Business confidence in China has dropped to record lows among U.S. companies. According to the American Chamber of Commerce in Shanghai, only 41% of firms remain optimistic about their five-year outlook, the weakest reading since 1999. The decline reflects ongoing U.S. – China trade tensions, including new tariff threats, stricter regulations, and heightened geopolitical rivalry.
For global business, this is more than a political rift. It signals a structural shift in trade flows, investment destinations, and supply chain strategies. For Sri Lanka, which depends heavily on external markets and foreign investment, understanding these shifts is critical.
Business Confidence at the Lowest Point in Decades
U.S. companies in China project 15-20% revenue declines in 2025 if tariffs are implemented. Many are adopting “China+1” strategies, keeping limited operations in China while diversifying to Southeast Asia and South Asia.
Vietnam, Thailand, Malaysia, and India are among the top beneficiaries, attracting billions in redirected investment. This reallocation of capital reshapes global supply chains, with ripple effects for exporters, logistics providers, and financial markets.
Trade and Investment Implications
For China
- Lower foreign direct investment (FDI) inflows.
- Export growth slowdown as companies shift production out.
- Reliance on domestic consumption to compensate, still fragile due to unemployment and real estate instability.
For the U.S.
- Short-term inflation risk from higher import costs.
- Long-term drive to reshore manufacturing in semiconductors, energy tech, and advanced manufacturing through subsidies.
- Dependence on Southeast Asia for mid-level manufacturing.
For Global Markets
- Diversification of supply chains adds complexity and cost but improves resilience.
- Increased demand for logistics, ports, warehousing, and cross-border services outside China.
Sector-Specific Effects
- Technology: Chip and AI restrictions disrupt R&D collaboration and hardware supply.
- Consumer Goods: Apparel, electronics, and fast-moving consumer products are shifting to Vietnam, India, and Bangladesh.
- Automotive: Electric vehicle supply chains face uncertainty as China controls rare earths.
- Financial Services: Compliance costs rise as companies navigate dual reporting frameworks.
Why This Matters to Sri Lanka
Sri Lanka is not a direct participant in the U.S. – China trade war. Yet, as an open economy dependent on exports, shipping, and FDI, the knock-on effects matter.
Supply Chain Diversification – An Opening
As firms look beyond China, South Asia enters the radar. India is already a key beneficiary. Sri Lanka could position itself as a complementary hub, especially in logistics, back-office services, and niche manufacturing. Sri Lanka’s strategic location on East-West shipping lanes is a natural advantage, but infrastructure and policy bottlenecks need urgent attention.
Ports and Logistics
Increased transhipment demand may benefit Colombo Port if trade shifts through Southeast Asia and South Asia.
Logistics providers and free trade zones could capture opportunities in value-added services if reforms are implemented.
Investment Diversion
Companies diversifying out of China may explore smaller, cost-efficient markets. Bangladesh and Vietnam are strong competitors. Sri Lanka must improve its Ease of Doing Business ranking, tax stability, and FDI incentives to be competitive.
Exporters Need Flexibility
Apparel, rubber, and IT exporters must monitor U.S. – China tariff moves closely. Supply chain volatility could bring both risk (pricing pressure) and opportunity (orders diverted from China).
Risks for Sri Lanka
If the U.S. – China decoupling accelerates, global demand could weaken, hurting Sri Lanka’s already fragile export earnings.
Higher import costs may affect intermediate goods, especially electronics and machinery, raising costs for local industries.
Geopolitical pressure could force smaller nations to “choose sides,” complicating trade and investment strategies.
Strategic Moves for Sri Lankan Business
- Diversify Markets: Avoid over-reliance on a single country or bloc. Develop stronger ties with ASEAN, India, and Africa.
- Strengthen Logistics & Free Zones: Position Colombo and Hambantota as regional trade hubs for companies diversifying supply chains.
- Promote Niche Manufacturing: Target small but high-value sectors; medical devices, specialised apparel, IT-enabled services, where Sri Lanka can be competitive.
Public-Private Partnerships in Infrastructure
Attract investment in ports, airports, and digital infrastructure to handle new trade flows.
- Outlook: Fragmented but Opportunity-Rich
- Short Term (2025): Uncertainty and tariff pressure dominate.
- Medium Term (2026–2030): Southeast Asia consolidates gains as the manufacturing hub. Sri Lanka must align with regional networks.
- Long Term (Beyond 2030): Businesses may have to choose between U.S.- and China-led systems. Sri Lanka’s ability to maintain strategic neutrality while offering business-friendly conditions will define success.
Conclusion
The decline in U.S. business confidence in China is not just a bilateral issue, it is reshaping global trade, supply chains, and investment flows. For Sri Lankan businesses, the message is clear: stay agile, diversify partners, and push for reforms that position the island as a credible logistics and service hub in a fragmented global economy.
The U.S. – China rivalry may slow growth for the giants, but for smaller nations ready to adapt, it opens space to capture new opportunities.
To read “India-US Trade Tensions: What It Means for Sri Lanka“, Click Here.
