COLOMBO (AFP) - Sri Lanka on Saturday (July 29) sealed a billion-dollar deal to let a Chinese state firm take over a loss-making port in a move that worries many, including its giant neighbour India.
The long-delayed US$1.1 billion (S$1.49 billion) sale of a 70 per cent stake in Hambantota port, which straddles the world's busiest east-west shipping route, was confirmed by Sri Lanka's Ports Minister Mahinda Samarasinghe.
The government used tough laws against industrial action to stop workers going on strike this week to oppose the sale to China Merchants Port Holdings.
India is nervous about China's infrastructure moves into its traditional sphere of influence.
"We have addressed geo-political concerns," the minister said at a signing ceremony in Colombo. "China has accepted that everything in this agreement will operate under Sri Lankan law." Negotiations over the deal were held up for months amid opposition from trade unions and political parties.
The minister said this week that several countries had raised fears about the sale. India and the United States are known to be concerned that China getting a foothold at the deep-sea port could give it a military naval advantage in the Indian Ocean.
Samarasinghe said that Hambantota, 240 kilometres south of Colombo, will not be a military base for any country.
China Merchants built and operates Sri Lanka's only major deep-sea terminal in Colombo, which can accommodate the world's largest container carriers.
Executive vice president Hu Jianhua said the company wanted to make Hambantota the gateway to expanding economies in South Asia and Africa where it has similar port operations.
"(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," Hu said.
Sri Lanka has signed up to President Xi Jinping's signature foreign policy initiative, which aims to strengthen China's land and sea trade routes.
India has snubbed Xi's plan and skipped a May summit in Beijing that was attended by world leaders.
Samarasinghe said Hambantota will be purely a commercial port, but any routine port calls by foreign navies will be regulated by Sri Lanka as in the case with the Colombo port.
Two Chinese submarines called at Colombo in 2014 during the final year of former president Mahinda Rajapakse's tenure, angering New Delhi.
The new government of President Maithripala Sirisena turned down a Chinese request in May for another submarine call at Colombo shortly after Indian Prime Minister Narendra Modi visited the island.
Sirisena came to power in January 2015 promising to loosen ties with China after a decade of hefty funding by Beijing under his predecessor.
He suspended all big ticket Chinese funded projects amid allegations of corruption. These have resumed after modifications to the contracts with the previous government.
Apart from the US$1.12 billion sale price, the Chinese firm will invest another US$600 million to develop Hambantota, Samarasinghe said.
The port has racked up losses of US$300 million in the last six years, according to official figures. In addition, the government pays more than US$60 million annually to service the port's debt.