An overview of China - Sri Lanka economic relations :

Development through partnership

by our Special Correspondent in Beijing

The development of China-Sri Lanka trade and economic relations within the last three years has been of great significance not only for both sides but also for the whole of Asia. The year 2007, glows in letters of gold in the history of bilateral relations of Sri Lanka and China as the two countries had witnessed the celebration of the 50th Anniversary of the establishment of diplomatic relations. Since his visit to mark the occasion, President Mahinda Rajapaksa, visited China on two other occasions during the past three years giving a higher political impetus to the existing friendly ties between the two nations closely followed by the visit of Prime Minister Wickremanayake on two more occasions. The visits by both the Minister of Foreign Affairs and the Minister of Export Development and International Trade in 2009 further consolidated the existing ties ,thus taking, the partnership between Sri Lanka and the PRC well beyond a purely government to government equation progressing towards the "advanced productive forces" in China (one of the "3 Represents" adopted by former President Jiang Zemin" in introducing the economic rejuvenation of China) which include companies and corporate entities under different forms of ownership.

Changes in trade and economic ties for both sides

According to statistical data, China's trade with Sri Lanka has increased rapidly over the period 2007 - 2009. One contributory factor was the tremendous increase in the Sri Lanka exports during this period as the total exports from Sri Lanka in the year 2006 which stood at US $ 34 million doubled to US $ 68 million in 2009. This remarkable achievement within a span of three years came despite the world economic downturn and China, herself showing a negative growth in exports to Sri Lanka in the year 2009. The structure of Sri Lanka exports has changed substantially too during 2007 to 2009.

President Mahinda Rajapaksa flanked by the First Lady Shiranthi Rajapaksa and People’s Republic of China’s President Hu Jintao.

Sri Lanka, during this period undertook a focused promotional strategy in introducing a basket of targeted export products to the Chinese consumer market. Earlier, most of the exports were in the form of raw materials such as zirconium ores and titanium ores accounting for more than 40% of the total exports. As a result of this targeted promotional campaign there has been a significant shift towards the export of tea, rubber based products, coir fibre, gems and jewellery, activated carbon and fish products to China in the recent period. As a main tool for promotion of these products, the policy makers in trade and development in Sri Lanka together with the Embassy in Beijing after careful scrutiny identified a selected number of trade fairs held in China to showcase Sri Lanka products. Upon closely working with the Chinese Business Support Organizations and inking with them over 12 Memoranda of Understanding the Embassy was able to gain concessionary facilities for the participation at these Chinese Expos in a number of occasions obtaining the exhibition space free or at very nominal rates. As such during the three year period Sri Lanka participated in a record number of trade fairs, totalling 52 with 25 trade fairs only for 2009 with a high number of exhibitors showcasing Sri Lanka potential products in many provinces in China. The two South Asia Trade Fairs held in 2007 and 2009 stand out significantly where Sri Lanka participated with 53 and 60 exhibitors respectively. Embassy efforts of proposing to have this trade fair annually has finally paid off as from 2009, Commerce Ministry of China has announced the holding of this event annually in conjunction with the Kunming Fair. Further the cooperation between Business Support Organizations of Sri Lanka and Chinese counterparts were improved to a greater extent in a variety of areas mainly using the MOUs signed as a basis in promoting a number of two-way trade & investment delegations, in enhancing trade & investment relations and facilitating the exchange of technical know-how in many areas for the development of targeted industries in Sri Lanka.

With the increase of the average income of the middle income group of China, the concentrated efforts taken by the Mission in Beijing for the development of an export destination for Sri Lanka gems in the Chinese consumer market has yielded productive results by September 2009, elevating Sri Lanka to the 19th position from that of the 32nd position which prevailed in 2006 as availed of by the statistics of the Gem & Jewellery Authority of Sri Lanka. December statistics is expected to further elevate this position due to very successful participations at the Gem & Jewellery Fairs both in Beijing and Shanghai in November.

A record number of 20 companies from the gem & jewellery industry participated in the Beijing show. Apart from this Sector Sri Lanka tea exports to China grew at a swift pace during the past three years thus exceeding 1 million kg for the third year in succession from 700,000 kg in 2006.

Although a huge demand for imports from China is visible in Sri Lanka, which has hitherto caused a huge trade imbalance tilted favourably towards China, an analysis of the structure of imports will show that Sri Lanka has mainly imported fabrics, tractors, vehicle spare parts, machinery and chemicals etc and that a large portion is concentrated in the investment and capital goods segment thus bringing in further benefits indirectly to Sri Lanka due to the competitive pricing structure of such goods.

On a more substantive level, the Sri Lanka Mission in Beijing has also organized together with the Department of Commerce the Joint - Economic Commission in April 2008 after a lapse of 8 years. The Embassy has also actively joined hands with the Department of Commerce in promoting further tariff concessions to Sri Lanka export products in the Chinese market under the negotiations on Asia Pacific Trade Agreement (APTA).

