TRADING SMART: Strengthening Sri Lanka–New Zealand Economic Relations in a Shifting Global Economy

By Githmi Silva

Trade is a powerful diplomatic tool in a heavily interconnected world. While exports and imports often dominate the conversation about trade, it is important to note that trade is far more complex than that. Trade is not a stand-alone activity; it contributes to a country’s economic resilience, national security, strategic positioning, and several other aspects. Given its ability to shape global power dynamics, even minor policy shifts can trigger far-reaching consequences. The tariff measures imposed by the Trump administration, for example, sparked intense debate about how quickly shifts in major economies can ripple across the world.

In such scenarios, smaller states that depend heavily on support and access to markets in the West become the ones who bear the highest portion of the burden. This reminds the necessity for smaller states to cultivate diverse trade relations rather than relying on singular markets. As a developing nation, Sri Lanka depends significantly on exports to sustain economic growth. While the country has a far-reaching history of exporting goods, it became more prominent towards the latter part of the 1970s with economic liberalization. Although current export flows are diverse, they disproportionately rely on a few key markets like the United States, the United Kingdom, and India. This concentration may cause potential risk due to economic vulnerabilities; therefore, Sri Lanka must tap into alternative markets. In this regard, New Zealand stands out as a promising alternative market offering multiple avenues to strengthen bilateral trade relations.

Overview of Sri Lanka-New Zealand Trade Relations

Since joining the Colombo Plan, both Sri Lanka and New Zealand have demonstrated a shared commitment to promoting economic and social development. With the introduction of economic liberalization under President J. R. Jayewardene in 1977, Sri Lanka adopted an open-market model that facilitated growth in export-oriented ventures. While New Zealand was not among the top markets for Sri Lankan goods, the two nations developed a steady bilateral trade relationship ever since. Over the years, New Zealand began exporting more dairy products, while Sri Lanka continued to export tea, rubber, and garments.

While the trade relations grew at a modest pace, they marked some notable milestones after 2010, following the signing of the Dairy Cooperation Agreement in 2013. The agreement was signed as a result of bilateral talks between President Maithripala Sirisena and the New Zealand Prime Minister, John Key, whose visit to Sri Lanka also served to revitalize trade relations between the two countries (Eurasia Review, 2016). This agreement set the tone to uplift sectoral engagement between the two countries, specifically in the dairy and agricultural sectors. When bilateral trade commenced to indicate an increased diversification into areas like education services, machinery, and processed foods, the two countries came into discussion for a Free Trade Agreement in 2016. This agreement was proposed following the discussions between New Zealand Trade Minister Todd McClay and Sri Lankan Prime Minister Ranil Wickremesinghe; the officials considered a framework to boost economic ties, considering the complementary economies between New Zealand and Sri Lanka (Reuters, 2017). While these discussions paved the way to potential opportunities to strengthen bilateral trade relations, the FTA did not come to force. There is no precise reason why the FTA did not come into reality, but the asymmetry in trade volumes, less need for strategic lobbying, and Sri Lanka’s occasional domestic instability could be considered as possible causes.

Potential to strengthen the bilateral trade relations between Sri Lanka and New Zealand

Certain trade initiatives between the two countries did not materialize; nevertheless, there is still room to enhance them. In fact, the countries have not completely cut off trade relations, and gradual improvements are underway. For instance, Sri Lanka’s exports to New Zealand have increased by 12.85% in 2024 compared to 2023 (Sri Lanka Export Board, n.d). According to the Sri Lanka Export Board (2024), in terms of exporting goods, Sri Lanka mostly exports tea, made-up textiles, gloves, mittens, undergarments, pneumatic and retreaded rubber tyres, coco peat, fiber pith, and moulded products to New Zealand. On the other hand, Sri Lanka’s main imported products from New Zealand in 2024 include meat, fish and dairy produce, wood and wooden products, live animals, fruits, products of base metal, sugar confectionery, and bakery products. Although current exports are mostly conventional, there are several other products and even services that hold potential for trade between Sri Lanka and New Zealand.

It is high time for the two countries to explore ways to diversify the options. Speaking of trade diversification, this can be pursued by finding innovative uses for goods already being traded and exploring untapped opportunities. To elaborate, tea remains one of Sri Lanka’s in-demand exports in New Zealand. It ranks among the top Sri Lankan products exported to New Zealand, with strong demand driving continued trade, making it essential to maintain and strengthen supply efforts. Dilmah Ceylon Tea Company, for instance, has adopted innovative strategies to meet consumer demands by specifically tailoring its offerings to the preferences of the New Zealand market. Going beyond its traditional gourmet Ceylon tea, Dilmah has identified emerging trends and consumer insights to develop a new range of iced teas, low-sugar carbonated tea sodas, and premium tea mixers exclusively available to New Zealand (Estate, 2023). Thanks to the customer-focused approach, Dilmah has been voted New Zealand’s most trusted tea brand for five straight years in the People’s Choice awards, and generates significant revenue via the New Zealand market (Dilmah News, n.d).

While optimizing current exports remains important, unlocking new trade opportunities is also vital. Several unexplored goods and services present a chance to diversify trade between Sri Lanka and New Zealand. In terms of goods, food products (processed or preserved), spices, and synthetic textiles have been identified as promising export options from Sri Lanka to New Zealand (Export Development Board Sri Lanka, 2025). However, exports are no longer confined to goods alone. Due to changes in global trade patterns, service exports, particularly those rooted in knowledge-based production, play a notable role in deepening economic ties.

Countries transitioning from resource-based economies to competitive knowledge-driven models are seeing more resilient and diverse exports; advances in IT, digital systems, and R&D have transformed sectors like logistics, business operations, and education, making knowledge-intensive services a growing force in international trade (Seneviratne, 2025). Sri Lanka holds strong potential to expand its knowledge-based exports, specifically in IT, Software, and BPO sectors. With a skilled talent pool and a rapidly growing IT sector, Sri Lanka can provide services such as cloud solutions to the New Zealand market. This is a win-win situation for both countries, delivering a strong revenue stream for Sri Lanka and cost-effective solutions for New Zealand. In addition, Sri Lanka can further diversify its service export base by developing niche markets such as wellness tourism, maritime logistics, and shipping-related services into broader, sustainable sectors.

