A Brief Note on Sri Lanka – China Trade Relations
1. Country Profile:
1.1. Key Economic Indicators of China
Location |
Eastern Asia, bordering the East China Sea, Korea Bay, Yellow Sea, and South China Sea, between North Korea and Vietnam |
|
Area |
9,596,960 sq. km |
|
Population |
1,384,688,986 (July 2018 est.) |
|
GDP (Official Exchange Rate) |
$12.01 trillion (2017 est.) |
|
Real GDP growth |
6.9% (2017 est.) |
|
GDP per capita (PPP) |
$16,700 (2017 est.) |
|
GDP – Sectorial Composition |
Agriculture: 7.9% Industry: 40.5% Services: 51.6% (2017 est.) |
|
Main industries |
Agricultural |
Rice, Wheat, Potatoes, Corn, Peanuts, Tea, Millet, Barley, Apples, Cotton, Oilseed; Pork; Fish |
Industrial |
Mining and Ore Processing, Iron, Steel, Aluminum, and Other Metals, Coal; Machine Building; Armaments; Textiles and Apparel; Petroleum; Cement; Chemicals; Fertilizers; Consumer Products (Including Footwear, Toys, and Electronics); Food Processing; Transportation Equipment, Including Automobiles, Rail Cars and Locomotives, Ships, Aircraft; Telecommunications Equipment, Commercial Space Launch Vehicles, Satellites |
2. Sri Lanka China Trade Relations:
2.1. Overview
2.2. Sri Lanka’s Trade with China
Sri Lanka-China Trade (2010 - 2019)
Year |
Exports |
Imports |
Total Trade |
Balance of Trade |
2010 |
89.11 |
1240.09 |
1329.2 |
- 1,150.98 |
2011 |
95.80 |
2133.63 |
2229.43 |
-2,037.83 |
2012 |
108.12 |
2568.01 |
2,676.13 |
-2459.89 |
2013 |
121.63 |
2962.59 |
3,084.22 |
-2,840.96 |
2014 |
173.48 |
3,414.40 |
3,587.88 |
-3,240.52 |
2015 |
293.05 |
3731.64 |
4024.69 |
-3438.59 |
2016 |
199.15 |
4,273.58 |
4,472.73 |
-4,074.43 |
2017 |
415.14 |
4191.22 |
4,606.36 |
-3,776.08 |
2018 |
230.54 |
4,121.07 |
4,351.61 |
-3,890.53 |
2019 |
228.94 |
4,033.58 |
4,262.52 |
-3,804.64 |
Value in US $ Mn
Source: Sri Lanka Customs
2.3. Sri Lanka’s major Exports to China
Sri Lanka`s Main exports to China from 2015 – 2019
HS code |
Item description |
2015 |
2016 |
2017 |
2018 |
2019 |
6162 |
Apparel |
53.72 |
65.31 |
59.72 |
52.92 |
67.39 |
0902 |
Tea |
34.39 |
31.98 |
49.06 |
46.55 |
47.91 |
3802 |
Activated carbon |
4.17 |
6.64 |
10.05 |
13.66 |
17.74 |
530500 |
coconut (coir) Molded products |
20.34 |
20.68 |
22.31 |
15.75 |
17.20 |
8542 |
Electronic integrated circuits |
3.38 |
4.42 |
6.54 |
8.02 |
7.33 |
27101960 |
Fuel oil |
1.46 |
1.20 |
6.47 |
11.70 |
6.70 |
9999 |
Other Exports |
1.66 |
3.09 |
2.40 |
5.03 |
5.53 |
4008 |
Plates, sheets, strip, rods and profile shapes, of vulcanised rubber |
.50 |
.24 |
.86 |
2.26 |
5.05 |
26 |
Ores, slag and ash |
9.65 |
7.67 |
6.68 |
7.07 |
5.01 |
9404 |
Mattress supports |
.01 |
.19 |
1.55 |
4.21 |
4.53 |
(Value in US $ Mn)
Source: Sri Lanka Customs
2.4. Sri Lanka’s major imports from China
HS code |
Item Description |
2015 |
2016 |
2017 |
2018 |
2019 |
7273 |
Iron and Steel |
443.66 |
431.72 |
376.00 |
429.31 |
371.82 |
60 |
Knitted or crocheted fabrics |
247.48 |
268.23 |
308.06 |
294.10 |
336.53 |
8517 |
Telephones sets |
237.37 |
293.64 |
343.98 |
394.26 |
306.73 |
55 |
Man-made staple fibres |
198.63 |
218.95 |
212.33 |
214.28 |
248.04 |
52 |
Cotton |
188.22 |
252.16 |
257.17 |
278.25 |
235.42 |
84 |
Nuclear reactors, boilers, machinery and mechanical appliances |
151.70 |
187.52 |
177.79 |
180.54 |
172.01 |
9999 |
Other Imports |
136.80 |
142.17 |
123.86 |
133.88 |
127.67 |
39 |
Plastics and articles thereof (Except Hs 392321) |
113.75 |
102.43 |
112.05 |
124.79 |
125.80 |
58 |
Special woven fabrics; tufted textile fabrics;lace; tapestries; trimmings; embroidery |
68.55 |
104.64 |
103.53 |
106.39 |
114.07 |
54 |
Man-made filaments |
58.83 |
63.58 |
77.75 |
102.38 |
103.33 |
2.5. Sri Lanka’s preferential exports to China under the Asia Pacific Trading Agreement (APTA)
Sri Lanka and China are members of the Asia Pacific Trade Agreement (APTA) which was formerly known as the Bangkok Agreement signed in 1975. Member countries of APTA are Bangladesh, China, India, Republic of Korea, Lao People s Democratic Republic and Sri Lanka.
