ARTICLES

Sri Lanka - China Trade Relations

           Country : China

Population : 1,330 Mn.(2008 July.)

GDP : $ Billion – 3425(2007)

GDP per capita : $ 2,542 (2007Ets.)

Real GDP Growth : 11.4% (2007 Est)

Foreign Trade 2007 (Est)

Exports US $ 1.217 Trillion

Imports US $ 956.0 Billion

 Major Exports (2007)

Electrical Machinery & Equipment  -           10.5%

Clothing and Garments                                -           9.5%

Yarn and Textiles                                           -           4.6%

Petroleum and Products                              -           1.0%

 Leading Export Markets:   USA 19.1%, Hong Kong 15.1%, Japan 8.1% and South Korea 4.6%., Germany 4.2%, Netherlands 3.2%, U K 2.5%, Singapore 2.4%

 Major Imports (2007)

 Electrical Machinery                         -           21.9%

Petroleum and petroleum products -           10.4%

Industrial Machinery                          -           3.2%

Textiles                                                           -           1%

 Leading Suppliers:  Japan 14%, South Korea 10.9%, Taiwan 10.6% , US 7.3%, Germany 4.8%, Malaysia 3.0%, Australia 2.4 %, Thailand 2.3%.

2. Sri Lanka – China Trade Relations

      Trade relations between Sri Lanka and China spans a long history going back to several centuries.

The period beginning from 1952 opened a new chapter in trade relations between the two countries, with signing of a Trade Agreement relating to barter trade on rubber and rice.

      Until 1982, Trade and Payment Agreements were negotiated every five years and these negotiations provided the framework to conduct trade between the two countries.

Annual Protocol signed under this Agreement provided for the barter of Chinese Rice for Sri Lankan Rubber.

     A Trade Agreement of a general nature between the two countries was signed in September 1982, which provided MFN (Most Favoured Nation) treatment for products of exports and imports of the two countries.

In 1984, an Agreement on Economic and Technical Cooperation between the two countries was signed.

The above two agreements were amalgamated into the Sri Lanka - China Joint Committee for Trade and Economic Cooperation in 1991.

o       The first Session of the Sri Lanka-China Joint Committee on Trade and Economic Cooperation was held in March 1992 in Colombo.

o       The second Session was held in March 1996 in Beijing, China.

o       The third Session was held in February 2000 in Colombo.

o       A notable outcome of the Joint Committee was that the Chinese Government granted an interest free loan of RMBY 20 million for the utilization of projects agreed during the Joint Committee Meeting.

o       The project proposals under the Joint Committee were electricity to the rural sector, manpower training and development in the livestock sector, shipping, port services etc.

o       The fourth Session was held on 29^th April 2008 in Beijing, China.(Key points attached)

 2.1 -Sri Lanka-China Trade (2003-2007) –

China is the fourth largest Trading partner of Sri Lanka and 3^rd and 27th^th in the list of major import and export partners list for Sri Lanka according to the 2007 statistics.

Trade between Sri Lanka and China 2003-2008 US$Mn

Source: China Customs Statistics

It should be highlighted that during the year 2007 Sri Lanka Exports to China increased by more than 40 %  and Sri Lanka imports form China increased by 24%.This clearly shows that during the year 2007 we have performed exceptionally well in our exports to China. According to Sri Lanka Customs statistics this figure is 35 million US$ as against 25 million in 2006.(This is mainly due to the fact that goods entering the mainland China through Hong Kong is not shown ) still the growth is 40%.

2.2 Sri Lanka’s major exports to China

Sri Lanka’s main export items to China are vegetable textile fibre (coir fibre), Zirconium ores and concentrates, rubber, tea, precious and semi precious                            stones etc.  Details on main exports to China from 2003 – 2007are ;ANNEX 1

2.3Asia Pacific Trade Agreement Utilizing to the maximum the APTA concessions.

China as a member of the Asia Pacific Trade Agreement has granted duty concessions fro 1697 products including Tea, Gem and Jewelry Coconut based products,Fruits,Spices therefore we are in a in a rewarding position to reap the benefits of the APTA especially with regard to Export to China. The corridor is open for many Sri Lankan potential products such as Coir Fiber .Black Tea, Gems and Jewelry, garments, fruit juices, coconut oil, spices, fruits, fish, gems and jewelry .The BSOs Should create awareness among the Exporters of Sri Lanka about the unexploited market opportunities in China especially the concession granted under APTA.

