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Sri Lanka pins hopes on China-funded port, as India watches

Sri Lanka is preparing to open the first phase of a China-funded, $ 1.5 billion port project that has fuelled Indian concerns over strategic Chinese investment in South Asia.

world Updated: Aug 12, 2010 19:01 IST

Sri Lanka is preparing to open the first phase of a China-funded, $ 1.5 billion port project that has fuelled Indian concerns over strategic Chinese investment in South Asia.

Sitting along the ancient "Silk Road" trading route and one of the world's busiest shipping lanes, the Hambantota port is intended to be the engine that will drive Sri Lanka's economic recovery after decades of ethnic conflict.

Partly funded by a soft Chinese loan of 300 million dollars, the first phase of the deep-sea port is scheduled to open in November.

The government hopes that by the time the second phase is completed in 2014, the port on the island's southern tip will have become a magnet for foreign investment in transshipment and spin-off business opportunities.

Sri Lanka Ports Authority chairman Priyath Wickrama said Hambantota would initially aim to service around 2,500 of the 70,000 cargo ships that ply the East-West sea lane every year.

"In about 10 years, with the second phase coming on stream, we aim to handle about 8,000 ships a year," he said.

Sri Lanka's neighbour and biggest trading partner, India, is believed to be concerned that Hambantota is part of a Chinese policy to throw a "string of pearls" geographical circle of influence around India.

China is also developing port facilities in Bangladesh, Myanmar and Pakistan, and has plans for rail projects in Nepal.

"Indian threat perceptions have grown as China has become more active in South Asia," said Eurasia Group's Asia analyst, Maria Kuusisto.

"New Delhi sees this Chinese manoeuvring as an incursion into its historic sphere of influence, and is consequently trying to outbid the Chinese for strategically important infrastructure projects," she said.

Last year, China overtook Japan as Sri Lanka's biggest lender, providing $ 1.2 billion in loans.

And China has emerged as the partner of choice for big projects in Hambantota, including a new airport, railway, roads and a conference hall.

"The berths for cargo and oil are coming up nicely and the port will handle its first ship mid-November," Wickrama told AFP during an inspection tour of the port, some 240 kilometres (150 miles) south of the capital Colombo.

Colombo is currently Sri Lanka's main port, handing more than 6,000 ships a year.

Some 30 investors from China, Singapore, India, the Middle East and major shipping lines have already sent in investment proposals for Hambantota that range from ship building, cement grinding and fertiliser bagging to warehousing and vehicle transshipment.

Investors can lease land, enter into an equity-sharing joint venture with the Ports Authority or pay royalties, Wickrama said.