Posted on March 27th, 2017


Sri Lanka has had cordial links with China from ancient times. The Sinhala kings had continuous diplomatic links with the Chinese emperors, from Anuradhapura times to the medieval period. In the post independence period too, there were good relations between the two countries. The Peoples Republic of China was established in October 1, 1949 and Sri Lanka recognised it soon after on January 6, 1950.  Then came the Ceylon-China trade agreement of 1952, known as the ‘Rubber – Rice pact’.   J.B.Kelegama said that this Pact was undoubtedly the most useful trade agreement negotiated by Sri Lanka and one of the most successful and durable trade agreements in the world, having been in operation for thirty years.

Rohan de Soysa recalls that his father Terence de Soysa had with the help of a consortium bought C.W. Mackie & Co in 1946 or so, the first major British company to be Ceylonised. He had come to office one morning and found a telex on his desk from a Hong Kong agent offering to pay more than the market price if he would ship rubber to China. The other rubber producing countries were refusing to do so. Ceylon also was a friend of America so my father was in a quandary.”

Having ascertained it was not a joke; he met Prime Minister D.S. Senanayake, and asked him what action to take as China was at war with America in Korea.  D.S. had asked him, is it good for our country?” Upon being told it was very good, D.S. told him to go ahead. After making the first shipment, my father called a meeting of all the rubber shippers, and informed them of the situation. He proposed to divide the shipments among all of them according to their percentage of shipments abroad in the previous year, reserving a slightly higher percentage for Mackie & Co, to which all agreed. This was the foundation stone of the Rubber-Rice pact” concluded Rohan.

In the 1950s there was a rice shortage in Sri Lanka. The price of rice in the world market was high and Sri Lanka, then Ceylon, did not have the money to buy. Sri Lanka was facing a serious foreign exchange crisis at the time too. The rubber boom had ended with the   Korean War and the rubber price had crashed.   ‘Communist’ China was also having its own troubles. UN had imposed a resolution prohibiting countries like Malaya exporting their natural rubber to China.

R.G. Senanayake, Minister of Trade and Commerce   found that China was willing to sell rice to Sri Lanka in   exchange for rubber. This was probably conveyed through Susanta de Fonseka, Ceylon’s ambassador to Burma.  Susanta de Fonseka has been sent to Beijing in 1952 by Prime Minister D.S.Senanayake on an ‘important diplomatic assignment ‘which, we are told led to the Rubber-Rice pact. ’  Fonseka led the second delegation and was part of the first delegation to Beijing to discuss the   agreement.

The two officers who accompanied Senanayake to China, M.F .de S Jayaratne, Permanent Secretary and C.E.P. Jayasuriya, Director of Commerce, had told Kelegama   that Senanayake must be given the full credit for negotiating this Pact and that possibly no one else could have done it.  Senanayake told Parliament that political ideologies need not stand in the way of trade.  He said that China was a country of 500 million people with a unified and cohesive government. It is bound to be a major factor in world trade [someday].  He was anticipating the emergence of China as a world power.  He also pointed out that Sri Lanka had tried for four years to negotiate a loan of 50 million dollars from USA   and failed.

The Pact came into force in 1953. China agreed to pay a premium price for rubber well over the world market price.  China bought rubber at Rs 1.74 per pound when the average world market price was Rs 1.05 per lb. China also paid the handling charges for the rubber in Colombo. China supplied rice at Rs 720 per ton, well below the market price.  In Sri Lanka, Senanayake reserved the export of rubber to China and the import of rice to Ceylon, exclusively for Ceylonese traders. The foreign traders, particularly the British managed agency houses strongly objected.

China was a generous trade partner. On one occasion when China could not provide rice, it had sent rice purchased from Burma, at the price paid to Burma. ‘Not a cent more though they were entitled to add value.’  From   1958 to     1968 China gave a grant of Rs 125 million to meet part of the cost of rubber replanting. Thousands of acres of uneconomic rubber land were replanted thereby revitalising our rubber industry, said Kelegama.

‘China was large minded and forthright in their dealings, said Senanayake in Parliament.  There was no bargaining and haggling on small points. Kelegama who had participated in later dealings with China   agreed.  China bought our rubber at a premium even when other countries were prepared to sell for less, during the long period of this agreement, he said.   Sri Lanka therefore had an assured market for its rubber and an assured source of supply for her rice and this helped insure her from the vagaries of the world market.

This Pact was heavily opposed by some members of Parliament, including J.R. Jayewardene, Minister of Finance. Newspapers virulently opposed to any dealings with Communist China joined in. This opposition is given in detail in S.P. Amarasingham’s ‘Rice and Rubber, the story of China- Ceylon trade ‘.

