A glimpse of trade between Sri Lanka and China

“Sri Lanka and China at the time of signing this historic trade agreement was not mutually close to each other on diplomatic relations and political concerns since the two countries maintained different foreign policies.”
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By T.K.Premadasa

(October 01, Colombo, Sri Lanka Guardian) China celebrates its 60th National Day on 1st October 2009 and a variety of festivities will be held in Mainland China , Macau and Hong Kong on grand scale. Sri Lanka has maintained a cordial relationship in culture and trade with China and the Government will extend its heartiest greetings in true friendship to China in her achievement of gargantuan success and prosperity.

The relationship between Sri Lanka and China has continued from a long time beyond Christian era. It has further strengthened by frequent visits of national leaders of both countries, celebration of the 50th anniversary of diplomatic relationship and the declaration of the year 2007 as the Friendship Year with China et al.

Since the change of Government of Sri Lanka in the year 1956 significant changes were introduced in its foreign policy by adoption of Non-aligned foreign policy with the aim of developing diplomatic relationship particularly with Communist countries. The historic visit of the then Prime Minister of China Mr. Chou en Lai to Sri Lanka in early 1957 led to arrive at a decision to open diplomatic relationship between the two countries. This was the foundation cemented in the establishment of this long standing relationship.

It is rationally appropriate to commend the trade relations between the two countries for its historical relationship and accelerated development monumentally achieved by China who will indisputably become the giant in trade & industry during this century

A number of Chronicles and Archaeological findings are acceptable proof of evidence that trade between Sri Lanka & China goes far beyond Christian era. Sri Lanka was the central harbor in the ancient Indian Ocean trade. Prof Senerath Paranavithane and Dr. C.W. Nicholas in Ceylon History (Part One) have declared that ancient Sri Lanka was utilized as the center for export of goods from Far East to West and South to East in particular and advanced to become the main port of entrance from East to West on sea route over the Indian Ocean. The direct link over Silk Road with Sri Lankan ports was advantageous to Sri Lanka as the sea trade reached close bilateral contacts with China in the field of trade, commerce, culture and politics. The great works of Sri Lankan history, namely: Sihalavattuppakarana -(5AD), Sahassavattuppakarana (9AD), Buthsarana & Jataka Atuwa Getapadaya (12AD) and Pujawaliya ( 13AD) explicitly demonstrate the stergnth of the ancient Sino- Sri Lanka relationship.

The fundamental achievement on trade negotiations in the recent past was the famous Rice Rubber Pact with China known as Sri Lanka China Trade Agreement signed in 1952 enhancing trade and mutual relations. In terms of the conditions of this agreement China consented to supply 80,000 tons of rice to Sri Lanka within a short period in exchange of Sri Lankan products mainly natural rubber. Primarily it was agreed on a short- term basis but on negotiations it was later consensually extended to a long- term trade agreement. Sri Lanka assured to import 270,000 metric tons of rice each year for a period of five years and China guaranteed to purchase 50,000 tons of rubber each year for five years over the same period. One of the conditions in the trade agreement signed was the prices of commodities were subject to revision annually.

From Sri Lanka point of view the trade pact was immensely advantageous to Sri Lanka. i.e. Assurance of a steady supply of rice to Sri Lanka offering less than 1/3 rd of world market price when the globe was confronted with a grave scarcity of rice due to loss of Asian rice supply as a result of World War and Guarantee of a fixed price for rubber offering 40% higher than Western price at a time Sri Lanka had to undergo hardship with drop of price after Korean war and introduction of Synthetic rubber. China extended a remarkable degree of generosity to the people of Sri Lanka in becoming the principal importer of rubber from Sri Lanka.

Sri Lanka and China at the time of signing this historic trade agreement was not mutually close to each other on diplomatic relations and political concerns since the two countries maintained different foreign policies. In spite of the differences in foreign policy between the two countries the signing of the trade pact by China should be highly commended.

This agreement was renewed every five years till 1982 and protocol was signed annually for effective implementation of the conditions in the barter of rice & rubber under the purview of this agreement. In expediting the best transaction of bartering commodities, two sets of clearing accounts were maintained through the respective Central Banks.

Numerous changes were effected on Sri Lanka China Trade Agreement during the period from 1977 to 1982. Protocols for 1980/ 1981 restricted payments on settling of accounts involved with rubber & rice only and transactions on other commodities were made in free currency. In addition protocol for 1982 directed payments in convertible currency on all trade transactions.

Improvement of relations between the two countries recognized compromising a General Trade Pact in September 1982. Subsequently on the basis of most favored nation it was decided bilaterally to establish a Joint Committee for reviewing the implementation of the agreement.

An Agreement on Economic & Trade Cooperation was signed in 1984 between the two countries. Later in 1991 it was decided to amalgamate the two Joint Committees formed under the General Trade Pact of 1982 and Agreement on Economic & Trade Cooperation of 1984. The first session of the amalgamated Sri Lanka China Joint Commission was held in 1992 and second and third sessions were held in 1996 and 2000 respectively.


