China’s Activities in Island States: Sri Lanka as a Case

Abstract

As strategic locations in the Indo-Pacific, island states such as Sri Lanka, the Maldives, Mauritius, and Seychelles draw heightened attention amid growing competition between major powers. Adopting a smaller-state analytical lens, this issue brief examines China’s major activities in Sri Lanka across economic, military, and diplomatic domains. Bilateral cooperation remains stable, and China has been a critical provider of support when Sri Lanka desperately needed military and diplomatic assistance during and after its civil war. Sri Lanka’s need for such assistance has waned since the end of war in 2009, yet China remains a major trade and infrastructure development partner. Sri Lanka needs China’s partnership as it rebuilds its economy since the 2022 debt default. Island countries can learn from Sri Lanka when considering their domestic needs as developing countries, as well as their concerns about large powers like China. Sri Lanka’s experience has become a cautionary tale for island states, like Maldives, Mauritius, and Seychelles, determined to maintain their agency and survival in the contested Indo-Pacific.

Introduction

China’s rise globally continues to be of increasing interest and concern since the turn of the 21st century. As strategic locations in the Indo-Pacific region, island states such as Sri Lanka, Maldives, Mauritius, and Seychelles have received heightened attention amid growing competition between large powers such as the United States, China, and India. In particular, the various types of cooperation that smaller states have with large powers like China are of concern. This issue brief examines China’s major types of activities in island states, using Sri Lanka as a case study. It intentionally analyzes the topic from the perspective of the island state, rather than China to identify patterns in the Sri Lanka-China relationship and help international observers better understand the opportunities—as well as the risks—that island states face when working with China.

Stable bilateral cooperation, with areas to watch

Trade

Sri Lanka’s economic relations with China have been growing. This trend over recent decades has been well documented and observed not only bilaterally but also in China’s growing integration into the global economy.  Regarding trade, China was Sri Lanka’s largest import partner at roughly $5 billion in 2025, but its ninth-largest export destination at only $279 million in 2025. Bilateral trade with China is increasing, but the imbalance gives China a persistent and significant advantage. In 2025, the eighth session of the Joint Commission for Economic and Trade Cooperation took place in Colombo between the two countries, in which continued cooperation was discussed, including under the Belt and Road Initiative framework.

However, Sri Lanka’s top exporting country remains the United States. Exports are a powerful way for Sri Lanka to earn foreign currency and boost its exchange reserves. In fact, the island state defaulted on its debt in 2022 after spending down its foreign exchange reserves. The extent to which Washington’s imposition of tariffs will affect bilateral trade is unclear at the moment. Nevertheless, China’s continues to benefit from its bilateral trade with Sri Lanka as its largest import source.

Another important way for Sri Lanka to earn income is through tourism. In 2025, Sri Lanka earned about $3.2 billion in total tourism revenue. For overseas markets, China was the fifth-highest source of tourists in 2025 with 132,035 tourists visiting Sri Lanka. China was significantly behind India with more than half a million tourists and the United Kingdom with roughly 210,000 tourists, respectively; Russia and Germany also ranked ahead of China in 2025, though by smaller margins.

Watch for Sri Lanka to possibly finalize a free trade agreement (FTA) with China. FTA discussions between Sri Lanka and China began more than a decade ago, but have yet to produce an agreement. However, the island state of Maldives implemented its FTA with China after a long delay under the new leadership of President Mohamed Muizzu. Given that the Maldives did not receive significant pushback from India when the FTA went into effect in 2025, Sri Lanka may wish to resume momentum on its own stalled FTA.