China’s expanding web of Free Trade Agreements (FTAs) is often marketed as a blueprint for mutual prosperity. But beneath the surface lies a stark reality: these deals frequently serve as strategic instruments for Beijing, tilting the balance of trade, undermining local industries, and locking smaller nations into long-term economic subservience. For countries like Sri Lanka, now negotiating such a pact, the risks could be profound and irreversible.
The Unequal Trade Equation
At the core of these agreements lies a pattern of skewed trade that overwhelmingly benefits China. Instead of fostering mutual gains, FTAs with China typically open the floodgates to a surge of cheap, state-subsidized Chinese imports that overwhelm domestic producers.
Pakistan offers a cautionary case. After entering a trade agreement with China, its trade deficit ballooned to $17.74 billion in fiscal year 2022. In March 2025 alone, the monthly gap hit $2.02 billion. This flood of low-cost goods has devastated key Pakistani industries, from ceramics to electrical equipment, unable to compete against China’s manufacturing juggernaut.
Even in countries that post a trade surplus with China, the composition of trade tells a different story. Nations like New Zealand and Peru primarily export unprocessed raw materials—timber, copper ore, iron ore—while importing high-value Chinese goods such as electronics and vehicles. This extractive model mirrors colonial trade patterns, allowing China to capture most of the value-added while turning partners into markets for its finished products.
Global Institutions Raise Red Flags
Leading global bodies have not turned a blind eye to these dynamics. The World Bank warns that such trade deals can have a “small negative impact” on human development and may “exacerbate inequality.” The IMF highlights China’s industrial policies as a source of “systemic distortions” harming global trade partners. UNCTAD adds that in many developing countries, the perceived value of manufacturing exports is “grossly overstated,” with local workers relegated to low-skilled roles while Chinese firms reap the real profits.
Sri Lanka’s Vulnerable Position
These warning signs are particularly urgent for Sri Lanka. Talks over a China-Sri Lanka FTA are advancing even as trade between the two remains heavily imbalanced: China accounts for 20% of Sri Lanka’s imports, but buys only 2.9% of its exports.
Local manufacturers fear disaster if the deal moves forward. The likely removal of import cesses—currently the only shield for many domestic producers—could pave the way for a deluge of Chinese goods, shuttering factories and dismantling Sri Lanka’s fledgling industrial base. For many, it’s a Faustian bargain: the illusion of greater market access traded for the erosion of national economic sovereignty.
The Re-Export Risk: A Geopolitical Trap
Beyond the economic dangers lies a geopolitical landmine. As China faces tariffs from the US, it has turned to FTA partners like Malaysia and Vietnam to re-export its goods under false labels, dodging penalties. If Sri Lanka is pulled into a similar scheme, the fallout could be disastrous.
The country’s economy hinges on Western exports—especially apparel—with the US alone accounting for 25% of all exports and 40% of garment sales. Being caught in a transshipment scandal could trigger retaliatory tariffs, crippling the island’s most vital industry. Unlike China, Sri Lanka cannot afford such geopolitical blowback.
A Choice with Consequences
China may present its FTAs as golden opportunities, but the reality for many developing nations is far more complex. Before signing on, countries must ask a hard question: are they entering a partnership for shared prosperity—or a path toward economic colonization?