China eyes major role in Sri Lanka’s plantation sector

Chinese firms are in negotiation with Sri Lanka’s Plantation Industries Ministry to set up joint ventures with local firms to infuse substantial capital into rubber, tea and coconut plantations and production value chains to boost production and to produce higher-value added products.

Plantation Industries Ministry officials told Mirror Business that Chinese firms have particularly expressed a strong interest in investing in Sri Lanka’s rubber production value chains as China has identified that natural rubber would become the most strategic material in the world during the next 7-10 years.

Launching Finite Element Analysis Simulation Centre (FEASC), the first project under the Rubber Master Plan, last week, Plantation Industries Minister Navin Dissanayake said his ministry recently signed an agreement with provincial government of Hainan province of China for technical assistance.

Hainan province is among the top three rubber producing regions of China, home to some of the largest rubber manufacturing companies in the world. The provincial government has also expressed the interest to transform Sri Lanka as one of the rubber manufacturing hubs in the world and already submitted a proposal to Sri Lanka’s Ministry of Plantation Industries to invest in finished rubber product segment.

Dissanayake also announced that the Chinese central government approached him and promised to invest US $30-40 million to assist Sri Lanka’s rubber industry. He said the ministry officials are preparing feasibility reports to receive these investments.

However, according to ministry sources, the US $30-40 million investments are a fraction of the overall investments planned. The initial investments would expect to come as catalytic start-up investments and R&D investments. 

The Ministry officials pointed out that the investment requirement for a modern tyre plant might go up to around US$800 million.

China Hainan Rubber Industry Group Co., a subsidiary of Hainan State Farms Agribusiness Group Co. Ltd., the Hainan province’s top rubber producer, who has been on a buying spree acquiring stakes in international companies, has also come on board to invest in Sri Lanka’s rubber production value chains. The Ministry officials said that they would facilitate the match-making between local and Chinese firms to establish joint ventures, which are targeted at setting up new plants and acquiring new technologies to boost rubber yields and production. 

Ministry officials revealed that the Ministry is currently working with interested local firms to establish an investment model for a Chinese investor to invest in, which would be used as a benchmark for other Joint Ventures. 

Sri Lanka’s DSI Samson Group is among the local rubber manufacturing companies that joint ventures with Chinese firms are currently being considered. 

Several cash-stripped Regional Plantation Companies (RPCs), who have been replacing rubber plantations with oil palm due to low prices of natural rubber in the world market, have also expressed their keenness to partner up with Chinese firms.  The Ministry noted that the Chinese firms can investin RPCs through setting up of new subsidiaries and sub leasing.

Minister Dissanayake and his ministry officials also recently held record three hour discussion round with a Chinese delegation led by China’s Sinoshine Group CEO, Amy Lin, on long-term investments in Sri Lanka’s rubber production value chains linking to China’s Belt and Road initiative.  

Dissanayake asserted that Sri Lanka’s plantation sector has a bright future despite various claims that the sector is on the decline. He said the plantation sector needs to move on to an innovation-led growth model rather than depending on state subsidies.  Plantation Industries Ministry expects Chinese investments would assist Sri Lanka to increase low rubber yields from the current 800 kg/ha to minimum of 2000 kg/ha while venturing into high value added products.

China has also recognised the Rubber Master Plan as a good platform to develop Sri Lanka’s rubber industry and expressed its interest to take part in the Rubber Master Plan.

The Ministry expects that the investments in Rubber master plan would catalyse crucial private sector investments. 

The ministry officials said that they would also explore possibilities to obtain low-interest loans for smallholder sector from China to boost replanting and productivity through mechanisation and new technologies. 

Although Sri Lanka’s value addition has increased significantly since 1980’s, the average value addition in rubber is still almost half of the global average value addition in rubber, which is mainly due to lack of high-end technologies. 

Dissanayake was optimistic that Sri Lanka’s rubber product exports would climb up to US $5 billion in another 3-4 years, easily backed by implementation of the projects in the Rubber Master Plan.  The ministry in collaboration with the private sector plans to carry out investments in the rubber industry to the tune of US $ 1.5 billion during the programme period.

China’s natural rubber plantation history is 60 years old. But today, the country is a leading rubber powerhouse in terms of both production and consumption of both natural and synthetic rubber and is the world’s second largest producer of tyres.