program, promised by China’s President Xi Jinping during his visit in October 2016, is only just getting underway.

Bangladesh’s current account deficit with India is at least US$12 billion. India exports about US$8 billion worth of goods to Bangladesh (once adjusted for under-invoicing) and imports just US$260 million. Informal trade is in India’s favour by US$2–3 billion, with remittances by Indians working in Bangladesh estimated to be around US$2–4 billion. India’s annual disbursed foreign assistance to Bangladesh amounts to US$150 million.

India and China are offering large sums of money for infrastructure projects in Bangladesh. Both are promoting large railway projects (low return investments that will do little for Bangladesh) and both are keen to get involved in building a deep-sea port in Bangladesh. But none of these projects are making much headway and efforts to build big coal-fired power plants have thrown up significant operational and environmental risks. So far the rivalry in infrastructure investment has produced limited tangible outcomes, with Bangladesh the loser. And India’s and China’s manufacturing and energy investments in Bangladesh remain extremely low despite promising intentions.

China has long been the main supplier of military equipment to the Bangladesh armed forces. India is trying to catch up, but the Bangladesh military procurement office remains sceptical about the quality of Indian military hardware.

In the realm of culture, Indian influence in Bangladesh is overwhelming. The two countries share a common language and Bengali culture is still centred in Kolkata. At least 100,000 Bangladeshis attend school in India and universities in the two countries entertain close links. For its part, China has established Confucius Institutes in Bangladesh that teach Chinese language and scholarships are available for Bangladeshis to study in China. Chinese commercial influence and general presence in Dhaka and Chittagong (a major port city) are rising steadily.

India’s memory of the rule of the pro-Islamic and pro-Pakistan Bangladesh Nationalist Party (BNP) from 2001–06 shapes its thinking on Bangladeshi politics. Under the BNP Islamic militancy thrived and insurgencies in India’s northeast received Bangladeshi support. India would be appalled if any party other than Sheikh Hasina’s Awami League were to rule Bangladesh.

The view from Delhi is very short term: the strategy is to keep the Awami League in power while trying to block growing Chinese influence. China, on the other hand, is playing a long game in Bangladesh and it balances its relations with the ruling Awami League and the anti-Indian, pro-army BNP.

Bangladesh is not a passive victim of this geopolitical competition in the Bay of Bengal. Bangladesh is using its strategic position to encourage it. There is a clear awareness in Dhaka that both India and China take more than they give and that their infrastructure and manufacturing projects are of low quality (compared to those of Japan and South Korea).

The Rohingya refugee crisis has also made clear that China and Bangladesh are only fair-weather friends. China is blocking the UN Security Council action to move against the genocide or ethnic cleansing by the Myanmar government, which Bangladesh sees as an unfriendly act. India, ostensibly Bangladesh’s closest ally, is no better: in the Rohingya refugee crisis it squarely backs Myanmar.

China and India will do their best to edge each other out in their battle for influence in the Bay of Bengal and will try to exploit an economically weak Bangladesh. But they are likely to fail as Bangladesh continues to play hard to get and plays them off against each other.

Going forward, changes in trade policy might have the biggest impact on the giants’ respective influences in Bangladesh. For now, India is doing all it can to block exports from Bangladesh, while China shows no signs of letting Bangladesh exports enter Chinese markets. Both countries allow massive under-invoicing of their exports to Bangladesh — violating WTO rules — and withhold far more funds from Bangladesh’s exchequer than they offer as loans.

But China, which is far richer than India and whose economy dwarfs India’s, has an advantage on trade. If it were to open its economy to billions of dollars of imports from Bangladesh, the balance of power in Bangladesh would shift decisively in China’s favour.

Forrest Cookson is an economist and an expert on Bangladesh’s economy.

Tom Felix Joehnk is a journalist and frequently writes for The Economist.