Sri Lanka China Trade Relations

 

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 Favoured 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.

 

Sri Lanka’s Trade with China

 

Sri Lanka-China Trade (2007-2017) – Table 1

Year	Exports	Imports	Total Trade Turn over	Balance of Trade
2007	35.62	930.19	965.81	-  894.57
2008	47.83	1131.43	1,179.26	- 1,083.60
2009	59.25	1011.38	1,070.63	-  952.13
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

 (Value in US $ Mn)      Source: Sri Lanka Customs      

·         In the light of the table 1 above, the total trade turnover between Sri Lanka and China which stood at US $ 965.81 million in 2007.  It   has increased up to US $ 4,606.36 million   in 2017.

 

·         Sri  Lanka`s   exports  to  China  in   the  recent  past   show  upward  trend   reaching   293.05 Million  US    Dollars  in  2015  from   a  mere   35.62   Million  US  Dollars    in  2007  but  it has been  decreased  up  to  199.15 in  2016 and again it has been increased  415.14 Million in 2017.

 

·         The balance of trade between the two countries has been heavily in favour of China. Accordingly, Sri  Lanka`s   trade  deficit  with  China  expanded  rapidly  over  the  few  years,  with  imports  growing  briskly  while  exports  remained  sluggish  Sri Lanka  were  able  to  maintain  a positive Export  growth  to China compared  with  2011. Latest  statistics  show   that  China  has  come   within  the  first   10  export   destinations  for  Sri Lankan  products  in 2016.

 

·         Sri Lanka’s imports from China have also increased from 930.19 US$ million in 2007 to US$ 4,191.22 million in 2017. Sri Lanka`s   imports from   China   has been   20% of total imports from the   world    in 2017.  China has become 2^nd     largest importer of Sri Lanka in 2017.

 

·         While Sri Lanka exports to  China   have   grown  over  the  last  5  years,  imports  from  China    have  grown  at  a  faster  rate  than  exports  resulting  in  an  expanding  deficit  (US$. -3,776.08 Mn.) in 2017.
 

Sri Lanka’s major Exports to China

 

The  total   export  has  been  decresed   32%    from  2015  to  2016 and  it has been incerased  up to 415.14 Million in 2107 .Ships,boats  and floating structures is the main export  in 2017.  Apparel has been main export which  accounts  for US$ 65.31 Mn  (66%)  of  total exports in  2016. tea  is  the  scond export product  from  Sri Lanka  to China  which  accounts  for   16% of  total exports  in  2016.  Sri  Lanka`s   other  main  export  items  to  China  Coconut abaca, footwear,  Coir, Activated  carbon,  rubber products, fish  products  etc,              

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

China is   soon going  to  be  the  world`s   largest  economy  and  is  already  the    largest   exporter  and  the  second  largest   importer   in  the  world. Other developing  Countries  have    capitalized   on  this  trend    and   have  successfully  shifted   export  promotion   to  the  Chinese  market.  For Sri Lanka, China is the 6^th most valuable export market in 2017.

 

Sri Lanka`s Main exports to China - Table 2

            (Value in US $ Mn)

           

HS	Description	2012	2013	2014	2015	2016	2017
CHINA  Total		108.12	121.63	173.48	293.06	199.15	415.14
89	Ships, boats and floating structures.				115.95	.19	182.60
6162	Apparel	15.02	22.25	35.60	53.72	65.31	59.72
902	Tea	14.63	21.87	26.06	34.39	31.98	49.06
530500	Other vegetable textile fibres;	27.80	23.27	34.72	20.34	20.68	22.31
64	Footwear, gaiters & the like parts of such articles	.03	2.53	19.49	20.97	18.39	16.96
3802	Activated carbon;	1.64	2.78	3.98	4.17	6.64	10.05
27101940	Gas oil/Diesel			.35	1.05	2.20	7.16
401290	Retreaded or used pneumatic tyres tyres,	1.31	2.42	2.10	1.05	6.23	6.74
26	Ores, slag and ash	14.74	3.94	6.30	9.65	7.67	6.68
8542	Electronic integrated.	.00	.10	.79	3.38	4.42	6.54
27101960	Fuel oil			1.81	1.46	1.20	6.47
9999	Other Exports	1.82	2.18	2.51	2.45	4.13	3.89
40129010	Solid tyres	2.29	2.62	3.18	1.89	1.59	3.24

                                                                                                          Source: Sri Lanka Customs

 

Sri Lanka’s major imports from China

 

·         It is observed that the pattern of Sri Lanka’s imports from China has been in more or less similar level with slight variations as far as the last five consecutive year period is concerned.   In the year 2014, Petroleum oils remain as the important item of foremost imports which represents around 7% of the total imports from China valued at US $ 264 million. In  2016  telephone  sets  is  the  main  export  product  valued  at  US$ 293.64 million.

