China's Labor Costs Rise

On Wednesday, Sri Lankan President Mahinda Rajapaksa highlighted that rising labor costs in China have created new opportunities for Sri Lanka to attract foreign companies looking for cost-effective production bases. Situated in South Asia, the country is positioning itself as a viable alternative to more expensive manufacturing hubs.

Speaking at the United Nations General Assembly in New York, Rajapaksa noted that after years of conflict, Sri Lanka has enjoyed 15 months of peace. During this time, his administration has focused on rebuilding infrastructure in the north and east, including roads, railways, and utilities, while also working to improve housing and access to clean water.

The president emphasized that Sri Lanka’s well-educated workforce, combined with relatively low labor costs, is drawing interest from outsourcing firms, especially from India. As wages in Indian companies continue to rise, many are exploring expansion opportunities abroad, with Sri Lanka emerging as an attractive destination.

Rajapaksa also pointed out that European and American retailers are increasingly turning to Sri Lanka for clothing production due to its lower costs compared to China. However, this growing demand has led to a shortage of skilled workers in the garment industry.

Ashroff Omar, CEO of BrandixLanka Ltd., one of Sri Lanka's leading apparel exporters, stated that hiring a skilled garment worker currently costs around $150 per month in Sri Lanka—compared to $400 in China. He predicted that by the end of the decade, Chinese labor costs could reach $600 per month, while Sri Lankan wages would likely remain around $200.

Omar was among a delegation of over 20 business leaders and government officials accompanying the president on his trip to the U.S.

Rajapaksa also shared positive developments in tourism, noting that Indian visitors are drawn to Sri Lanka’s stability and peace. Interest from European tourists, particularly from Scandinavia, has also increased. Meanwhile, agriculture and fisheries remain key drivers of economic growth.

Despite these gains, the president acknowledged that Sri Lanka still faces challenges in overcoming its reputation as a war-torn region. However, he pointed out that the country has been at peace for over a year, and most foreign governments have lifted travel advisories warning against visiting.

According to Fitch Ratings, Sri Lanka’s economy grew by 8.5% in the second quarter of the year, up from 7.1% in the first quarter. The president reported that inflation remains under control, currently just below 6%, and the International Monetary Fund has praised the Central Bank’s recent interest rate cuts, projecting single-digit inflation for the year.

Looking ahead, Rajapaksa expressed concern about the potential threat of protectionism in other Asian countries, which could hinder Sri Lanka’s ambitions to join the ranks of Asia’s fastest-growing economies.

Sri Lanka, home to 20 million people, ended its 30-year civil war in May 2009 after the government defeated the Tamil Tigers. Since then, the nation has worked tirelessly to rebuild and reposition itself on the global stage.