Selected list of Exports Products of Sri Lanka that has obtained tariff concessions under APTA.ANNEX2

There  is a huge demand for Coconut fiber, Zirconium ores, Natural Rubber-Smoked sheets, Ceylon Tea ,Spices, ,Beverages  in China we don't need a FTA To Export to China but we have to increase our capacity .This can be done through implementing latest technology and machinery to a greater extent .

Further APTA paves the way for promotion of investments and joint ventures with China in Sri Lanka on projects such as manufacture of micro wave ovens, fans, computers, electronic/video games, telecommunication apparatus, motorcycles, marble, copper items, Aluminum products, telephone sets, garments and footwear utilizing the cumulative rules and origin (60%) and export these products to the member countries.  Furthermore, the   domestic value addition has been revised downward to 45% from a level 50% for developing member countries.

2.4 Products which may have further potential

Rubber based products

Coir products

Gems & Jewellery

Black Tea

Herbal products

Spices

Fresh fruits

Sea Food

Vegetables

Graphite,

Coconut shell charcol

 Tea

The Ceylon Tea performed exceptionally well in the Chinese market and achieved a remarkable growth of more than 65% by end of 2007 in comparison to the exports of 2006.  Although China is a huge market with more than 1.3 billion people, predominately users of green tea, Oolong tea, Scented tea and Puer tea, China has been identified as very promising emerging market for orthodox Black Tea. Their demand for beverages is higher with the growth of their per capita income. The outstanding growth continued in 2008 due to the strong and unswerving effort of the Ceylon Tea Exporters who were guided and coordinated by the Embassy of Sri Lanka in China and the Tea Promotion Unit of the Sri Lanka Tea Board targeting an intense promotion of Ceylon Tea in the Chinese market.

Commonly known as red tea (hong cha), black tea accounts for a mere 1-2 per cent of China’s huge RMB80 billion tea market. But innovative flavours and modern packaging are winning new consumers from the younger generation. The results clearly show that black Tea consumption despite being a new experience is becoming increasing popular in China. The volume, which was 172 tons in 2003, jumped to 456 tons in 2004, 478 tons in 2005, 578 tons in 2006 and a record 965 tons in 2007 reflecting a 67% increase year on year from 2006 to 2007. According to the Sri Lanka Tea Board statistics up to August 2008 Sri Lanka has exported 765 MT showing a clear signs of exceeding the 1000 MT for the first time.

As a result of the continuous efforts of the Sri Lankan embassy officials, adjustments were made to the tariff regulations in the year 2007 by the Chinese Customs with regard to Ceylon Tea giving a much needed boost for the growth of Export flow Ceylon Tea. Hence, now Ceylon Tea exports enjoy a preferential Tariff rate of 7.5% under APTA as against the general tariff of 15% to China.

Since China has the fastest growing, largest middle class in the world, the demand for imported products and new items is amazingly huge. Therefore, the trend for the Chinese consumers, particularly the younger generation to favor Ceylon Black Tea which is a new product to them is fast appearing in the horizon.

Growth of Ceylon Tea Exports to China

Metric Tons

The above growth was achieved in all the form of Tea Export during the year 2007 when compared to 2006.Further the data issued by Sri Lanka Tea Board based on Sri Lanka Customs data clearly shows that number of Companies that export Ceylon Tea to Chain has increased dramatically with new exporters emerging . The no of exporters in 2006 was 26 and it has increased to 35 exporters during the year 2007. The awareness campaign carried out by the Embassy among the Sri Lanka exporters paved the way for many of them to find agents and distributors for Ceylon Tea in the Chinese market 

 Gem and Jewelry

China's jewelry industry is facing unprecedented development opportunity and will have good prospects, There will be 60 to 70 Chinese jewelry companies becoming well-known Chinese-brand product enterprises by 2010, and the annual total sales of jewelry will exceed 200 billion yuan ($29.31 billion),.

By 2020, the annual total sales of China's jewelry industry are expected to reach 300 billion yuan, with exports exceeding $12 billion. By then, China will become one of the most competitive jewelry manufacturing and trading centers in the world and the largest global jewelry consumption market

With the demand for Gems and Jewelry is rapidly mounting with the rising income of the Chinese population and Sri Lanka has got the margin of preference under APTA for this sector. What we should encourage is to open outlets in China. It's true that in China though concessions are being given under APTA and after joining the WTO many barriers have eased. Still there are few NTBs specialy at the Customs. Still a way out is possible through discussion with the relevant Authorities as it was successfully done by this embassy for the Tea Sector and, therefore this should not be considered as a barricade. It is disappointed to hear that the concessions granted under the APTA are not being utilized due to the lack of knowledge of our Exporters. Statistics shows that Gems exported to China in the year 2006 is too little with exports worth of US $ 0 .21million to mainland China.