The establishment of the New Zealand High Commission in Sri Lanka in 2021 significantly advanced bilateral cooperation across multiple sectors, including trade. Reflecting this growing partnership, Sri Lanka opened a High Commission in New Zealand and the first resident High Commissioner presented credentials at the beginning of 2025. These steps indicate that Sri Lanka and New Zealand have great potential to strengthen and maximize their trade relations. While New Zealand may not currently be Sri Lanka’s top export destination, or vice versa, there remains significant potential and multiple avenues to deepen and diversify bilateral economic engagement.

Importance of strengthening the bilateral trade relations between Sri Lanka and New Zealand

Trade is a volatile factor, and primarily engaging with larger economies often carries complexities. Given that global trade faces increasing threats from geopolitical instability, bilateral economic partnerships should not be limited to the West or traditional major markets. Expanding trade ties to regional and nontraditional markets significantly provide diversified options, helping to reduce exposure to external trade shocks. At present, Sri Lanka’s export strategy is concentrated on a handful of markets that are particularly susceptible to global disruptions. Recent data shows that 23% of Sri Lanka’s exports, valued at $2.79 billion, go to the United States, standing as Sri Lanka’s largest export market; the United Kingdom and India take the second and third spots (Trend Economy, 2023). While the United States remains Sri Lanka's top export destination, Sri Lanka's shipment data for 2024 has recognized India and China as the biggest import partners; The Central Bank noted growth in exports, especially food, coconut-based, and manufactured items alongside a moderate rise in imports, helping reduce the trade deficit (Central Bank of Sri Lanka, 2024).

To avoid the bottlenecks and economic strains, Sri Lanka must adopt broader trade strategies that do not heavily depend on one market. Global economic fluctuations inevitably impact smaller nations like Sri Lanka, and this underpins the need to seek opportunities in emerging markets. Sri Lanka’s economic growth notably depends on the export sector. Strengthening the export sector is key for Sri Lanka’s economic recovery and future resilience. Efforts must focus on diversifying products, improving quality, supporting small and medium enterprises, exploring new markets, and forming trade partnerships that contribute to reducing tariffs, improving market access, and enhancing trade relations (Ceylon Public Affairs, 2024).

Under Annex 1 of the Country Reciprocal Tariffs (2025), the US has imposed a 44% tariff on Sri Lankan exports, which is a far higher tariff rate in comparison to other competing countries, and this largely diminishes the value of Sri Lankan exports in the US market. With the US as Sri Lanka’s primary export market, this shift, driven by the ‘America First’ policy, presents a major long-term risk to the nation's economy. Cost competitiveness was a challenge for Sri Lanka even before the Trump tariffs, and the added uncertainty is likely to reduce buyer confidence and investment activity; moreover, as tariff policies continue to shift in response to both US and foreign actions, global trade tensions are likely to arise (Abeysinghe & Arangala, 2025).

Under these circumstances, Sri Lanka must move beyond traditional markets and pursue diversified trade avenues. New Zealand, as noted in this article, presents a strong opportunity. Although it may sound challenging initially, expanding solid trade partnerships with new markets helps reduce reliance on limited markets and drive initiatives such as product diversification, quality improvement, and the formation of strategic trade partnerships. Despite limited strategic leverage, Sri Lanka and New Zealand remain vital players in the Indo-Pacific region. Given their complementary economies, there is significant potential to pursue a bilateral trade agreement. While improving primary exports, there’s room to tap into specific sectors such as agriculture, which can mutually benefit both countries, particularly as New Zealand seeks high-standard, reliable agricultural imports (Economy Next, 2025). These diverse and strong trade relations often spill into other areas like education, tourism, and cultural exchange, which support a deeper economic partnership in the long run.

Expanding trade ties between Sri Lanka and New Zealand present a valuable opportunity to enhance regional stability in the Indo-Pacific. As a region often shaped by strategic tensions due to the presence of major powers like China and India, strengthening relations among smaller and middle powers offers a more balanced dynamic. Cooperation between countries like Sri Lanka and New Zealand helps to minimize overdependence, reducing the risk of dominance by any single power. Theoretically speaking, to avoid external trade shocks or any geopolitical tensions for that matter, smaller states opt to use hedging as a Foreign Policy strategy. Simply put, hedging refers to an insurance-seeking behavior that reflects a rational calculation, maintaining diversified partnerships as a safeguard against future geopolitical shifts (Kuik, 2021). In comparison to major powers within and beyond the region, neither Sri Lanka nor New Zealand can pick one side or can afford to be drawn too deeply into great power rivalries. Applying this to the trade aspect, it helps both countries to reach out to diverse trade options while maintaining their independent foreign policy under minimum risks.

Way Forward

While entering new markets poses challenges, it remains crucial in a shifting global environment. Relying on singular markets in terms of trade comes with great risks. Sri Lanka has been experiencing it, and taking action has become more important than ever. Taking proactive steps to diversify trade has become a must to avoid future threats and sustain national economies. Despite hurdles, building strong trade relations between Sri Lanka and New Zealand continue to be optimistic. Such a partnership supports a rules-based economic cooperation and contributes to sustainable, inclusive economic development.

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U.S. – SRI LANKA ENGAGEMENT: Reviewing Robust Relations

By Indoosan Shanthakumaran

In recent years, the relationship between the United States and Sri Lanka has witnessed a substantial transformation, transitioning from conventional foreign aid to a more comprehensive partnership that encompasses economic, environmental, and human rights initiatives to help Sri Lanka come out of the bankruptcy. The United States supported Sri Lanka's development objectives, reconciliation efforts, and regional connectivity through multifaceted collaborations between 2022 and 2024. This article investigates the numerous methods by which the United States assisted Sri Lanka in its development, resulting in enduring effects that surpass financial aid.

