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

 

• Trade relations between Sri Lanka and China span a long history going back to several centuries. In the year 1952, opening a new chapter in trade relations between the two countries, China and Sri Lanka entered into a Trade Agreement relating to barter trade on rubber and rice (the Sino- Lanka Agreement on Rubber-Rice exports) on 17th December 1952 which was even before the two countries established diplomatic relations.  In 1957, China established diplomatic relations with Sri Lanka.

 

• Trade and 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. Second, Third, Fourth and Fifth Joint Commission were held in 1996 in Beijing, 2000 in Colombo, 2008 in Beijing and 2013 in Colombo respectively.

 

• During the Sixth Session which was held on 07th June 2014 in Beijing, both sides have agreed to launch the FTA negotiations during the visit of H.E the President of China to Colombo in September 2014.

 

• On May 27 to 30, 2013, H.E the President of Sri Lanka paid a state visit to China and the two sides agreed to build strategic cooperative partnership with sincere and mutual assistance and enduring friendship.

 

• A MOU on Trade and Economic Cooperation between the two countries was signed on 28th May 2013 during the state visit and 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.” 

 

• During high level bilateral meetings between two countries, the both sides discussed the ways of fast track the FTA negotiations.

 

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

 

• The balance of trade between the two countries has been heavily in favor of China. Accordingly, Sri Lanka`s   trade deficit with China expanded rapidly over the few years, with imports growing briskly while exports remained sluggish.

 

 

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

                                                                                                                    (Value in Mn.US$)

                                        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 09^th 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. Other Areas of Cooperation

 

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 16^th 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 16^th 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 28^th 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 1^st 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 11^th 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 4^th 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 negotiations on the China-Sri Lanka Free Trade Agreement were formally launched in September 2014 in Colombo during the visit of H.E the President of China to Sri Lanka.

 

·         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.

 

·         China-Sri Lanka FTA encompasses Trade in Goods, Services, Investment, Health and Safety Standards (SPS&TBT), Economic and Technical Cooperation, Customs Procedures and Trade Facilitation, Trade Remedies, etc.

 

·         The Rules of Origin chapter of the FTA was negotiated whereas consensus was arrived on a large majority of PSRs proposals.

 

·         The Department of Commerce has been heading three Working Groups, namely Trade-in –Goods, Rules of Origin and Trade Remedies and providing technical expertise for all other six working Groups.

 

·         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 5^th 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 07^th 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 1^st session of the Supplementary Consultative Committee at Commerce Secretary Level was held in Beijing from 11^th to 12^th August 2005. While the 2^nd session   of the supplementary   Consultative Committee   at Commerce Director General Level   was   held   in Colombo   18^th   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.

 

5.                   Tourism:

 

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