China as a member of the Asia Pacific Trade Agreement has granted duty concessions to Sri Lanka products including tea, gems and jewellery, coconut based products, fruits, spices, electrical parts and accessories. The corridor is open for many other top 50 Sri Lanka exports items to the international market to seek further concessions.

The Business Support Organizations ought to create awareness among the Exporters of Sri Lanka about the unexploited market opportunities in China especially the concession granted under APTA. The reduced duty structure has given a distinct advantage for Sri Lanka exporters and in utilizing this advantage, it is important that all consignments (APTA Concessions list) to China include the rules of origin certificate issued by the Department of Commerce in Sri Lanka.

Further, APTA also paves the way for promotion of investments and joint ventures with China. Based on the cumulative rules of origin many joint venture opportunities are available for the manufacture of microwave ovens, fans, computers, electronic/video games, telecommunication apparatus, motorcycles, marble, copper items, aluminum products, telephone sets, garments and footwear. With the 4th round of negotiations coming into effect from 2010 it is expected that Sri Lanka would get more concessions for potential exports to the Chinese market.

Chinese investments to Sri Lanka

China's overseas investment is rapidly increasing with the progressive implementation of the "Going Global" strategy prompting the Chinese enterprises to be more enthusiastic in investing abroad and their investments occurring mostly in the Asian region. Chinese business investment is concentrated in three fields: (1) communications, information systems, and other information technology industries, (2) trade, wholesale, and retail industries related to market expansion, and (3) resource development. Materials and applications (M&A) and profit reinvestment are the rapidly growing methods of investment.

In comparison with the other leading investors in Sri Lanka, Chinese investments were not as high mainly due to system limitations and lack of understanding of the conditions of Sri Lanka for investment. Well aware of these facts and using the favourable condition that has been created by the "Going Global" Strategy the Embassy with the support of BOI launched a program in order to create awareness among the Chinese Companies about the positive environment and opportunities in Sri Lanka and lure them to Sri Lanka. A number of investment seminars were held in many cities across China to this effect. This has brought many benefits and for the first time in 2009 China has recorded an investment worth of over US $ 50 million thus making a huge progress in the sphere of Foreign Direct Investment. The highlight of this investment growth is the Huichen Investment Holdings Ltd which carried an investment portfolio of US $ 28 million to develop the China exclusive economic zone located in Mirigama.

Tourism

China is the largest outbound tourism market in the world with 45.8 million Chinese travellers visiting aboard. According to a survey, the most popular destinations among Chinese travellers are South Korea, Japan, Hong Kong, Thailand, Maldives, Singapore and India. A large number of travellers are now looking for destinations in South Asia with 25,100 persons of the Chinese outbound tourism market visiting Maldives and 83800 visiting India respectively in 2008.

Although Sri Lanka attracted only around 9000 Chinese tourists in 2009, we have seen a steady increase of the Chinese tourism flow to Sri Lanka during the last three years. This upward trend recorded 20% more after May 2009. It is a well-known fact that Chinese travellers are looking for good shopping opportunities with their holiday travel. Hence, the time has come to launch activities/promotions in China.

The Sri Lanka Mission with the cooperation of the Sri Lanka Tourism Bureau established a tourism office to promote Sri Lanka in Beijing in June 2008. In the Chinese market, one of the primary tasks and the responsibilities entrusted to Sri Lanka Consulates in Shanghai and Chengdu is to promote tourism in their respective regions.

The Sri Lanka Embassy has made arrangements to send a total of 60 pax of travel writers, media personnel and tour operators on familiarization tours (FAM) to Sri Lanka in 2009.

The Consulate in Shanghai also arranged to train Sri Lankan tour guides and Sri Lankan chefs. The Sri Lanka Embassy launched two successful tourism, trade & cultural promotional campaigns in conjunction with celebrations held for the Independence Day and the Establishment of diplomatic relations in both 2008 and 2009. A similar programme will be done in 2010.

Development assistance

In recent years China has experienced a great economic surge and is reported to be the world's largest foreign reserves holder totalling over US $ 1.9 trillion. With the steady improvement of bilateral relations, China figured prominently in funding Sri Lanka's many socio-economic development projects particularly in the period 2007-2009, reaching a total portfolio of over US $ 3 billion.

These projects encompass power generation, port & airport construction, road & rail network including the northern & eastern reconstruction process. The performing arts theatre being built with a grant aid package having a seating capacity for over 1000 people and equipped with all other modern facilities will standout as a landmark symbolizing the friendship between the two countries. All these mega infrastructure projects, some of which would be completed by the year 2011 will alter the development landscape of Sri Lanka bringing in many new trade & investment facilities.