Fostering Economic Growth and Governance

The United States Agency for International Development (USAID) signed a defining five-year Development Objectives Assistance Agreement (DOAG) with Sri Lanka in 2022. This agreement facilitated market-driven growth, environmental sustainability, and improved governance. The U.S. actively supported stabilization efforts in Sri Lanka, including aiding in debt restructuring processes and supporting Sri Lanka's engagement with the International Monetary Fund (IMF), in recognition of the country’s economic challenges. By means of these initiatives, the United States promoted private-sector investment, anti-corruption measures, and reforms that are indispensable for long-term economic resilience, transcending financial assistance.

Investing in Sri Lanka

U.S. companies exhibited a fluctuating yet substantial interest in investing in Sri Lanka from 2022 to 2024. The total stock of US Foreign Direct Investment (FDI) in Sri Lanka was valued at $234 million in 2022. IFS (Industrial and Financial Systems), an IT services firm based in the United States, has maintained a substantial presence in Sri Lanka for many years. The company has recently declared its intention to expand its operations in Colombo, citing the country’s highly skilled tech workforce. In that year, the total U.S. Foreign Direct Investment (FDI) stock in Sri Lanka reached $234 million as a result of this expansion. Despite the country's economic instability at the time, several U.S. apparel brands, including Gap and Nike, increased their procurement from Sri Lanka in 2023. However, direct FDI in new facilities was cautious. Nevertheless, Coca-Cola Beverages Sri Lanka Ltd and other organisations maintained their operations and implemented sustainability initiatives, suggesting that there was a persistent interest.

Investor confidence began to slightly improve by 2024 as Sri Lanka made progress in debt restructuring and economic stabilisation. This prompted smaller U.S. tech startups and healthcare companies to investigate joint ventures and partnerships with local firms. Sri Lanka's greatest export market was the United States, despite the fact that it experienced a severe financial crisis in 2022, which resulted in a contraction in GDP and shortages of essential goods.

Foreign investment in Sri Lanka was approximately $730 million in 2023, despite the fact that it was historically lower than that of other comparable countries. The International Development Finance Corporation (DFC) of the United States has allocated up to $553 million in financing for the expansion of the Colombo West International Terminal. This commitment indicates the government's confidence in the private sector's development in Sri Lanka.

The Sri Lankan government’s emphasis on anti-corruption measures and political changes resulted in a notable resurgence in US investment interest by late 2024. The American engineering technology group Transdigm Group invested $8.5 million in a joint venture to establish a manufacturing facility in Sri Lanka, thereby relocating its SHIELD operations from China. This investment is a notable example. This action was perceived as a testament to the increasing interest of the United States in investing in Sri Lanka, particularly in light of the government's initiatives to enhance the investment climate and guarantee transparency. The US Ambassador to Sri Lanka emphasised the potential for additional manufacturers to contemplate similar actions if the investment climate continues to improve.

Infrastructure Development

The West Container Terminal at the Port of Colombo, which is being developed with the support of the U.S. International Development Finance Corporation (DFC), is a significant milestone in Sri Lanka's infrastructure investment. This initiative is intended to establish the port as a regional connectivity hub, with a $553 million investment. This initiative not only reinforces Sri Lanka's strategic position in global trade but also significantly stimulates the local economy by improving the port’s capacity and efficiency.

It is anticipated that this investment will generate employment opportunities in a variety of sectors, including logistics and construction, and will also stimulate economic activity. Furthermore, it enhances Sri Lanka's capacity to manage an increase in maritime traffic, thereby guaranteeing its continued competitiveness in the increasingly critical Indian Ocean shipping lanes.

Climate Change and Environmental Collaboration

Sri Lanka has established an ambitious objective of generating 70% of its electricity from renewable energy sources by 2030. The United States has provided technical expertise and funding for renewable energy projects, such as solar and wind energy initiatives, in order to support this objective. Sri Lanka is committed to achieving carbon neutrality by 2050. The United States has collaborated with Sri Lanka to establish strategies and frameworks for the reduction of greenhouse gas emissions in various sectors, including energy, transport, and agriculture.

The Global Climate Promise Exchange Workshop was held in Sri Lanka in March 2024, with the assistance of the United Nations Development Programme (UNDP) and Japan. The event convened 16 countries to exchange best practices and lessons learnt in the implementation of climate commitments under the Paris Agreement. Sri Lanka initiated an initiative in August 2024 to create its inaugural Biennial Transparency Report in accordance with the Paris Agreement. The initiative, which is backed by the Global Environment Facility and UNDP, is designed to improve transparency and accountability in climate action by monitoring the progress of national climate commitments. USAID sponsored the ‘Climate Challenge SL’ hackathon in late 2024, which aimed to encourage data professionals to create innovative, data-driven solutions for climate-related issues in agriculture and fisheries.

The objective of the event was to promote collaboration and employ technologies such as AI and IoT to address climate resilience challenges. A climate adaptation initiative that prioritised agriculture, fisheries, and tourism was implemented in September 2024 through a partnership between USAID and SDB Bank. The objective of this initiative is to strengthen governance and promote market-based growth in order to increase the ability of the private sector, civil society, and government to address climate change.

The project involves the creation of financial products that are specifically designed to meet the requirements of climate adaptation and the development of resilience in vulnerable communities. Ceylon Cold Stores PLC entered into a partnership with USAID's Ocean Plastics Reduction Activity in October 2023 to establish Sri Lanka's inaugural women-led plastic recycling network. To foster economic resilience and environmental stewardship, the initiative empowers women from coastal communities to acquire and process recyclable materials. The programme had collected more than 1,175 kilos of plastic waste by 2023.

Promoting Human Rights and Reconciliation

The United States has implemented proactive measures to advocate for Sri Lanka’s reconciliation and human rights protection. This engagement has been instrumental in assisting the nation in its recovery from the repercussions of a decades-long civil conflict and in confronting the underlying issues that are necessary to establish a more inclusive and peaceful society.