 

·         Light Vessels, Petroleum  products, Automatic  data processing  Machines, Cotton,   Knitted  or crocheted fabric ,   man-made  staple fibers, textiles, vehicles  and  parts, mineral and chemical fertilizers,  plastic products   have been among the other major items imported from China during the year 2017.

 

·         However,   China   still has only 0.16%   of its   exports, shipped   to Sri Lanka while it has   become the second largest    importer    for Sri Lanka  in  2017.

 

Sri Lanka’s main imports from China- Table 3

            (Value in US $ Mn)

HS	Description	2012	2013	2014	2015	2016	2017
CHINA  Total		2,568.01	2,962.60	3,414.40	3,731.64	4,273.58	4,191.22
7273	Iron and Steel	174.13	219.95	253.20	443.66	431.72	376.04
60	Knitted or crocheted fabrics	174.54	205.08	227.94	247.48	268.23	308.06
9999	Other Imports	310.06	218.88	218.37	254.30	308.03	272.41
52	Cotton	207.05	186.74	210.72	188.22	252.16	257.17
89	Ships, boats and floating structures.	13.03	81.99	118.73	.63	223.21	238.22
55	Man-made staple fibres	143.64	135.52	170.90	198.63	218.95	212.33
85171220	Other, cellular mobile telephones	42.79	69.13	102.28	124.49	145.15	195.49
8517	Machine for the reception,	107.29	109.40	78.42	108.59	145.22	146.36
39	Plastics and articles thereof	69.22	75.10	94.22	117.04	106.30	115.16
58	Special woven fabrics; tufted textile	46.08	49.50	67.57	68.55	104.64	103.53

                                                                                                        Source: Sri Lanka Customs      

 

Sri Lanka’s preferential exports 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 under APTA (Value in Mn.US$)

 

APTA is important to Sri Lanka as it is the only trade agreement Sri Lanka partakes with China and the Republic of Korea. APTA being a dynamic regional agreement has been instrumental in producing favourable outcome to Sri Lanka. The above table shows Sri Lanka’s exports to member countries over the period of 2007 to June 2016. Remarkably, exports to China under APTA accounts for US 91.88 Mn in 2016, which is an increase of 917% when compared to the 2007. Coir products, apparel, tea, natural rubber, fish products, activated carbon, wooden furniture, silver jewellery, tiles and porcelain-ware are the main exports under APTA.

 

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.

 

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.  As an  initial  step, Sri Lanka`s   banana  will  be   exported  to  China  in the   near  future,  within  the  provision of  the  said  MoU.

 

“ Maritime  silk   Route  Economic Belt"

Sri  Lanka  strongly  supports  the  Maritime   silk  Route Economic  Belt  initiative  of  China and  will  cooperate  in  its  implementation. 

 

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    

 

 

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 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 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 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

 

Negotiations  was held from 02-04 August 2016 in Colombo. The Fourth round was held in Beijing on 21-23 November 2016.

  

Trade Related Committees/ Commissions with China

 

Sri Lanka-China Joint Committee for Trade and Economic Cooperation

 

Trade & Payment Agreement was signed in 1982, which provided Most Favoured 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 Fifth 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.

 

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 11th to 12th 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.

 

 

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.

 

Economic Cooperation and Development

 

The economic cooperation between China and Sri Lanka has a long history. There were a large number of cooperation in infrastructure development and social and economic development, particularly in the areas of infrastructure construction as the port aviation, energy development, roads and highways, irrigation, etc.

 

Economic and Technical Assistance:

 

The economic and technical assistance from China began in 1957.  A series of projects have been constructed such as the Bandaranaike Memorial International Convention Hall, the Supreme Court building and the National Performing Arts Theatre. When the Indian Ocean tsunami occurred at the end of 2004, Chinese government provided Sri Lanka with tsunami special assistance, relieved a batch of matured debts, and dispatched medical teams to carry out rescue work. Civil society in China also donated enthusiastically. As a result, "the China-Sri Lanka Friendship Village" and "the Red Cross Village were built with the money collected.

 

Transport Facilities Cooperation:

 

In 1999, the Railways Bureau of Sri Lanka bought from China National Machinery & Equipment Import & Export Hubei Co., Ltd 15 six-section diesel–multiple-units manufactured by CSR Sifang Co., Ltd whose products were welcomed by Sri Lanka railway section for a comprehensive merit with high quality and reasonable price.