Sri Lanka’s preferential exports to China under APTA
Year |
Exports to China under APTA |
Total exports under APTA |
Exports to China under APTA as a % of total exports under APTA |
2007 |
9.03 |
27.03 |
33% |
2008 |
19.0 |
35.3 |
54% |
2009 |
28.9 |
49.4 |
59% |
2010 |
41.4 |
69.7 |
59% |
2011 |
44.8 |
69.8 |
64% |
2012 |
36.2 |
61.72 |
59% |
2013 |
60.30 |
84.17 |
72% |
2014 |
86.13 |
118.51 |
73% |
2015 |
89.20 |
118.69 |
75% |
2016 |
91.88 |
125.57 |
73% |
2017 |
117.5 |
150.8 |
78% |
2018 |
122 |
155.85 |
78% |
2019 |
137.34 |
179.27 |
77% |
Source: Sri Lanka Customs
APTA is important to Sri Lanka as it is the only trade agreement Sri Lanka partakes with China. APTA being a dynamic regional agreement has been instrumental in producing favorable outcome to Sri Lanka. The above table shows Sri Lanka’s exports to China under APTA during the period of 2007 to 2019. Exports to China under APTA has increased over the years gradually. Coir products, apparel, tea, natural rubber, fish products, activated carbon, wooden furniture, silver jewelry, tiles and porcelain-ware are the main exports under APTA.
2.6. China accepted the Sri Lanka`s Health Certificate for fishery products export to China
On 09th of July 2012, General Administration of Quality Supervision, Inspection and Quarantine of the People`s Republic of China accepted the Sri Lanka`s Health Certificate for fishery products export to China. Accordingly, AQSIQ has included Sri Lanka in to the list of recognized countries for import of fish to China.
2.7. South Asia Expo
· Holding “South Asia Expo” dedicated to South Asian products, is an important measure that has taken by the Government of China to promote fruitful trade and economic cooperation between China and South Asian Countries. Organizers of the Expo provides free exhibition facilities as well as assisting with the customs clearance and product promotion to encourage enterprises from South Asia . Notably, it is more useful for the Sri Lankan SMEs.
· Sri Lanka has been participating at this fair (South Asian Commodity fair) from its inception in 2007. The success of participation at the previous events encouraged Sri Lanka to participate at the future fairs too.
Year |
No. of stalls |
Product Sectors |
Leader of the Sri Lanka Delegation |
2011 |
83 |
Garments, Gems and Jewelry, Coir Products, Giftware, Fish, Tea, Handicrafts, Fruits, Batik Garment |
Hon. D.M. Jayaratne Prime Minister of Sri Lanka, Hon. Rishad Bathiudeen, Minister of Industry and Commerce |
2012 |
100 |
Hon. Rishad Bathiudeen, Minister of Industry and Commerce |
|
2013 |
120 |
Hon. D.M. Jayartahne Prime Minister of Sri Lanka. |
|
2014 |
135 |
Hon. Rishad Bathiudeen, Minister of Industry and Commerce, Deputy speaker of the Parliament of Sri Lanka, Chandima Weerakkody |
|
2015 |
126 |
Fish, Tea, Handicrafts, Fruits, Batik Garment |
Hon. Rishad Bathiudeen, Minister of Industry and Commerce |
2019 |
104 |
Tea, Gem and Jewelry, Handicrafts, Spices, Ayurvedic products and Agricultural Products |
Deputy Minister of International Trade and Development Strategies Hon. Nalin Bandara |
3.1. Customs Cooperation
A Memorandum of Understanding (MOU) between the General Administration of China and the Sri Lanka Customs on customs strategic Cooperation was signed on 16th September 2014. Cooperation Program on Origin Management of china import goods in transit through Sri Lanka under relative Preferential trade agreements of China included as an annexure to the MoU on Customs strategic Cooperation.