The objective of the Joint Commission was to expand trade and other economic affairs between Sri Lanka & China. Both countries were able to exchange information, organize trade missions and delegations on conciliatory negotiations conducted by these joint commissions. In addition, loan facilities and assistance on various development projects in Sri Lanka were granted by China under this Commission. This Commission helped build a forum for discussions on cultural exchange and attraction of tourism.

In advancing further discussions over the progress of economic cooperation between the two countries in early 60s, China & Sri Lanka amiably entered into a maritime agreement in July 1963. In terms of this agreement all commercial vessels engaged in cargo and passenger services between the two countries were treated on the basis of most favored nations.

Sri Lanka China Business Council was instituted in 1994 by the Sri Lanka business community under the auspices of the Chamber of Commerce with the sublime objective of improving trade & investment. Most members of this Council are leading business representatives from the private sector.

In early 2000 Sri Lanka exchanged bilateral negotiations with China extending glowing support in favor of Chinese bid to join the World Trade Organization. Sri Lanka signed a special agreement with China in 1997 in support of Chinese admission to Asia Pacific Trade Agreement also known as Bangkok Agreement founded in 1975 recognized as one of the oldest regional preferential trade pacts in ESCAP (Economic & Small Countries of Asia & Pacific). Benefit of tariff concessions has been granted to different sectors of products under this agreement.

In spite of long standing cordial relationship between Sri Lanka and China on trade supported by Rice & Rubber Trade Pact, bilateral trade transactions dramatically changed as caused by the economic policy changes of the two governments during the recent past. Introduction of new economic policy in the latter part of 1970, diversification of products and markets and the relevant changes enacted in the trade agreement after 1977, made effects on Sri Lanka Trade Relations. China was the no one leading export market for Sri Lanka in 1975 due to the effects of Sri Lanka- China trade agreement and subsequently was ranked 29th export market for Sri Lanka.

The external trade between the two countries varies every year over the drop & increase of export items of products. However it is noticeable that the trade balance has consciously been in favor of China.


Mainly Sri Lanka exports, coconut fiber products, natural rubber, tea, spices, precious and semi-precious stones and ready made garments at present. There has been a notable fluctuation of Sri Lanka exports to China particularly during the recent past. Sri Lanka exported Rs.271 million worth garments in 1999. It became reduced to Rs.9 million in 2004, but again it rose to Rs.390 million in 2008. It was same with precious and semi-precious stones too. In 1996 the total exports to China was 65% of the products worth Rs.432 million but again it was dropped to Rs.320 million in 2008.

However, there has been a significant increase of Sri Lanka exports to China since 2000, mainly due to the bulky export of mineral sands as zicronium ores and rutiles, coir fiber and electrical components etc. The exports of mineral sands from Rs. 10 million in 2001 inspiringly propelled up top Rs. 226 million in 2008. Coir products worth of Rs.6 million in 2000 ascended to Rs 1,142 million in 2008. Apart from the above increase in exports, an intrinsic ascendancy in tea and natural rubber sector was recognized.

China accounted 0 .45% of total exports from Sri Lanka to the world. But on the current trend it is optimistic that China will increase the potential items of exports from Sri Lanka exports such as rubber products, tea, spices, confectioneries and seafood. etc.

In view of the available statistics of foreign trade in 2008 Sri Lanka has imported 12 % of the total imports of Sri Lanka from China. Imports from China have been increasing dramatically creating huge trade balance unfavorable to Sri Lanka. In 2008 China became the third largest importer of Sri Lanka next to India and Singapore.

Sri Lanka mainly imports fabrics, tractors, vehicle spare parts, machinery and chemicals etc. Sri Lanka will in future import a considerable number of cars, other small vehicles, automobile spare parts and electronic equipment causing formidable challenge to other leading importing countries to Sri Lanka.

In view of current global economy scenario it is of pivotal importance for the developing countries to strengthen their trade relationship with China. It would be expedient to be seriously thoughtful of her illustrious prominence in accelerating indefinable progressive amelioration prognosticating her potential for the world leadership.

China moves to a mixed economy as the largest market in size achieving the forth largest economy with 12% growth rate. Indications are she will reach the pinnacle of development with the abundance of available resources and massive infrastructure. Today China ranks 9th in service sector manifesting her giant progression as hardware provider in IT. China by foreign trade has earned US$ 2.6 trillion in 2008 an increase of 18% against 2007.

Many opportunities are available on improving development trade with China considering the strength of the cordial relationship maintained between the two countries by continuous dialogue and trade agreements on mutual understanding.

( The writer is the Head of Corporate Affairs and Communication of the Sri Lanka Export Development Board)

-Sri Lanka Guardian