China overtakes India as Sri Lanka's top trading partner

China became Sri Lanka’s primary trading partner in 2025, surpassing India due to a surge in imports following the relaxation of trade restrictions. The Central Bank of Sri Lanka reports that total trade with China reached approximately $5.5 billion, narrowly exceeding India’s $5.4 billion.

This shift marks a reversal of the trend seen between 2021 and 2024 when India held the leading position. The United States maintained its status as the third-largest partner at $3.5 billion, with these three nations representing over 41% of the island's total merchandise trade.

The recovery in trade volume was largely driven by an acceleration in imports as economic conditions stabilised. A significant factor in this growth was the influx of vehicles, specifically electric and hybrid models.

Trade dynamics over the last five years were heavily influenced by import controls implemented during the external debt crisis and their subsequent removal.

While trade with both China and India contracted during 2022 and 2023, the decline was more pronounced with China because its export mix to Sri Lanka consists heavily of machinery and construction materials, which were among the first items to be restricted.

Trade with India remained more resilient during the crisis, supported by the continuous import of essentials like fuel, pharmaceuticals, and intermediate goods.

However, the faster rebound with China since 2024 reflects the return of high-value goods to the market. The resumption of vehicle imports, where China serves as a major source, led to a sharper rise in total trade values compared to India.

Sri Lanka recorded its largest trade deficit with China in 2025, which widened to $4.9 billion from $4.1 billion the previous year.

This expansion was fueled by the increased arrival of electric and hybrid vehicles, alongside construction materials like iron and steel, while exports to China remained low.

The trade deficit with India also grew during the year, primarily due to higher motor vehicle imports.

Meanwhile, the United States remains a crucial partner, with Sri Lanka maintaining a trade surplus of $2.5 billion with the Americans, largely bolstered by garment exports.