Sri Lanka on Tuesday announced it had clinched its largest ever single foreign investment deal by signing a $500-million contract with a Chinese-led consortium to build a new container terminal. The investment is the latest by China in the tropical island nation that has sparked concern from its closest neighbour and biggest trading partner, India, which sees Sri Lanka as part of its sphere of influence in South Asia.
China Merchant Holdings International will own 55 percent of the three-way venture, with Sri Lanka's Aitken Spence holding 30 percent and state-run Sri Lanka Ports Authority 15 percent, the foreign ministry said in a statement. "This is Sri Lanka's single largest private-sector foreign investment project," the statement said, adding that it was signed during Sri Lankan President Mahinda Rajapakse's four-day visit to China last week.
Planned to be built over five years, the first part of the Colombo project is expected to be ready in 2013. Two other Chinese firms, China Harbour and Sino Hydro, are building a $1.5-billion port in the Sri Lankan town of Hambantota, which is President Rajapakse's constituency.
Sri Lanka hopes to double the amount of foreign direct investment it attracts this year to $1 billion from $516 million in 2010. It aims to use the money largely for infrastructure projects. China, which clocked over $1 billion worth of trade with Sri Lanka in the first six months of this year, has committed large loans to build railways, roads, electricity and an airport in the island.
In 2010, China lent Sri Lanka $821 million which accounted for 25 percent of the island's foreign loans and the figure for the previous year was even higher at $1.2 billion. China is also developing port facilities in Bangladesh, Myanmar and Pakistan, and has plans for rail projects in Nepal and Sri Lanka.
Analysts have said New Delhi is concerned that Beijing's investments in South Asia are part of a bid by China to throw a geographical circle of influence around India. Last year, India said China was displaying "more than normal interest" in the Indian Ocean region.