The United States has consistently underscored the significance of accountability for historical human rights violations, urging Sri Lanka to investigate and address alleged abuses that occurred during and after its civil conflict. The United States has promoted independent investigations to ensure justice for victims and their families through bilateral discussions and international forums such as the United Nations Human Rights Council (UNHRC).

The United States has provided support for constitutional reform efforts in Sri Lanka, acknowledging the significance of political reforms in promoting inclusivity. These reforms are intended to address concerns such as the devolution of power, minority rights, and the establishment of mechanisms that account for the aspirations of all communities in the country.

The United States has collaborated with Sri Lankan institutions, such as the judiciary and law enforcement, to improve their ability to address human rights concerns through programs and seminars. This encompasses instruction on the preservation of international human rights standards, investigative techniques, and legal procedures.

The United States has maintained robust relationships with Sri Lanka's civil society organisations, offering them resources and platforms to elevate the voices of marginalised groups and promote reform. This encompasses assistance for community-based initiatives that emphasise education, social cohesion, and reconciliation.

The United States has actively promoted inter-religious and inter-ethnic dialogue in Sri Lanka. The U.S. has promoted grassroots initiatives that promote understanding and cooperation among diverse communities, thereby reducing tensions and establishing trust.

The United States’ dedication to assisting Sri Lanka in its pursuit of a more equitable and harmonious future is underscored by these endeavours. The partnership endeavours to guarantee that peace, justice, and inclusivity are ingrained in the social and political fabric of Sri Lanka by confronting the underlying causes of conflict and advocating for systemic change.

Strengthening People-to-People Exchanges

The two nations have been able to cultivate mutual understanding and benevolence through cultural and educational exchanges. The United States has implemented initiatives that fortify relationships, empower youth, and advance shared principles of democracy, diversity, and innovation.

The United States has been instrumental in fostering Sri Lanka's growth and stability from 2022 to 2024, through economic investments, environmental initiatives, and human rights advocacy. The United States has assisted Sri Lanka in overcoming obstacles and establishing the groundwork for regional cooperation and sustainable development by emphasising multifaceted partnerships. The power of cooperation in addressing urgent global and national issues is demonstrated by the partnership’s ongoing evolution.

CHINA – SRI LANKA RELATIONS: A New Chapter Opened in 2025

By Tharushika Peelikumbura and Yohan Soyza

In September 2024, Sri Lankans experienced a significant political shift in the country. 76 years of governance led by the United National Party, the Sri Lanka Freedom Party and its alliance, and later the Sri Lanka Podujana Peramuna, were rejected by the public. The National People’s Power won the presidential and parliamentary elections within two months. With that a new era of Sri Lankan politics began, and this article attempts to focus on a new era in China-Sri Lanka bilateral relations.

Newly elected Sri Lankan President Anura Kumara Dissanayake paid a four-day state visit to the People’s Republic of China from 14 to 17 January 2025. The Minister of Foreign Affairs, Foreign Employment, and Tourism, Vijitha Herath, the Minister of Transport, Highways, Ports, and Civil Aviation, Bimal Rathnayake and the Director General of Government Information, H. S. K. J. Bandara were seen joining the visit with Dissanayake. The four-day state visit included meetings with Chinese President Xi Jinping, Premier Li Qiang and Chairman of the Standing Committee of the National People’s Congress of China Zhao Leji and others. The visit was significant for the relations between the two countries as the Sri Lankan delegation met high-ranking members from the Chinese Communist Party, signaling increased cooperation in the future.

Key Diplomatic Objectives

1. Reaffirmation of the One China Policy

During his visit to the People’s Republic of China (PRC), President Dissanayake reaffirmed Sri Lanka’s continuous support for the One China Policy, recognizing the PRC as the only legitimate China that exists. He also assured his commitment not to allow Sri Lanka’s territory to be used for any anti-Chinese activities. This stance is aligned with Sri Lanka’s strong diplomatic relations with China since the 1950s (Kuruwita, 2025), and stronger than ever before since President Mahinda Rajapaksa’s time in the office from 2005 to 2015.

2. Strengthening Economic and Strategic Ties

This state visit aimed to strengthen strategic and economic ties between the two nations. Several agreements were signed to advance the Belt and Road Initiative (BRI) projects, strengthen trade and investment, and promote cooperation in areas such as education, climate action and agriculture. China also pledged to support Sri Lanka’s debt restructuring efforts and encourage investments in areas such as green development and logistics (Kuruwita, 2025; Xinhua, 2025).

Both parties emphasized the importance of the cultural ties as mentioned in the joint statement between China and Sri Lanka, released in January 2025. Education and research were seen as significant opportunities to enhance cultural ties, as both parties promised to encourage more exchanges of students, teachers and researchers. China stated they welcome committed Sri Lankan students to pursue higher studies in China by providing them government scholarships, which will be a great chance for Sri Lankan students who wish to pursue their higher studies in a foreign university. China will also work with Sri Lanka to implement the Luban Workshop to create more professionals through vocational and technical training in Sri Lanka (Joint Statement between China and Sri Lanka, 2025)

3. Positioning within Global South multilateral frameworks

China and Sri Lanka emphasized global development initiatives and multilateralism. Both countries agreed to support each other by strengthening coordination and cooperation within large multilateral bodies like the United Nations Organization (UNO), and also to give focus on global issues such as climate change (Xinhua, 2025). Sri Lanka also seeks to leverage China’s BRI for development purposes and navigate risks in debt and regional power dynamics. The BRI is a great opportunity for Sri Lanka to enhance its network and connect with other partnering countries of the BRI.