The Pact was greeted with considerable dismay in the US. USA promptly cut off aid to Sri Lanka, under its rule of not giving aid to countries that sold strategic materials to communist countries. USA also stopped the sale of its sulphur fungicide, needed by Sri Lanka rubber plantations.  Sri Lanka came under great pressure. But the Pact was not abrogated. This showed, said Kelegama, Sri Lanka’s independent attitude to external relations and her capacity to withstand pressure from western powers. The Pact was renewed every five years, in 1958, 1962, 1967, 1972 and 1977. It was wound up thereafter as it was no longer needed.

Bandu de Silva, of the Foreign Service, recalled that attempts were   made by certain parties in Colombo to sabotage the   Pact when it came up for renewal in 1957. The prominent name was J.R. Jayewardene. Secret communications sent by the Ceylonese delegation to Colombo appeared in the Colombo press and it was suspected that the source was “Yankee Dickie”.  In the meantime, Ceylon’s ambassador Wilmot Perera it appears, had advised the Chinese not to pay the premium charge of five US cents per pound as handling charges for the rubber. Negotiations nearly broke down because of this, but China offered foreign aid in place of the premium,  despite China not being in a position to such aid. Sri Lanka  then asked for railway wagons, but China did not rush to provide them.

Sri Lanka has long since forgotten this Pact, but, fortunately for Sri Lanka, China has not. China remains forever grateful to Sri Lanka for giving it rubber when other countries, particularly Malaysia had refused to do so.  In 1964 when N.M. Perera, Minister of Finance asked China for money, China said it had no money to give but ‘when China becomes a fully developed rich country we will gave you all you need’ .

The positive benefits of this Ceylon-China agreement exceeded expectation, observed Kelegama. In addition to trade, China gave grants and interest free loans. They gifted the textile mills at Veyangoda and Pugoda, helped the Gin Ganga scheme,   restoration of Abhayagiri Dagoba  and renovated the Supreme Court complex  The  Bandaranaike Memorial Conference Hall (1973) was an outright gift. China said it wanted to give Sri Lanka a gift and Prime Minister Sirimavo Bandaranaike asked for a conference hall. China, in turn, sent persons to  the University of Ceylon at Peradeniya, to learn Sinhala. Subsequently, a Sinhala department was created in the University of Shanghai and a Sinhala broadcasting service    was started at Beijing.

In 1957, Prime Minister S.W.R.D. Bandaranaike established full diplomatic relations with China. Wilmot Perera, who had accepted the ambassadorship for a brief period to please SWRD, established good relations with Chairman Mao, Prime Minister Chou en Lai   and other leaders.  He  had good relations with Vice President Liu Shao Chi,  vice Premier Marshal Ho Lugn , Muo Mo Jo who was a leading cultural figure at the time and Pen Zhen  who had much influence in the Communist Party.  Chou en Lai   and Ho Lung were guests when  Perera  gave a dinner in honor of a visiting LSSP delegation.

Chou en Lai visited Sri Lanka in  1957 itself, followed soon after  by the Beijing Opera. Madame Soong Ching Ling vice chairman of Republic of China came and  gave a talk  at Sri Palee, Horana on February 1962. In 1986,  President Li Xiannian paid a visit.  Chinese Premier Li Peng visited  in 1990  and offered Rs 375 million in economic assistance. Chinese Premier Zhu Rongji  visited in 1996. Chinese Premier Wen Jiabao visited in 2005 and the ‘China-Sri Lanka All-round Cooperation Partnership of Sincere Mutual Support and Ever-lasting Friendship’ was signed. When President Rajapakse  visited China, in 2013, this was upgraded to ‘China-Sri Lanka Strategic Cooperative Partnership of Sincere Mutual Support and Ever-lasting Friendship.’

China gave military equipment in huge quantities for the Eelam War, including aircraft, T56 assault rifles, RPGs, naval vessels, vehicles including wheeled workshops, and armour. They were sold to us at very nominal price barely covering the cost of production. In April 2007 Sri Lanka signed a classified USD 37.6 million deal to buy Chinese ammunitions and ordnance for its army and navy according to Janes Defence Weekly. China gave Sri Lanka, apparently free of charge, six F7 jet fighters, according to Stockholm International Peace Research Institute. China congratulated Sri Lanka on its success in defeating the LTTE and reiterated China’s support towards maintaining her independence, territorial integrity and sovereignty. China has also provided crucial diplomatic support in the UN Security Council blocking efforts to put Sri Lanka on the Human Rights agenda.