Most recently, China entered into the lapidary and jewelry industry not because of increased production of gems but due to increased foreign collaborative investment in lapidary and jewelry making owing to China’s high productivity rates, low wages and its interest in joining the WTO.

Coir Products

Coconut based producers should take advantage of the overwhelming demand for coco coir in China. Coco coir, which costs $150 per ton, could reach a value of $600 a ton if converted to geotextile. Coco coir, including practically everything that will be produced in the plan, China is a gold mine for our local coconut producers. China, which is loosing as much as 400,000 hectares of arable land to the desert annually, has identified coconut coir as a suitable raw material for the geotextile that they need in their massive campaign to contain soil destruction.

Fruit Juices

China is not only an important fruit juice producing and exporting country but also an important fruit juice consuming and importing country. Since 2002, Chinese fruit juice consumption as well as fruit juices import has been increasing every year. However, compared with yearly average consumption of 70 liters per capita in developed countries, China still has a huge market to develop. Survey has revealed that non alcoholic drink market grows by 14-15% a year in China. Since 2002, Chinese fruit juice consumption as well as fruit juices import has been increasing every year. Experts point out that China's drinks market has a bright future. As the level of income increases, it will in all likelihood push up the consumption and production of drinks. Consumers' demand for natural, low-sugar health drinks will cause more new products to be introduced to the Chinese market. The traditional mainstream position of carbonated beverages has already been challenged with bottled water, tea and fruit juices becoming more popular.

 Frozen Sea Food

China is changing rapidly and so are its tastes. As a consumer society emerges, so new products are appearing with increasing regularity. Frozen foods are among them.Rising average annual incomes, greater ownership of fridges and freezers, increased exposure to western and international cuisines and a greater array of goods in the supermarket are all combining to increase sales of frozen foods in China.

The arrival of the fast-food chains, western-style supermarkets, greater awareness of frozen foods and the emergence of a generation both willing and

able to try new products has meant that the market for frozen foods has made great strides in China.

The increasingly busy lifestyles of urban Chinese in particular have led to an increased demand for convenience foods, such as frozen ready meals. Also, and increasing number of people are finding it difficult to go shopping for food each day, and so more people are now buying foods for use another day, leading to an increased acceptance of frozen food use.APTA once more has provided the opportunity Sri Lanka Exporters to knock at  this market

 Rubber

China's demand for rubber will continue to grow at a double-digit pace over the next few years, according to the China Rubber Industry Association which forecasts 12 percent growth this year. The demand will grow 10 percent or so in 2009 and 2010, predicted the association. China's natural rubber production is estimated at approximately 600,000 tons for last year, and the synthetic rubber output, at 1.84 million tons. The natural rubber production would grow by only 1.7 percent this year.

To meet growing demand from manufacturers of tires, auto parts and footwear, China would this year import 1.75 million tons of natural rubber, up 8.7 percent over last year, and 1.5 million tons of synthetic rubber, up 15%. Customs data show that last year, the country bought from abroad 1.6 million tons of natural rubber, up 14.6 percent year-on-year, and 1.3 million tons of synthetic rubber, up 19.2 percent.

In recent years, with the increasing demand for cars in China, the tire industry has witnessed its rapid growth, which leads to expanded demand for natural rubber in China. To date, China has surpassed Japan and US to become the largest rubber consuming country in the world.

Handy Crafts and life style products Environmentally-friendly products are becoming more popular

 Growing demand for environmentally-friendly products drove further new product development to focus on features such as natural ingredients and reducing pollution during the production process. China’s environmental certification is becoming popular amongst manufacturers, and more players are trying to get the certification which enables them to label themselves as energy-saving and environmentally-friendly companies. Such a label can help products attract the attention of more mid and high-end consumers who are more aware of such features.

 It is believed that as China gradually liberalizes the import and distribution of herbal medicine according to its WTO commitments, global herbal medicine players, given their competitiveness, will be able to expand their market share further in China.