Strategic Cooperation Areas

1. Development in Infrastructure

A major area of cooperation between the two countries includes infrastructure development, which is mainly led by the BRI. Notable projects in Sri Lanka include the Colombo Port City project and Hambantota Port. These projects can play a crucial role in Sri Lanka’s economic development and turn the island nation into a regional hub of business, transportation and maritime logistics if managed properly (Kuruwita, 2025; Xinhua, 2025). Table 1 provides an overview of the current ongoing Chinese projects in Sri Lanka.

2. BRI Project Advancement

The state visit also highlighted the importance of continuing BRI projects in Sri Lanka. China promised strong support for Sri Lanka’s economic development, sovereignty, and independence. Both countries also signed 15 new agreements covering areas including economic development, education, media, culture, infrastructure, agriculture, digital economy, and marine economy. President Xi emphasized the importance of fostering new highlights and high-quality cooperation within the BRI while building a community of shared future with Sri Lanka. In response, Sri Lanka pledged to further deepen regional connectivity and welcome more Chinese investments. This collaboration also includes infrastructure development and other forms of multilateral cooperation addressing climate change, demonstrating the expanding scope and depth of bilateral relations (Desheng, 2025).

3. Investment in Maritime Infrastructure

Sri Lanka and China have multiple agreements on developing maritime infrastructure under the BRI projects. These projects include Hambantota International Port (HPI), aiming to make Sri Lanka a major maritime hub in the Indian Ocean Region by providing services such as port, energy, marine and port investment (Hambantota International Port Group, n.d.). The project also aims to create job opportunities that are estimated at around 50,000. However, since 2017, Sri Lanka has leased the port for 99 years to China Merchants Ports Holding Company (CMPort) in a debt-for-equity swap deal. Therefore, Sri Lankan decision-makers should work carefully and maintain high standards to maximize the benefits currently earning.

The Colombo Port City Project is another key project located on reclaimed land from the sea. The project is handled by the China Harbour Engineering Company (CHEC) (CHEC Port City Colombo (Pvt) Ltd - Sri Lanka, n.d.). The China Merchants Ports Holding Company (CMPH) operates the Colombo International Container Terminals (CICT) as a joint venture company with the Sri Lanka Port Authority (SLPA). The CICT is the only deep-water port in South Asia at the moment, and they also aim to increase the capacity of the terminal and manage the container traffic (Details Business Areas, 2018).

4. Economic Collaboration

This includes increasing trade and investment, promoting agricultural cooperation, and developing digital economy partnerships, as it is one of the fastest-developing sectors globally, contributing over 15% to global GDP (Wignaraja and De Zylva, 2018). China has also agreed to assist Sri Lanka in debt restructuring, education, tourism development, logistics and green development (Kuruwita, 2025). China is also focusing on a free trade agreement (FTA) with Sri Lanka, as they already reached one recently with the Maldives (Shivamurthy, 2025).

5. $3.7 billion Sinopec Oil Refinery Project in Hambantota

As a major point of President Dissanayake’s 2025 visit to China, both nations agreed to a $3.7 billion oil refinery project in Hambantota, Sri Lanka. Sinopec will lead this project as decided after a bidding process. This step indicates a shift towards partnerships based on investment rather than financial loans (Moramudali and Chen, 2025).

6. Renewal of Currency Swap Agreement

During the state visit two nations agreed on a currency swap renewal. This is a pivotal point of Sri Lanka’s debt restructuring and economic stabilizing process, and it will also enhance economic cooperation between the two old friends (Kuruwita, 2025).

7. Expanding Trade and Investment

Both countries are highly focused on expanding trade and investment to provide a more friendly business atmosphere for Chinese enterprises in Sri Lanka. Digital transformation, green development, and logistics are the main aspects to be focused on (Kuruwita, 2025; Xinhua, 2025)

Table 1 above indicates that China’s main focus on infrastructure projects in Sri Lanka was mainly on roads, airports, seaports, energy, the telecommunication sector and water supply projects. By investing in such infrastructure projects, China created interdependencies and leveraged them significantly. Sri Lanka, as a strategic point in the Indian Ocean, could be pivotal for China to ensure its regional power balance in South Asia. But during the civil war times, China emerged as a major donor and development partner (Shivamurthy, 2025), proving China’s caring role for Global South partners. The authors assume that providing development assistance is not just a strategic step, it is also a significant priority of uplifting the global south partners while developing itself, as China is doing. If the public could understand this with an open mind, this might be seen as a positive opportunity to develop the country.

What is important is that the Sri Lankan policymakers need to carefully manage Chinese development loans to gain the maximum benefits. In this case, transparency is very important as the government officials are responsible for every decision they take on behalf of the public, and the decisions need to be transparent to the public. Evaluating and reporting each project is also crucial as they can be used to plan future projects carefully.

Geopolitical Context

As President Anura Kumara Dissanayake sets out on a strategic partnership with China, the geopolitical context surrounding this initiative cannot be overlooked. The Indian Ocean remains significant for international relations, and Sri Lanka's geographical position makes it a critical player in the balance of power among regional powers. Sri Lanka must therefore navigate its aspirations cautiously, serving both its national interests and the demands of powerful neighbouring countries.

1. Balancing Relations with Regional Powers

By reaffirming its ties with China, Sri Lanka finds itself seeking a delicate balance between India and China, two strong neighbours. Sri Lankan leadership often emphasizes the need for a non-aligned foreign policy, which allows it to engage with both nations without compromising its sovereignty. A diplomatic quote that describes this approach is from Dissanayake himself in which he notes that "We thrive best when our partnerships create opportunities for all parties involved." (Deccan Herald, 2025).

2. Strategic Positioning in the Indian Ocean

The Indian Ocean is becoming increasingly significant for trade routes and military presence. Sri Lanka's decision to strengthen ties with China under the Belt and Road Initiative (BRI) will likely enhance its strategic location in the region. China’s investments in maritime infrastructure aim to secure its maritime silk route, while Sri Lanka benefits from development and trade opportunities (Ministry of Foreign Affairs of China, 2025). The growth in maritime infrastructure could lead to increased ship traffic through the Colombo harbour, thereby significantly boosting the Sri Lankan economy (Global Times, 2025).