 

Chinese companies also involved in the high speed rail project from Colombo to the Colombo International Airport, mainly including old-line reconstruction over 20 km, new two-lane railway 11 km, housing construction, communications signal, power, multiple units, passenger train and viaduct etc., worth of about USD 170 million.

 

Communications Project Cooperation

 

The cooperation was also conducted in communications projects. In the late 1990s, Shenzhen ZTE Corporation and Huawei Corporation began to develop the communications business in Sri Lanka. Two companies broke the long-term monopoly of foreign companies in Sri Lanka telecommunications area, so that China s high-end communications technologies and products successfully entered the local market. In 2005, ZTE and Sri Lanka Telecommunications signed the CDMA contracts, making the debut of Chinese wireless terminal devices in Sri Lanka telecommunications companies. By the end of 2009, ZTE s total contracts in Sri Lanka amounted to USD 70 million. Also in 2005, Huawei realized the first cooperation with Dialog, the largest mobile operator in Sri Lanka, which shook the long-term monopoly position of world-renowned telecommunications suppliers Alcatel and Ericsson, and then Huawei launched CDMA business cooperated with Lanka Bell and Suntel, selling 170 thousand terminals.
 

Cooperation in Other Projects:

 

In November 2011, China CAMC Engineering Co., Ltd. (CAMCE) signed with the Ministry of Water Resources of Sri Lanka in Colombo a cooperation agreement on the Yan Oya Reservoir Project worth of USD 175 million.

 

In November 2013, China Communications Construction Company Limited and Board of Investment of Sri Lanka signed an investment agreement on the Port City Project in Colombo. The first-stage of the Port City Project mainly includes infrastructure construction like breakwaters, hydraulic reclamation, bank protection, roads, etc. When completed, it will form a land area of 233-hectare and become a high-end city complex in South Asia integrated with finance, tourism, logistics, IT, etc. The total investment of the project is about USD 1.4 billion and the construction period is 3 years. With a planning building area of 5.2 million m² and a capacity of 160 thousand people, Port City Colombo, upon completion, will create 83 thousand jobs and become the central business district of Colombo.

 

The Development Framework

 

The bilateral relationship between China and Sri Lanka has now reached new heights with China emerged as one of leading development partners of Sri Lanka in the recent past. In 1971, the Government of Sri Lanka has obtained a loan amounting to US$ 6.70 million to import rice. Since then the total assistance extended by China up to 2012 was US$ 5,126 million of which US$ 4,818 million or around 94% was extended during the last 8 years.

 

Cumulative Chinese Financial Assistance to Sri Lanka Including loans and grants

(1971 -2012)- Table 5

Source: Department of External Resources

 

Grant Assistance:

 

The government of China annually extends Grants Assistance to the tune of RMB 100 Million (US$ 10 – 15 Million) to Sri Lanka in support of projects in culture, art, health and other social facilities.  The BMICH, the Superior Court Complex, the Lady Ridgeway Children’s Hospital and the Nelum Pokuna Performing Arts Theatre are landmark projects developed in Sri Lanka, with Chinese Aid. It is noteworthy that in May 1964 China waived off all the interest on all the loans given to Sri Lanka.

 

·         Major Projects Funded with Chinese Assistance

·         The Second International Airport Project at Mattala

·         Hambantota Port Development Project,

·         International Seaport at Hambantota

·         Rehabilitation and Reconstruction of Highway Projects

·         Matara- Kataragama railway line extension project

·         Colombo - Katunayake Airport Expressway Project,

·         Southern Expressway Extension to Matara

·         Norochcholai Coal Power Project (900 MW)

·         Moragahakanda Multi-purpose Development Project (Irrigation, drinking water and electricity)

·         Reconstruction of the Northern Highway

·         Nelum Pokuna Art Theatre.

·         Colombo Port City project

 

Technical Co-operation

 

The exchange of education assistance between the two countries began with providing 7 scholarships to Sri Lankan Students in 1974. Since then the number of students moving to China for higher education and medicine has increased.

The Chinese Government also provides a large number of long term and short term annual scholarships to Sri Lanka, to promote public service capacity building. The two countries have signed a wide range of cooperation agreements. Letters of Exchange have also been signed between the two countries on many occasions i.e. on Technical and Support Services for the Sirimavo Bandaranaike Centre for International Studies, on the donation of a MRI Scanner etc. Further, many joint workshops have been held at both destinations to strengthen identified areas of cooperation.

 

 

 Source:

Department of Commerce