3.2. Quarantine Cooperation
A Memorandum of Understanding (MoU) between the Ministry of Agriculture and the General Administration of Quality of Supervision inspection and Quarantine of China on plant inspection and Quarantine was also signed on 16th September 2014 during the state visit of the Chinese President to Sri Lanka.
3.3. “Maritime silk Route Economic Belt”
Sri Lanka strongly supports the Maritime silk Route Economic Belt initiative of China and will cooperate in its implementation.
3.4. Asian Infrastructure Investment Bank (AIIB)
Sri Lanka was invited by China to be a Founding Member of Asian Infrastructure Investment Bank (AIIB) A MoU on establishment of the AIIB was signed by representatives of the 21 prospective founding member Countries including Sri Lanka on 24 October 2014 in Beijing
4. China- Sri Lanka Free Trade Agreement (CSFTA)
· A MOU on Trade and Economic Cooperation between the two countries was signed on 28th May 2013 during the state visit of former H.E the President of Sri Lanka to China. The both sides agreed to establish a Joint Working Group on Trade to study “feasibility of China – Sri Lanka Free Trade Agreement and issues of expanding development of Sri Lanka’s exports to China promoting trade balance.”
· In August, 2013, China and Sri Lanka decided to establish a Joint Feasibility Study Group of China - Sri Lanka Free Trade Agreement (FTA) under the joint working group on trade with a view to carrying out a feasibility study in exploring the prospects for liberalization of bilateral trade and investment of the two countries through a FTA. A report of the joint feasibility study on China-Sri Lanka FTA was published on 1st July 2014, upon concluding the study, recommending launching negotiations between the two countries for a possible a FTA as soon as possible since it will be conducive for both countries’ economic development and social welfare improvement.
· At an official level meeting held in Beijing on 11th March 2014, it was announced by the Assistant Minister of Commerce of China and the Secretary Finance and Planning of Sri Lanka, that the Joint Study had recommended to enter into an FTA between the two countries, with a scope covering Trade in Goods, Trade in Services (to be identified and agreed by both sides), investment, economic and technical cooperation.
· At the bilateral meeting held with H.E. the President of China when H.E the President of Sri Lanka visited China to participate at the 4th Summit of Heads of State and Government of the Conference on Interaction and Confidence Building Measures in Asia (CICA) held in May 2014 in Shanghai, it was agreed to fast track the FTA negotiations.
· The First Round of the FTA Negotiations was held from 17-19 September 2014 in Colombo.
· The Second Round took place in Beijing, China on 26-28 November 2014.
· The Following Working Groups (WGs) were set up to conduct negotiations on the relevant Chapters of the FTA
- Trade in Goods
- Rules of Origin
- Customs Procedures and Trade Facilitation
- TBT and SPS
- Trade Remedies
- Trade in Services
- Investment
- Economic and Technical Cooperation
- Legal Affairs
- Text of the Framework Agreement of the FTA was prepared by Department of Commerce based on the text of China-Chile FTA.
- Base Year for tariff reduction/elimination is 2013 (31.12.2013)
- Negotiations was held from 02-04 August 2016 in Colombo. The Fourth round was held in Beijing on 21-23 November 2016.
· Negotiations were conducted on draft texts taking cognizant of the implications that may have a bearing upon the domestic industries, resulting from the envisaged trade liberalization of the FTA.
· The Rules of Origin chapter of the FTA was negotiated whereas consensus was arrived on a large majority of PSRs proposals.
· The private sector stake holders have been consulted on a number of occasions to make the preparatory process an inclusive one.
· Negotiations on this FTA are yet to be concluded.
Trade Related Committees/ Commissions with China
4.1 Sri Lanka-China Joint Committee for Trade and Economic Cooperation:
· Trade & Payment Agreement was signed in 1982, which provided Most Favored Nation (MFN) treatment for products of export and import of both countries. In 1984 both countries signed an Agreement on Economic and Technical Cooperation and these two agreements were amalgamated in 1991 to form the “Sri Lanka-China Joint Committee for Trade and Economic Cooperation”.
· The first Session of the Sri Lanka-China Joint Committee for Trade and Economic Cooperation was held in March 1992 in Colombo. The second Session was held in March 1996 in Beijing, third Session was held in February 2000 in Colombo and the Fourth Session was held in April, 2008 in Beijing, China. Further strengthening economic ties between the two countries, the first Sri Lankan Airline flight to Beijing took place in June, 2005.