3. Diplomatic Support in International Forums

In the face of global challenges, Sri Lanka's collaboration with China also opens avenues for diplomatic backing in international forums. China's weight in the United Nations and other multilateral organizations provides an opportunity for Sri Lanka to express its interests more clearly (Sunday Times, 2021). This collaboration may come in the form of backing during discussions related to climate change, economic development, and regional security matters, aligning with China's global objectives while benefiting Sri Lanka’s international standing.

Recommended Policy Actions

For Sri Lanka to fully gain the benefits of its deepening relationship with China, several policy actions have been highlighted by scholars and policy institutes. Firstly, diversifying economic partnerships is essential. While Chinese collaborations offer significant opportunities, overdependence poses long-term risks. Strengthening ties with ASEAN countries, the European Union, and India can enhance economic resilience and geopolitical balance (Observer Research Foundation, 2025). Secondly, leveraging Chinese investments strategically can catalyze broader development. Beyond infrastructure, Sri Lanka can use these investments to expand sectors like energy, technology, and manufacturing, provided the projects are managed with transparency and long-term sustainability in mind (Global Times, 2025). Thirdly, maintaining diplomatic flexibility is crucial. A dynamic foreign policy that balances relations with both China and India, while promoting regional multilateralism, can help Sri Lanka navigate shifting geopolitical dynamics (Gateway House, 2025).

Amidst these high-level strategies, several modest yet impactful actions remain underutilized. One such initiative is the formation of an independent Foreign Investment Impact Assessment Taskforce, including members from civil society, academia, and business, to review and publicly brief on major bilateral projects, thereby increasing transparency and public trust. Additionally, bilingual digital dashboards that track project progress, financial flows, and social outcomes could facilitate data-driven adjustments and citizen engagement. The government could also embed policy nudges into contracts, such as local hiring quotas, incentives for technology transfer, and environmental safeguards, all achievable without extensive legislative overhaul. Finally, introducing foreign policy literacy modules in secondary education would help cultivate a more informed and globally aware generation. These grassroots-oriented actions are low-cost, culturally resonant, and politically feasible, yet they often remain sidelined in favor of grand diplomatic visions.

Potential Challenges

While the prospects of deepening relations with China appear promising, several well-documented challenges must be carefully managed. First, navigating regional power dynamics is crucial, as tensions between China and India over territorial disputes continue to escalate. Sri Lanka must tread carefully to avoid being drawn into broader geopolitical rivalries (Foreign Policy, 2024). Second, ensuring balanced international relations is vital. Strengthening ties with China should not come at the expense of alienating other key international partners, and a nuanced foreign policy is required to maintain this equilibrium (Deccan Herald, 2025). Third, the issue of maintaining economic sovereignty remains pressing. The influx of Chinese investments, while beneficial in the short term, may compromise Sri Lanka’s long-term control over strategic sectors unless protective mechanisms are in place (Chatham House, 2020).

Beyond these widely acknowledged strategic concerns, Sri Lanka also faces a set of more localized, systemic challenges that could quietly erode the benefits of foreign engagement. Entrenched bureaucratic inefficiencies often stall the implementation of large-scale agreements, regardless of high-level diplomatic progress. Additionally, the politicization of foreign investments, where projects become mired in domestic party politics, can cause mismanagement, public opposition, or abandonment. Another underappreciated challenge is the limited institutional capacity to enforce environmental, labor, and transparency standards in megaprojects funded by foreign entities. This gap can lead to exploitation, unequal benefits, and environmental harm. Furthermore, low levels of public awareness regarding the long-term implications of international partnerships hinder civic engagement and accountability. If left unaddressed, these domestic vulnerabilities risk undermining even the most strategically sound bilateral initiatives.

Conclusion

The strategic visit of President Anura Kumara Dissanayake to China marked a significant milestone in the evolution of China-Sri Lanka relations. By deepening cooperation across multiple areas, reaffirming key diplomatic objectives, and maintaining a proactive diplomatic stance, Sri Lanka is poised to enhance its standing in the regional and global arena.

The evolving partnership between Sri Lanka and China presents a landscape rich with opportunity, but not without complexity. As strategic initiatives continue to deepen bilateral ties, Sri Lanka must remain vigilant in safeguarding its economic sovereignty, institutional integrity, and regional balance. The recent political transition signals a willingness to reset foreign policy priorities, but genuine success will depend not only on high-level diplomacy but also on transparent governance, inclusive development, and civic accountability.

In this significant chapter of its international engagement, Sri Lanka has the chance to reshape its role in the Indo-Pacific and the Global South. Whether it emerges as a strategic bridge or becomes strategically bridged over will depend on how well it can balance cooperation with caution, vision with vigilance. And here’s something to think about. If foreign partnerships are designed to build the nation’s future, should the people of that nation not be more actively involved in shaping how those partnerships unfold?

References

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A PAUSED PARTNERSHIP? Sri Lanka’s Incomplete Integration into the SCO

By Abheetha Kodikara

The ‘Shanghai Five’ organization was renamed in 2001 as the ‘Shanghai Cooperation Organization’ with the inclusion of Uzbekistan. The next large expansion was the inclusion of India and Pakistan in 2017. The organization also has categories such as observer states and dialogue partners, which bring together many countries. Sri Lanka obtained dialogue partnership in 2009 and still remains in that position today. This article attempts to understand why Sri Lanka has remained a dialogue partner for sixteen years.

Many countries that joined the Shanghai Cooperation Organization after Sri Lanka, have already progressed beyond observer status to full membership. Against this background Sri Lanka’s limited interest or awareness of the SCO has become questionable. Did Sri Lanka ever want to go beyond dialogue partner status? Does Sri Lanka lack enthusiasm to seize opportunities through engagement with the SCO? Are there strategic planning gaps?

