New RMB clearing facility to slash currency risks for local firms eyeing Chinese market

• ​Chinese state enterprises express strong interest in Sri Lanka’s mineral wealth for value-added joint ventures
• ​Local partnerships must navigate China’s increasingly strict outward investment regulations to secure fresh capital

By Nishel Fernando

Mengni Luo - Pic by Sameera Wijesinghe

​The recent memorandum of cooperation signed between the People’s Bank of China and the Central Bank of Sri Lanka to establish a renminbi (RMB) clearing arrangement is set to significantly reduce transaction costs and currency risks for local enterprises engaging in cross-border trade. 

The move aims to facilitate the use of the Chinese currency by enterprises and financial institutions from both nations, a vital step that will further promote bilateral trade and investment.

​Highlighting the practical implications of this development, Mengni (Romanee) Luo, Partner at QZ&WD (Jiangxi) Law Firm, noted that the facility creates immediate, real-world opportunities for Sri Lankan exporters navigating global economic uncertainties.

Speaking at the ‘Trade in Turbulent Times’ forum organized by Sudath Perera Associates in Colombo this week, Luo emphasised the strategic advantage of bypassing traditional dollar-based transactions.

​“The RMB clearance arrangement established just two months ago actually reduces transaction costs and currency risks,” she explained to the audience, adding that forward-thinking clients from both countries have already begun seizing these financial opportunities.

​This financial infrastructure upgrade aligns seamlessly with China’s broader macroeconomic strategy of diversifying its trade partnerships and building resilient, multipolar supply chains.  Despite modest global growth projections, China’s outbound direct investment demonstrated robust resilience, reaching a record US$ 174.4 billion in 2025, representing a 7.1 percent increase. More notably for the local market, Chinese investment in Belt and Road countries surged by 17.6 percent during the same period, signalling a deliberate shift toward emerging markets that Sri Lanka is well-positioned to capture.

​Beyond traditional trade in textiles, tea, and agriculture, Chinese capital is actively eyeing Sri Lanka’s natural resources for high-level, value-added processing.  Luo revealed that a Chinese state-owned enterprise is already preparing to enter the local mineral sector, targeting resources such as graphite, gemstones, iron ore, and zircon. This dovetails with the Sri Lankan government’s push for joint ventures in mineral purification and refining to capture more domestic value. However, Luo cautioned that these cooperation projects require careful negotiation on commercial arrangements and legal structures to ensure mutual benefit and long-term viability, given the differences in corporate governance concepts between the two nations.

​Attracting this fresh capital also requires navigating an increasingly complex regulatory landscape.  While China has removed manufacturing investment restrictions for incoming foreign capital, its own outbound investment rules have become far more stringent. Chinese firms seeking to invest in projects like the Colombo Port City or regional manufacturing hubs must now pass rigorous internal filings, multi-authority reviews, and close scrutiny, particularly in sensitive tech and strategic resource sectors. Furthermore, Sri Lankan companies looking to integrate into these global value chains must adapt to tightening international compliance standards, including the European Union’s Carbon Border Adjustment Mechanism (CBAM) and expanding ESG disclosure requirements.

​Despite these regulatory complexities, the underlying foundation for commercial cooperation remains exceptionally strong. Luo stressed that relationship capital heavily outweighs purely commercial considerations in cross-border business, noting that Chinese investors consistently view Sri Lankan companies as trustworthy and reliable partners. Supported by a partnership spanning over two millennia and reinforced by new financial tools such as the RMB clearing facility, local businesses now have a clearer, more cost-effective pathway to thrive alongside Chinese enterprises in a turbulent global market.