 Outsource industry the next big thing

China's IT services outsourcing industry could generate $56 billion in revenue and create 4 million jobs by 2015, becoming a new engine for the nation's economic growth, a report said. Outsourcing service providers in China could earn as much as $18 billion by 2010 and $56 billion by 2015, according to a White Paper released by Electronic Data Systems (EDS) although I do not intend to go into details this is another important sector that we have to give attention to in China. The potential outsourcing market is estimated to be as much as $465 billion in 2006 and $600 billion in 2010. However, only 9 percent of the total demand has been met, according to Reports.

 2.5 Sri Lanka’s main imports from China

 Sri Lanka  imports a range of items from China and the value import has been increasing significantly over the years.  Main import items are machinery and parts, cotton, textiles, vehicles and parts, fertilizers, iron and steel, plastic products etc.  Details on imports from China from 2003 – 2007 are at Annex III.

3.Chinese Investments in Sri Lanka

 At present there are 66 investment projects in Sri Lanka under BOI law and outside the BOI scheme. The value of total investment is approx. Rs. 2,087 Million.  The Chinese investors have focused on the fields of food processing, deep-sea fishing, rubber, handicrafts and gift items, manufacture of motor cycles, mini-hydro power generation plant and apparel & textile products.

 Leading Chinese projects in Sri Lanka under BOI

Yuan Fa Lanka Aquatic Prod (Pvt) Ltd       -           Deep Sea Fishing

Energy Asia (Pvt) Ltd                                   -           Motor Cycles

Seibu Deep Sea Fishing Co (Pvt) Ltd       -           Deep Sea Fishing

Alchemy Heavy Metals (Pvt) Ltd                  -           Minerals

Hydrotech Lanka Dickoya (Pvt) Ltd            -           Mini Hydro Power     

                                                                                        Projects

 Key Sectors with vast potential for Chinese Investors

l      Textiles, Apparel, Accessories

l      Rubber based products

l      Deep sea fishing, Fish Processing  

l      Property development

l      Tourism

l      Power generation-wind and solar

l      Infrastructure/housing /Highways/Roads/Ports

l      Light industry

l      Information Technology

l      Chemical

l      Food processing

l      Agriculture, Agro based products, rice farming, coir based coconut, Sesame. Sunflower...........etc

l      Assembly of  Vehicles

l      Incentives are provided for career or job-oriented educational and training institutions

 Opportunities for Chinese Manufacturers for Investment and Joint Venture cooperation

►    India Sri Lanka Free Trade agreement

►    GSP+

►      Special Zone for Chinese Investors (260 acres in close proximity to Colombo )

 4. 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 Director General Level was held in Beijing from 11th to 12th August  2005.

 






5. Proposed Preferential Trading Arrangement

 In addition to the Agreement on “Further Development of Bilateral Economic and Trade Relations between the Government of Sri Lanka and the People’s Republic of China”, Sri Lanka initiated a proposal in 2004, for an Agreement on Preferential Trading Arrangement between the two countries, for strengthening Bilateral Economic Cooperation through the expansion of the product coverage outside the scope of  Bangkok Agreement ( now known as Asia Pacific Trade Agreement –APTA) and to exchange deeper  tariff concessions on products of export interest to the two countries.  The Chinese response is yet to receive on this proposal.

 



6. Sri Lanka-China Business Cooperation Council

The Sri Lanka-China Business Cooperation Council, which is a private sector initiative, was established in 1994.  It’s primary objective is 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.Iniiated by the Commercial Section of the embassy of Sri Lanka SLCBCC has already signed/initiated MOU’s with

• Sri Lanka China Business Cooperation Council (SLCBCC)- Hainan CCPIT Sub Council.(Signed)
• SLCBCC-Guangxi CCPIT Sub Council .(Signed)
• Ceylon Chamber of Commerce –Macao Trade and Investment Agency.(yet to be signed)
• SLCBCC-Jinan CCPIT Sub Council (Signed)
• National Gem and Jewellery Association –China Gem and Jewellery Trade Association. (Signed)
• China Textile Council –Joint Apparel Association of Sri Lanka. .(yet to be signed)
• Beijing CCPIT Sub Council –Ceylon Chamber of Commerce. .(yet to be signed)
• China Chamber of Commerce for Imports and Exports of Light Industrial Products and Arts and Crafts – Federation of Chambers of Commerce Sri Lanka.(Signed)
• China Chamber of Commerce for Import and Export   of Machinery and Electronics Products –National Chamber of Commerce and Industries in Sri Lanka (Draft Submitted)

 7. Visit of H.E. Mr. Wen Jiabao, Prime Minister of China to Sri Lanka

 H.E. Mr Wen Jiabao Prime Minister of China visited Sri Lanka in April, 2005. During His Visit, the Agreement on Further Development of Bilateral Economic and Trade Relationship between Sri Lanka and China was signed.