These aspects require analytical scrutiny. Since its establishment, the SCO has evolved into a powerful institution. It has expanded its network from Eurasia to South Asia, and further into West Asia. The attraction however is likely dependent on whether the goals of the partner countries have been met through the organization. The goals of the organization affect the engagement of the relevant countries, with the organization. The SCO is no longer limited to addressing terrorism, extremism and separatism. It also focuses on enhancing economic prosperity, trade among member states and energy cooperation.

In such a context, Sri Lanka’s prolonged status as a dialogue partner since 2009 indicates a lack of enthusiasm towards achieving more substantial goals. It must be questioned whether this is due to the country being trapped in significant debt dependency on China, or whether Sri Lanka is struggling to gain tangible benefits in trade, investment, and energy while maintaining a steady non-aligned foreign policy.

In 2013, a Memorandum of Understanding to create an Energy Club was signed among the SCO member states, observers, and dialogue partners. Yet, there remains a lack of awareness and knowledge of the steps taken by Sri Lanka to engage closely in the Energy Club.

An attempt is made to understand the lack of progress of membership from a theoretical perspective of regional cooperation. Starting with realism, it focuses on power dynamics, self-interest and survival strategies of states within an archaic global system. Why then has there been no attempt to increase power dynamics or self-interest? When considering regime theory and liberalism, the focus is on how institutions can enhance international and regional cooperation by working together. In the current world, it is increasingly important that states work together to achieve peace, security, prosperity, poverty reduction, and equality among other priorities. Thus, relatively small states like Sri Lanka would benefit economically, in fulfilling the nation’s needs.

In discussing the topic further, it is understood that policy reforms were not taken seriously or enthusiastically, by considering the benefits of cooperation. In addition, the lack of domestic awareness and institutional capacity are key arguments when it comes to Sri Lanka remaining at the same level on the SCO’s membership portal.

In fact, the awareness about the SCO among Sri Lanka’s policymakers, scholars, media and civil society is minimal. The absence of a national policy on SCO engagement and the minimal attention or sustainability of a dedicated SCO unit within the Ministry of Foreign Affairs, underlines this weakness. The critique here is that for any multilateral partnership, whether it is SCO or any other regional alliance, in order to yield a meaningful process, there must be domestic institutional readiness and proper awareness. Without an official framework and policy structures, the partnership cannot evolve beyond symbolic affiliation.

What is also relevant for this study is the absence of bilateral follow-up mechanisms between Sri Lanka and Central Asian states. This is a key challenge as, unlike the other dialogue partners such as Türkiye or Egypt which have leveraged bilateral ties with SCO members, Sri Lanka lacks the structural bilateral dialogue or economic corridors. Sri Lanka also lacks free trade agreements or largescale diplomatic missions in several SCO countries. The absence of high-level political visits to and from key Central Asian States also further limits influence.

When examining these reasons, it is clear that improving dialogue partnership status would only be possible with parallel bilateral cooperation. Yet a point to urgently note is that Sri Lanka has not proactively engaged in such follow-up initiatives through SCO platforms.

Therefore, in conclusion, Sri Lanka must develop a National SCO engagement strategy, strengthen relations with Central Asian states, through trade, diplomacy and academic exchanges while managing India-China dynamics within the organization carefully to build institutional awareness about the potential of the SCO. Using the dialogue partnership platform to foster strategic trust would gradually strengthen the partnership and result in observer status.

The presence of Sri Lanka in the Shanghai Cooperation Organization is mostly ceremonial. What should be realised is that cooperation would ensure economic benefits which Sri Lanka needs at this time.

WHY COLOMBO FEELS HOTTER THAN EVER: A City Trapped in its Own Heat

By Nisika Chamadith

How has it been to live in Colombo lately? How often do you think of air conditioners or at least, how often have you been using air conditioning?

Colombo's heat has surged in recent years, turning life in the city to a literal nightmare. Many residents will agree that getting a good night’s sleep has become nearly impossible due to the immense nocturnal heat. In 2024, Colombo recorded its highest average monthly temperatures in history, predicting that it could only be getting worse. While climate change plays a major role in rapid heat waves, the way that the cities are being designed only contributes to the problem. In Colombo, the accelerated urbanization, reduction of urban forest cover and the rise of the concrete jungle has contributed to a lesser known but deeply harmful phenomenon: the Urban Heat Island effect.

Reflecting on Colombo: A transformed city

There is no doubt that Colombo has had one of the most accelerated growth rates in less than a decade. In the late 1990s and early 2000s, Colombo developed at a slower pace and maintained a considerable green cover, creating a favourable climate mixed with the sea breeze. While the rapid post-war development has contributed largely to the economy and the tourism industry of Sri Lanka, it was one of the major contributors to the growing heat of Colombo. The statistics show that Colombo’s Urban cover has increased by 40% during 1997 to 2017 (Wijerathna et al., 2021), suggesting that the numbers are much higher at present. A city that once had colonial style low-rise buildings has now turned into a dense urban hub with a notable skyline.

The Science Behind the Heat

A. Effects of Global Warming

It must be accepted that Global Warming plays a major role in intensifying the other factors that contribute to the urban heat increase. Yet, the topic of Global Warming is not given much prominence in Sri Lanka and even when it is addressed, it is among the few who actually sees the effects of Global Warming. But one might hear complaints from family, friends, or colleagues about sleepless nights due to the persistent heat. Dangerously yet, IPCC’s sixth annual report, 2021, depicts that the night time minimum temperatures are rising faster than the day-time maximums, suggesting a major climate shift. The meteorological department furthermore showcases that extreme heat days of 36-38 oC may now occur frequently in March - May seasons. All these facts and data points to one clear truth: Climate change is here and yes, it is affecting Sri Lanka. The increase of surface temperature of Colombo city by 1.6 oC between 1997 and 2017 due to urban expansion not only confirms the effects of global warming in the city, but also alarms about a much worse tomorrow.

