Sri Lanka is at a turning point. After years of economic crisis and structural reforms, the spotlight has now turned to international trade—and one of the most talked-about developments is the proposed Free Trade Agreement (FTA) between Sri Lanka and China (China–Sri Lanka Free Trade Agreement). If signed, this deal could be a game-changer for local industries, exporters, and the overall economic trajectory of the island nation.
But what does this FTA actually mean for Sri Lanka? Who benefits? Who’s at risk? And how should local businesses prepare?
In this article, we unpack the potential impact of the China–Sri Lanka FTA and why it’s one of the most important business topics in Sri Lanka in 2025.
A Brief Background
The idea of a China–Sri Lanka FTA has been in discussion since 2014. However, negotiations had slowed down over the years due to political instability, economic concerns, and shifting geopolitical alliances. In 2025, with China renewing its interest and Sri Lanka eager to rebuild its economy through trade, the FTA talks have regained momentum.
As of May 2025, both countries have resumed formal discussions, with economic think tanks, chambers of commerce, and investor networks closely watching the outcome.
Why China Matters to Sri Lanka
China is already one of Sri Lanka’s top trading partners, largest bilateral creditors, and key investors in infrastructure projects—from ports to highways. In 2024 alone, bilateral trade was valued at over USD 5 billion. However, this trade heavily favors China: for every USD 1 of goods exported to China, Sri Lanka imports nearly USD 10 worth.
So why pursue an FTA?
Because it’s not just about fixing trade imbalance—it’s about market access, job creation, and long-term export competitiveness.
What the FTA Could Unlock
If the FTA is finalized and implemented, it could reshape multiple sectors of the Sri Lankan economy. Here’s how:
1. Export Boost for Key Industries
Textiles, tea, spices, seafood, rubber products, and gems are likely to gain duty-free or reduced tariff access to Chinese markets. With over 1.4 billion potential consumers, this is an unmatched opportunity for Sri Lankan SMEs and exporters.
✅ SEO keywords: Sri Lanka exports to China, China FTA benefits for Sri Lanka, Sri Lanka textile exports, Sri Lanka tea trade
2. Foreign Direct Investment (FDI) Growth
FTAs create predictability. With clearer trade rules and market entry strategies, Chinese investors may view Sri Lanka as a low-cost manufacturing base, especially for re-export into regional markets like India or ASEAN.
✅ SEO keywords: FDI in Sri Lanka 2025, Sri Lanka investment opportunities, China investment in Sri Lanka
3. Infrastructure & Logistics Development
A trade agreement could accelerate investment in ports, airports, and logistics hubs—especially in and around Colombo Port City, which is designed to be a special economic zone attracting foreign businesses and service providers.
✅ SEO keywords: Colombo Port City, Sri Lanka logistics hub, Belt and Road Sri Lanka
But It’s Not All Sunshine: What Are the Risks?
While the FTA may bring long-term benefits, it’s not without short-term pain points—especially for small local manufacturers and farmers.
1. Market Flooding by Chinese Goods
Local producers worry that cheaper, mass-produced Chinese goods—especially in sectors like plasticware, toys, electronics, and agricultural tools—could outprice domestic items, hurting micro and small-scale industries.
2. Trade Imbalance Could Worsen
Unless Sri Lanka aggressively promotes its exports and ensures strong safeguards, the trade gap could widen, leading to pressure on the rupee and foreign exchange reserves.
3. Geopolitical Tightrope
India and the West may view the FTA as a shift toward Chinese alignment, which could impact Sri Lanka’s other bilateral relationships. The island needs to walk a fine line between economic opportunity and diplomatic balance.
✅ SEO keywords: Sri Lanka China trade imbalance, risks of China Sri Lanka FTA, impact on local industries
What Local Businesses Should Start Doing Now
Regardless of whether you’re a manufacturer, exporter, retailer, or service provider, the proposed FTA has implications for your business. Here’s how to stay ahead:
● Diversify Product Offerings
Start identifying high-value, export-ready products that could appeal to Chinese markets—especially natural, organic, and culturally unique items.
● Improve Packaging and Branding
Chinese consumers care about aesthetics, safety, and story. Invest in better packaging, certifications (like organic or Halal), and storytelling that resonates with the market.
● Collaborate and Scale
Micro businesses might struggle to export alone. Form cooperatives, export consortiums, or industry clusters that can meet quantity, quality, and shipping standards.
● Learn the Trade Rules
If an FTA is signed, businesses need to understand rules of origin, tariff lines, and compliance processes. Government and chambers of commerce should offer free training sessions.
✅ SEO keywords: how to export from Sri Lanka to China, preparing for China FTA Sri Lanka, Sri Lanka SME export guide
The Role of Government & Policy
To ensure the FTA benefits the country, Sri Lanka’s government must:
- Negotiate strong safeguard clauses to protect vulnerable sectors
- Provide export incentives and financing for local businesses
- Invest in upskilling the workforce for export-related industries
- Improve port and customs efficiency
Trade agreements are only as good as the ecosystem built to support them.
Voices from the Ground
Many Sri Lankan entrepreneurs welcome the move with cautious optimism.
“If we’re given the tools—like easier access to credit, logistics support, and trade education—then yes, we can compete,” says Suresh Perera, a cinnamon exporter from Galle.
Meanwhile, organizations like the Ceylon Chamber of Commerce and EDB (Export Development Board) are pushing for transparency in negotiations and inclusive consultations, especially for agriculture and local crafts.
Final Thoughts: Is Sri Lanka Ready?
The China–Sri Lanka Free Trade Agreement represents more than just trade—it’s a symbol of Sri Lanka’s pivot towards growth through global integration.
Yes, there are challenges. But with the right policies, strategic thinking, and local business adaptation, this could be the trade deal that redefines Sri Lanka’s economic future.