· The 5th Session of the Sri Lanka – China Joint Committee on Trade and Economic Cooperation was held on 24 April 2013 in Colombo and a number of key decisions were taken between the two countries at this Session including Sri Lanka’s suggestion of exploring the possibility of entering into a preferential Trade Agreement between the two countries as a mechanism to strengthen bilateral trade and Commercial relations.
· The Sixth Session (the latest) of the Sri Lanka – China Joint Committee for Trade and Economic Cooperation was held on 07th June 2014 in Beijing. During the Session, both sides have agreed to launch the FTA negotiations during the visit of H.E the President of China to Colombo in September 2014.
4.2 Supplementary Consultative Committee
In accordance with the Agreement on Further Development of Bilateral Economic and Trade Relations between the Government of Sri Lanka and the People’s Republic of China, the 1st session of the Supplementary Consultative Committee at Commerce Secretary Level was held in Beijing from 11th to 12th August 2005. While the 2nd session of the supplementary Consultative Committee at Commerce Director General Level was held in Colombo 18th August 2009.
4.3 Sri Lanka-China Business Cooperation Council
The Sri Lanka-China Business Cooperation Council, which is a private sector initiative, was established in 1994. Its primary objective was to promote and enhance mutual interaction between the private sectors of both countries, with a view to further enhancing bilateral trade and investments between the two countries.
Based on the below statistics, it shows that tourist arrivals from China for past years. It reveals that the Chinese tourist arrival in Sri Lanka which stood at 9,899 in year 2009 has significantly increased to 112,867 in year 2014 registering remarkable growth. Accordingly, Chinese tourist arrivals in Sri Lanka increased year to year except 2006 and 2009,2017 & 2018.
Tourist arrival from China (2006-2019)
Year |
No. of Tourists |
Y-O-Y Growth of Tourist Arrivals from China |
2006 |
5,318 |
|
2007 |
10,623 |
100% |
2008 |
10,436 |
-2% |
2009 |
9,899 |
-5% |
2010 |
12,234 |
24% |
2011 |
17,013 |
39% |
2012 |
21,220 |
25% |
2013 |
51,704 |
144% |
2014 |
112,867 |
118% |
2015 |
214,783 |
90% |
2016 |
271,577 |
26% |
2017 |
268,952 |
-1% |
2018 |
265,965 |
-1% |
2019 |
167,863 |
-37% |
Source: Sri Lanka Tourism Development Authority Statistical Report
In year 2019, China had become the 3rd largest source of tourist arrivals in Sri Lanka. China has granted accredited destination status to Sri Lanka from 2002 facilitating a positive momentum in attracting Chinese tourists to Sri Lanka. Chinese leaders have always stressed on the fact that Sri Lanka should look towards generating more tourists from China in order to reduce the negative balance of trade.
6. Chinese Investments in Sri Lanka
Chinese investments in Sri Lanka are primarily found in three sectors: trade, infrastructure and defense. Infrastructural investments such as the Colombo-Katunayake Expressway, the National Theatre of Performing Arts, and the Bandaranaike Memorial International Conference Hall (BMICH) are symbolic of Chinese presence in Sri Lanka. Apart from these investments, two other projects – the Hambantota port and the Colombo Port City project have drawn attention to the nature of the Chinese investments in Sri Lanka. In recent years, the economic and trade tie between the two countries has become increasingly closer.
Most of the Chinese investors have invested in the sectors of Textile & Apparel, Fisheries, and Manufacturing.
Foreign Direct Investment from China (Projects approved under Sec.16 & 17 of the BOI Law)
Year |
FDI (US$ Mn.) |
Y-O-Y Growth % of Investments from China |
2005 |
0.94 |
|
2006 |
4.426 |
371% |
2007 |
10.729 |
142% |
2008 |
27.356 |
155% |
2009 |
19.717 |
-28% |
2010 |
4.083 |
-79% |
2011 |
10.454 |
156% |
2012 |
184.964 |
1669% |
2013 |
239.935 |
30% |
2014 |
403.501 |
68% |
2015 |
150.781 |
-63% |
2016 |
52.812 |
-65% |
2017 |
628.495 |
1090% |
2018 |
1088.128 |
73% |
2019 |
292.574 |
-73% |
Source: Board of Investment, 2019
China became the largest foreign investor in 2019. Chinese cumulative investments in Sri Lanka amounts to US$ 3,118.90 Mn as at the year end of 2019.
Department of Commerce
June 2020