Colombo, January 17 (Ceylon Today): The historic Sino-Ceylon Rubber-Rice deal signed 70 years ago in 1952, is celebrated even today for being the foundation for the friendly ties between Sri Lanka and China. Only recently, the Chinese Foreign Minister, Wang Yi, had sought to further strengthen Sino-Lankan ties “in the spirit of the Rubber-Rice pact.” The pact is hailed also as a win-win agreement model and as a model for economic agreements across ideological divides, transcending political fears.
In the early 1950s, both China and Ceylon (as Sri Lanka was then known) were in a tight spot economically, both being cornered by the dominant power of the day, the United States. The single world market was divided into two antagonistic blocs after World War II, because the world had entered the “Cold War” era. The Western powers had imposed a ban on trade with the Soviet Bloc and also “Red” China. This affected a large number of countries. While countries of the Western bloc, like the UK, were given exemptions by the US, less influential countries like Ceylon were not. When asked, lame excuses were given. The poorer countries suffered the most from the shrinking world market, though Walter Lipmann argued that all lost.
As Lankan economist Dr. J.B.Kalegama pointed out, the terms of world trade had gone against Ceylon, forcing it to seek new markets, even Communist China, to earn foreign exchange and import rice to stave off a grave food crisis, The world market price of rice had risen by 38% 1951 and 1952. Ceylon bought 60,000 tons of rice from the US and 10,000 tons from Ecuador at high prices but people did not like their taste. The country was also facing a foreign exchange crisis in 1952 caused by a dramatic fall of 23% in the export prices. The price of natural rubber declined by 36%, tea by 10% and coconut oil by 40%. But import prices increased by 8%. Overall, the terms of trade fell by 28%. Suddenly, a trade surplus of Rs. 345 million in 1951 turned into a trade deficit of Rs. 200 million in 1952 and external assets fell by 30%.
Ceylon’s pleas to the US for US$ 50 million in aid and reasonable prices for its exports and imports were turned down regardless of the severe shortage of rice, the Ceylonese staple. The Americans insisted on market prices that were unfavorable to Ceylon.
As for China, it was under severe UN-backed American sanctions because it was fighting US-led UN forces in Korea. Under the “Battle Act”, the US had imposed a punishing ban on exports to China, especially of rubber, considered to be of military use. To stop Ceylon from exporting rubber to China, the US tried to cripple the rubber industry by denying sulfur badly needed by rubber plantations. America’s Mutual Security Director, Averell Harriman, was quoted in The Hindu in 1953 as saying that there would be controls over the fueling of vessels calling at Free World ports to discourage exports to China and other Communist countries. The noose around Ceylon was tightened.
It was a dire need for critical commodities which brought Ceylon and China together, though, at that time, they were poles apart ideologically. The D.S.Senanayake and Dudley Senanayake-led United National Party (UNP) governments of the day were markedly pro-West and very anti-Communist and China was radically Communist under Mao Zedong. And yet the two came together to trade and survive, overlooking ideological incompatibility. R.G. Senanayake, the then Minister of Commerce, led a delegation to China to buy rice in exchange for rubber.
But the visit, even an ad hoc agreement to buy 80,000 tons of rice from China raised fears in Ceylon. While the emergency purchase was welcomed given the dire food situation, any further strengthening of trade with China was thought to be “fraught with grave danger” as the fear of the “Red menace” was deep-rooted among the then Ceylonese elite. The Ceylon Daily News carried an article that warned that any further trade with China would need the “most careful consideration of the government and people of this country.” There was fear even at the topmost level that if Ceylon were to get too dependent on China, then Beijing would twist its arm and order the appointment of a Communist leader as Prime Minister. The fear of losing Ceylon’s traditional markets in the democratic world was also palpable. The general impression was that China was not sufficiently developed to absorb Ceylon’s exports or to sell what Ceylon wanted.
While the Senanayakes (D.S. and Dudley) shared the fear of communism and were solidly pro-West, they felt that starvation and deprivation at the mass level would only make communism attractive to the poor man. Dudley Senanayake said: “Communism thrives in many places not through an understanding of that particular ideology but through poverty and want. I am confident that our Trade Agreement with China will, instead of opening doors to communism, help us to stand firmer against it.” It was this view which ultimately prevailed in the cabinet.
The Trade Agreement signed on December 18, 1952 was for five years and was renewable. The trade was based on barter – exports and imports were to balance every year. In 1953, Ceylon agreed to buy 270,000 tons of rice from China which in turn agreed to purchase 50,000 tons of rubber. These quantities were exchanged on the basis of world market prices and were equal in value. In addition, China agreed to pay a premium price for rubber over the world market (Singapore) price, and further, handling charges for rubber exports in Colombo.
According to Dr.Kalegama, in 1953, China paid for Ceylon rubber Rs. 1.74 per lb. whereas the average world market price was Rs. 1.05 per lb. China also agreed to supply rice to Ceylon below market prices – at 54 pounds or Rs. 720 per ton in 1953.
These gains were acknowledged by the then US envoy in Colombo Philp K.Crowe cabled Washington to say that by September 1, 1953, Ceylon had shipped 35,000 mt of rubber to China under the five year trade agreement at an estimated gross profit over and above Singapore market prices of over US$10 million. Savings to Ceylon on low price China rice compared with Burmese rice amounted to an estimated US$ 4.5 million. Benefits to Ceylon-China Rice-Rubber deal in 1953 was therefore likely to total approximately US$19 to US$ 20 million.
Commerce Minister R.G.Senanayake said at the end of it all: “I have always held the view that political ideologies should not stand in the ways of countries trading with each other if that trade is to their mutual advantage.”
He had also foreseen the emergence of China as a world power. “ It would be unrealistic to ignore a nation of 500 million in our continent with a united and cohesive government for the first time in many centuries. She is bound to be a major factor in world trade,” Senanayake said.
Today, China is the single largest investor in Sri Lanka building infrastructure facilities. It is lending an ear to cries of help from Sri Lanka which is currently facing an economic crisis due to the pandemic and man-made factors. China has offered to help with more investments. There is an offer to reschedule loan repayments, an invitation to quickly enter into a free trade agreement and to participate in Regional Comprehensive Economic Cooperation (RCEP). And, as in the 1950s, the West, led by the US, is deriding Sino-Lankan economic cooperation as being debt-ridden and injurious to Sri Lanka in the long run both economically and ideologically.