B. The Urban Heat Island (UHI) Effect

Before explaining the intensity of the effect, it is better to understand this lesser-known phenomenon. The Urban Heat Island (UHI) effect refers to the significant increase of the temperature of the urban areas compared to their surrounding rural areas, especially at night. This is due to a combination of human activities, building materials and infrastructure. Urban areas tend to absorb heat by built surfaces. This absorbed heat gets trapped between tall buildings and narrow roads, creating what is known as “urban canyon effect”. More factors such as lack of vegetation and human activities such as vehicles, air conditioners and electricity usage release waste heat, further adding to the trapped heat and warming up the surrounding.

Although one may think of a city like the New York City when reading the above scientific explanation, the effects of UHI are very much present in Colombo city as Colombo has developed a strong UHI where urban areas are 1.5 - 3 oC higher than the surrounding areas (De Silva & Ekanayake, 2016). A spatial analysis done using MODIS thermal satellite data furthermore confirms that “Heat islands are clearly visible in the city core and intensify during dry seasons” (Hearth & Ratnayake, 2016).

Impact on Daily Life

The rising heat of the city does not only irritate the residents but also impacts their lives both directly and indirectly. Heat related illnesses such as heat strokes, dehydration have increased, particularly for children and outdoor workers. In February, 2024, the Ministry of Education suspended all sports activities for 2 days, followed by a detailed guideline due to the extreme heat prevailed during the days. The same guideline can be seen in February, 2025, showcasing how the heat is already affecting the school children, predicting a possible threat to the education and after school sports activities in the near future.

The rising urban temperature leads to more energy consumption as everyone’s life depends on the continuously spinning fans and the air conditioners. This is indeed directly affecting the lives of the civilians as there will be an increase in their electricity bill. Yet, it is a further burden for the electricity suppliers as the depend is high in the Urban areas. As a result, electricity consumption in Sri Lanka peaked during heat waves, largely due to the increased use of fans and air conditioners (PUCSL, 2022)

The low-income communities of Colombo face greater vulnerability due to the rapid increase of heat in the city. Poor ventilation and tin-roofed homes, especially in slum areas and densely populated areas in Dematagoda, Wellawatta, Dehiwala, are direct victims of the unbearable heat waves that Colombo experiences from time to time. It must also be mentioned that outdoor laborers such as construction workers and delivery personnel may experience reduced work hours due to unsafe heat conditions. According to the international labour organization (2021), Sri Lanka risks losing over 1.2% of total working hours by 2030 due to heat stress, impacting the GDP of the country.

Way Forward: Planned Cities & Stronger Policies

A well laid out plan is urgently required to combat the impacts of the temperature rise in Colombo. The Environment Impact Assessment is mandatory in every development activity that takes place within the country. However, it is crucial to introduce an Urban Heat Impact Assessment, prior to approval of the development project via the Colombo municipal council to assess the contribution to Colombo’s heat island. Moreover, updating the Colombo Metropolitan Regional Structure (CMRSP) to include components such as prohibition of heat-intensive materials in dense urban areas and tree-to-concrete minimum ratio for all construction projects are initiatives that should be taken urgently. Communities can also participate in heat-resilient urban restructuring by transforming underused public land such as, rooftops of government buildings, schoolyards, balconies and transit stops, into community green spaces.

The Colombo Municipal Council may also advise the schools in Colombo to expand their schoolyards by integrating shaded learning spaces, trees and naturally cooling play areas, helping children to cope with heat waves. More importantly, the urban planners are encouraged to introduce the vertical garden concepts for all residents as well as the workplaces as it may help drastically in reducing the canyon effect in Colombo city. Although Colombo is already a planned city, integrating climate resilient strategies has proven to be challenging. Yet, even the minor step could make a greater impact.

Urban planning alone may not be sufficient to tackle the issue hence, the support of the country’s legal system is much required. Although many might be unaware, it is crucial to highlight that Colombo City does not have an Urban Climate Resilient Policy. One may argue that such a policy dedicated to a city is unnecessary as the national climate policy exists. In such a context, why must Colombo have its own urban Climate Resilient Policy? Simply because the major threat of rising temperatures in the city due to the urban heat island effect only prevails largely in Colombo so far. Hence, the requirement of such a policy with a dedicated chapter on urban heat mitigation must be introduced under the Urban Development Authority or the Colombo Municipal Council for making better decisions and mitigation strategies. Furthermore, the Colombo Municipal Council should be encouraged to introduce cooling ordinances such as green walls, cool roofs and covered walkways in order to optimize the maximum heat resilience in development projects.

Conclusion: Rethinking Colombo for a Better Future

The sleepless nights, exhausting afternoons and the immense heat indicate that the effects of climate change are here and Colombo, unfortunately is becoming a prime victim of it at an alarming rate. Government bodies, the general public and other environmental organizations must urge the need of a strategic system to combat the heat crisis that is immense in Colombo. This article does not intend to deny the impacts of global warming that affects the whole of Sri Lanka but rather highlight the immense heat waves that Colombo keeps experiencing, which is unusually high compared to the other regions. This may be the problem of Colombo today but will soon be an island wide issue covering all major cities. Hence, now is the time for awareness, action and implementation of a well laid out framework to combat and avoid urban heat islands through better urban planning, restructuring and updated policies before it is too late.

References: Department of Meteorology Sri Lanka. (n.d.). Weather and climate data.

De Silva, R. P., & Ekanayake, E. M. S. (2016). Urban heat island effect: Case study in Colombo metropolitan area. Sri Lankan Journal of Geology and Earth Sciences.

Herath, S., & Ratnayake, H. (2020). Land surface temperature trends in Colombo using MODIS satellite data. Remote Sensing.

Public Utilities Commission of Sri Lanka. (2022). Annual report 2022.

UNDP Sri Lanka. (2020). Climate risk country profile: Sri Lanka.

Wijerathna, C. D., Herath, H. M. W. A., & Gunathilake, S. K. (2021). Monitoring urban heat islands in Colombo using remote sensing data from 1997 to 2017. Remote Sensing of Environment.

World Bank Group. (2022). Climate change knowledge portal: Sri Lanka.