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Sri Lanka signs $1 billion port deal with China

July 30, 2017

Sri Lanka has signed a long-delayed billion-dollar deal that allows a Chinese state-owned firm to take over a loss-making port. The move worries many China-watchers, including India, Japan and the US.

Sri Lanka Hambantota port
Image: Getty Images/AFP/I. S. Kodikara

The deal was signed between two state firms - the Sri Lanka Ports Authority (SLPA) and China Merchants Port Holdings - to handle the commercial operations of the Chinese-built port on a 99-year lease.

The Chinese firm will hold a 70 percent stake in a joint venture with SLPA to run the port. This is part of a plan to convert loans worth $6 billion (5.5 billion euros) Sri Lanka owes China into equity. The port has lost $300 million in the last six years, according to official figures.

The $1.12 billion lease was confirmed by Sri Lanka's Ports Minister Mahinda Samarasinghe on Saturday.

The deal had been held up for months by opposition from trade unions and opposition parties. The government used draconian measures to halt strikes last week in opposition to the sale.

On top of the sale price, the Chinese firm will invest another $600 million to develop Hambantota, Samarasinghe said.

Protesting villagers shout slogans earlier this year
Protesting villagers shout slogans earlier this yearImage: picture alliance/dpa/AP Photo/E. Jayawardena)

Chinese ambitions

China Merchants' executive vice president Hu Jianhua said the company wanted to make Hambantota the gateway to expanding economies in South Asia and Africa.

"(The) business of Hambantota port will be cross border, across the Indian ocean, stretching to the Far East, to Europe and to the globe," Hu said. "Sri Lanka will be well positioned to play a strategic role in the one-belt-one-road initiative of the government of the People's Republic of China," he added.

The transaction is part of Chinese President Xi Jinping's strategic foreign policy initiative, which aims to strengthen China's land and sea trade routes.

Signed in 2016, the original deal sparked public anger as Chinese control of the port – including a plan for a 99-year lease of 15,000 acres (23 sq miles) to develop an industrial zone next door - raised fears the port could be used for Chinese naval vessels.

"We have addressed geopolitical concerns," the minister said at the signing ceremony in the capital, Colombo. "China has accepted that everything in this agreement will operate under Sri Lankan law."

Samarasinghe said the port, which is 240 kilometres (150 miles) south of Colombo, will not be a military base for any country.

President Maithripala Sirisena came to power in January 2015 promising to loosen ties with China after a decade of funding by Beijing under his predecessor. He initially suspended all big Chinese-funded projects, but these have resumed after changes to the contracts made with the previous government.

Fishermen sort their nets at the Hambantota harbor, close to the new Hambantota harbor
Fishermen sort their nets at the Hambantota harbor, close to the new Hambantota harborImage: AP

India, Japan and US nervous

The minister said that several countries had raised fears about the sale.

India has expressed concerns about China's infrastructure moves into its traditional sphere of influence. Delhi skipped a May summit in Beijing that was attended by world leaders.

The US and Japan are also known to be concerned that China is gaining a foothold at the deep-sea port, which could give it a naval advantage in the Indian Ocean.

Europe cautious as China buys up foreign companies

jbh/jm (AFP, Reuters)