China's customs data show that from January to October 2024, China's fabric exports to Bangladesh fell by about 6% year-on-year, while Bangladesh's global garment export growth also slowed from double digits to single digits. At this delicate juncture, the International Monetary Fund (IMF) has agreed to launch negotiations with Bangladesh for a new loan program to replace the expiring $5.5 billion arrangement. For Chinese textile intermediate goods exporters who have long relied on Bangladesh as their second-largest garment sourcing destination, this financial signal is more worth decoding than any trade data.
Currency costs are eating into profits
Bangladesh's taka has depreciated by more than 12% against the US dollar over the past 12 months, directly raising the settlement costs for local factories importing fabrics. Based on industry public data, for every 1% depreciation of the taka, the fabric procurement cost for Bangladeshi garment factories increases by about 0.8 percentage points. Since Chinese fabric suppliers usually quote in US dollars, this means the actual expenditure for Bangladeshi buyers on the same goods has risen by nearly 10% year-on-year.
The progress of IMF new loan negotiations will directly affect the stability expectations of Bangladesh's foreign exchange reserves. If the agreement can be reached quickly, panic in the foreign exchange market may ease, and the pace of taka depreciation could slow; conversely, if negotiations drag on, exchange rate pressure will continue to transmit to the fabric import end, forcing Bangladeshi factories to cut procurement or switch to cheaper alternative sources.
Cash flow pressure triggers procurement strategy adjustments
About 65% of Bangladesh's textile and garment exports are concentrated in the apparel segment, which accounts for over 80% of the country's total exports. As the existing $5.5 billion IMF loan approaches maturity and the new loan has not yet been secured, the ammunition available to Bangladesh's central bank to intervene in the foreign exchange market is diminishing. The difficulty of opening letters of credit in the local banking system has significantly increased, with some small and medium-sized garment factories forced to delay fabric order confirmations due to the inability to obtain US dollar credit in a timely manner.
For export enterprises in textile fabric production areas such as Keqiao in Zhejiang and Shengze in Jiangsu, this means that account period risks are amplifying. Industry public data shows that in the third quarter of 2024, the proportion of China's fabric exports to Bangladesh settled by letter of credit (L/C) dropped from 75% last year to 68%, while the proportion of advance payments rose. This reflects that Bangladeshi buyers are actively shrinking their credit exposure, and Chinese sellers are also passively adjusting their risk control strategies.
Industry relocation pace may be disrupted
Over the past three years, leveraging labor cost advantages and EU duty-free access policies, Bangladesh has become the world's second-largest garment exporter, attracting a large number of Chinese textile enterprises to invest in local factories or cooperative processing. However, exchange rate volatility and cash flow tensions are eroding this advantage. Some Chinese companies that originally planned to expand production capacity in Bangladesh have begun to divert some orders to countries with relatively stable currencies such as Vietnam and Cambodia.
If the new IMF loan agreement can include provisions to promote free foreign exchange circulation and improve banking system liquidity, it will help stabilize Bangladesh's attractiveness as a textile investment destination. Conversely, if negotiations stall, it is not impossible that some Chinese fabric suppliers will downgrade the credit ratings of their Bangladeshi customers, thereby reducing shipment volumes.