Sri Lanka and China will finalise a free-trade agreement ahead of a Commonwealth summit in Colombo in November, a government minister said on Tuesday.

The two sides have been hammering out details of the duty-free goods under the deal, Investment Promotion Minister Lakshman Yapa Abeywardena told reporters in Colombo.

China has been investing heavily in Sri Lanka, with loans and expertise instrumental in building ports, highways, railways and power plants in the Indian Ocean nation.

"We are discussing the agreement right now and we hope to be able to finalise it before the Commonwealth meeting," Abeywardena said, adding that a Chinese delegation had been in the Sri Lankan capital recently to discuss the deal.

Sri Lanka will host the Commonwealth Heads of Government meeting from November 15 to 17.

Although China will not take part, Sri Lanka is keen to showcase its economic progress since the end of nearly four decades of ethnic war that ended in 2009, and will host a trade forum alongside the meet.

The minister gave no details of the pact with China, but said Sri Lanka's $3.7 billion garment manufacturing industry would feature strongly.

Trade is currently heavily skewed in China's favour, with the powerhouse exporting $2.66 billion worth of goods to Sri Lanka last year, and Sri Lanka's exports to China totalling $113 million.

Abeywardena said he hoped the new agreement would further open up the vast Chinese market to Sri Lanka's manufacturers.

The Chinese investment in Sri Lanka, which is under pressure from Western powers and India over its human rights record, has raised fears in New Delhi about Beijing's influence in the neighbourhood.

Sri Lanka's biggest container terminal, built and majority-owned by China, was launched last month aimed at making Colombo a strategic shipping hub along the world's most lucrative trading route.

Sri Lanka entered into a controversial free-trade agreement with neighbouring India in December 1998 during Sri Lanka's bloody separatist conflict, but both sides have been bickering since over non-tariff barriers.