Sri Lanka’s share of Chinese FDI going into Asia low: policy paper

Dec 30, 2016 (LBO) – Sri Lanka, which runs a trade deficit with China, should aim to increase the island’s share of Chinese FDI going into Asia, a policy paper by the Lakshaman Kadirgamar Institute says.

The paper argues that Sri Lanka’s relatively low rank among China’s economic partners challenges some claims about China’s contributions to the island’s economy. It also highlights the necessity of engaging more effectively to increase investment and tourism.

The strategic location of Sri Lanka, between key shipping lanes and the so-called ‘String of Pearls’, has enhanced the two countries’ economic relations in recent years.

The paper by Ravindra Deyshappriya titled, “Sri Lanka – China Economic Relations in Comparative Perspective: Ample Room to Grow,” is the first in a series of working papers.

“While a flood of imports from China and sluggish exports to China have resulted in a dramatic trade deficit of Sri Lanka, imports from China remain vital for Sri Lanka’s garment industry, which drives Sri Lankan exports.”

Although China has been the top FDI donor and lender to Sri Lanka in recent years, Chinese FDI to Sri Lanka is still very low compared to China’s FDI in other Asian countries.

“This relative gap, together with Sri Lanka’s status as a founding member of the newly-established AIIB, indicates that Sri Lanka has potential to seek and attract more investments, grants and loans from China.”

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Although China is the fastest growing source of tourist arrivals to Sri Lanka, Sri Lanka is currently not even among the top 25 tourist destinations of China, according to the author.

The share of Chinese tourist arrivals to Sri Lanka is just 0.06 percent of China’s total outbound tourists, and it is drastically lower than the number of outbound Chinese tourists to other Asian countries.

For more beneficial economic relations, the paper recommends that Sri Lanka develops new export products that are increasingly demanded in Chinese markets, and which have lower or no tariffs applied to Sri Lankan exports.

It also recommends that Sri Lanka maintains a higher level of credibility among potential investors, including via its legal framework.

Finally, it advocates promoting Sri Lanka as a tourism destination among growing China’s middle class, including by facilitating Chinese tourists’ needs. Each of these would address the untapped and ample ‘room to grow’ in trade, investment, and tourism.

The paper can be viewed here
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