China also boosted financial aid to Sri Lanka, as western countries reduced their contributions. China’s aid to Sri Lanka jumped from a few million dollars in 2005 to almost 1 billion Dollars in 2008 replacing Japan as the biggest foreign donor. By comparison the USA gave USD 7.4 millions and Britain just GBP 1.25 million. After the War, President Rajapakse turned to China for assistance as most western countries were also doing. China responded and help fund the economic revival of Sri Lanka.

China funded Mattala airport, Hambantota port, Moragahakanda reservoir, Norochcholai power plant, and many trunk roads.  Sri Lanka’s modern road complex with super highways were possible due mainly to China.  China also gave a 1.2.billion US dollar soft loan for housing and township construction.  It carried 2% interest with further concessions in form of interest free construction period and a five year grace period in which only the interest on the loan can be paid.  There is a further period of 20 years during which the loan can be paid off. Observers noted that China has never pushed a debtor to the edge of the cliff or bankruptcy, unlike those who relied on noncommercial borrowings from the west.

Sri Lanka  was made a dialogue partner of  Shanghai Cooperation Organisation (SCO) in 2009. The SCO was founded in 2001 in Shanghai by China, Russia, Kazakhstan, Kyrgyz Republic, Tajikistan, and Uzbekistan to deal with threats of terrorism, separatism and extremism. It is  a security body with ‘real military dimensions’. This puts Sri Lanka under the umbrella of China and Russia. Although it is not spelled out, under article 14 of the SCO charter   a dialogue partner can request protection and defensive aid under such as relationship, said former diplomat K. Godage. (REVISED 27.3.2017)



  1. Christie Says:

    Thanks Kamalika.

    That is why Indian Empire and Indian colonial parasites recruited SWRD and formed SLFP.

    Burma was the rice producer to feed Indian Colonial Parasites in British Indian Colonies.

  2. Ratanapala Says:

    What has Sri Lanka received from India? Except for Buddhism under the Benevolent Ruler Emperor Asoka almost 2400 yeas ago, Sri Lanka has only received misery, disease, terrorism and constant ill will from across the Palk Straights. India is smelly cess pit for all her neighbours constantly polluting, poisoning relationships and an ever present danger to all her neighbours. India’s goal is never to allow any of her neighbours to prosper. This is why SAARC remains a dud organisation when compared to ASEAN whose members have continued to prosper.

    Sri Lanka needs to be assertive in choosing friends and in safeguarding her freedoms and territorial integrity from devious Indian machinations.

    Sri Lanka should have consolidated her victory over India funded and inspired LTTE Terrorism soon after. However this was not to be. There should have been intense diplomatic activity to find all weather friends to tide over the whims of the Christian West and India. We should have expanded our armed forces to take on expanded security operations to contain any further chance of terrorism rising its head. LTTE mouthpiece TNA should have been tried before law courts for the role they played in instigating terrorism in Sri Lanka.

    All major powers converse and deal only with entities that can deliver on their promises. This is why the City State of Singapore is a power to reckon with in the ASEAN region. Major powers have no respect for small squabbling minions like Sri Lanka except as doormats to trod over!

    Sri Lanka and Mahinda Rajapakse squandered that opportunity big time by being hoodwinked by our ever present enemy – India!

  3. Dilrook Says:

    Well said Ratanapala and Kamalika.

    In 1953, Indian and US officials very strongly protested against the China deal. However, Sir John Kotalawala fearlessly stood up for it. When Royal Dutch Shell company refused to fuel Chinese ships in Colombo unloading rice and loading rubber, he threatened to nationalise then unless they serviced Chinese ships. They had no choice.

    What Kamalika fails to mention is the help Sri Lanka received from China when it needed most. Sri Lanka’s war-ready jet squadron was formed in 1991 thanks to China at a time when the army and the navy were severely restricted by India funded LTTE. China helped (through donations than loans) to overcome the disasters caused by the IPKF and the JVP.

    Then again China came to Lanka’s rescue in the post-tsunami period. When exchange issues threatened to disrupt military purchases, China extended a $1 billion loan facility (the need didn’t arise to use it).

    China is committed to saving Sri Lanka at the UN Security Council using its veto.

    Today Sri Lanka is facing multiple economic crises – debt crisis, FDI crisis, balance of payment crisis, export crisis, etc. and only China can save it. As central bank governor Kumaraswamy correctly stated, unless the China deals (including Hambantota) go ahead, the Lankan economy collapses. Indian and LTTE Rump vultures can’t wait till it happens to divide whatever they could grab at fire-sale prices. Those who oppose China deals are in the payroll of Ajit Doval, Indians and the LTTE Rump.

  4. Christie Says:

    Thanks Dilrook. Sir John was a great Sinhala hero of our times.
    But unfortunately Indian managed to get rid of him with SWRD and SLFP.
    India repeated it again in 2015 and was successful again.

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