8. Sri Lanka - China 50^th anniversary of Diplomatic Relations

 H.E  Mahinda   Rajapaksa  , the  President  of  Sri  Lanka  visited  China  from 29^th February  to  6^th  March  2007.He  was  accompanied  by  a  high  level  delegation  consisting  members  from  the  private  sector  as  well  as  public  sector  Organizations.

 The Government of China expressed its readiness to continue with its assistance for Sri Lanka’s economic and social development  and pledged to encourage greater market access to Lanka’s products to narrow the present trade deficit.  In a joint communiqué issued  at the conclusion of President Mahinda Rajapaksa’s State visit to China, the two sides agreed that in the 50 years since the establishment of diplomatic relations, China Sri Lanka relations have continued to strengthen despite changes in the international environment.

 The two sides emphasized that expanded economic cooperation and trade is of significant importance to the progress and prosperity of the two countries and their economic development.  The bilateral economic cooperation and trade should be further strengthened by fully tapping potential and seeking new ways on the basis of current cooperation.

 Sri Lanka expressed deep gratitude for assistance given through technical support and financial facilities for major infrastructure projects in Sri Lanka including the coal power projects and other infrastructure projects and supplies on which decisions have already been taken.

 Discussions were also held on the Hambantota Development Zone which includes habour development, a bunkering system and tank farm, and positive progress has been made between the Chinese companies and Sri Lankan authorities so far.

 The following Agreements and Memorandum of Understanding were  signed during the above Visit:

 1.         Agreement on Economic and Technical Cooperation between China and Sri Lanka.

 2.         Memorandum of Understanding between the Chinese Ministry of construction and the Sri Lankan Ministry of Construction, the Ministry of Urban Development and sacred Area Development.

 3.         Agreement between City of Guangzhou and Hambantota on the establishment of friendship City Relationship.

4.         Memorandum of Understanding on two way investment promotion cooperation between the investment promotion agency of the Chinese Ministry of Commerce and the Board of Investment of Sri Lanka.

 5.         Memorandum of Understanding on Cooperation in the film Industry between the Film Bureau of the State Administration of Radio, Film and Television of  China and National Film Corporation of Sri Lanka .

  6.         Memorandum of Understanding for the Donation of Eye Corneas and Promotion of Cooperation, exchanges, technical and Technology Transfer Between the Red Cross Society of China and the Eye Donation Society of Sri Lanka.

7.        Memorandum of Understanding between the Chinese Academy of Agricultural Mechanization Sciences and Department of Agricultural of the Ministry of Agriculture of Sri Lanka.

8. Memorandum of Understanding of Academic Exchange between Beijing Foreign Studies University and the University of Kelaniya.

 Summary of Embassy activities for 2008 

 The latest statistics have projected a growth of 30% in Sri Lanka exports to China when compared to 2007, which is expected to surpass the US $ 50 million mark for the first time by end this year.  During the period January to October the Commercial Section has targeted the signing of 11 Memoranda of Understanding between the Sub - Councils (at provincial level) of the China Council for the Promotion of International Trade and other related Chambers in China with the Sri Lanka Chambers.  Already the signing of six MOUs have been concluded.  Further the Commercial Section has facilitated the participation of Sri Lanka exporters at 16 selected trade fairs for 2008, targeting a wide coverage of many important regions in China for Sri Lanka export products.  Five trade delegations from and to Sri Lanka has been facilitated.  The Commercial Section was also involved in carrying out 4 investment promotion seminars in the regions of China and in the product promotional field, opened a Sri Lanka Product Display center at the Embassy to display potential Sri Lanka export products to the Chinese market.  After 8 years, the Embassy pushed for the successful holding of the Sri Lanka – China Joint Economic Co-operation Commission in May 2008, which has yielded many positive results such as training & research facilities and two high level trade delegations led by the Ministry of Commerce of China visiting Sri Lanka in September mid October 2008 to discuss enhance trade & investment opportunities between the two countries.