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Sri Lanka Hails Dawn of New Chapter in Wake of Huge BRI Investment

Massive Belt and Road-related Chinese investment looks set to transform Sri Lanka's shipping and industrial sectors.

Photo: The Port of Hambantota: A development seen as key to the joint prosperity of China and Sri Lanka.
The Port of Hambantota: A development seen as key to the joint prosperity of China and Sri Lanka.
Photo: The Port of Hambantota: A development seen as key to the joint prosperity of China and Sri Lanka.
The Port of Hambantota: A development seen as key to the joint prosperity of China and Sri Lanka.

The official launch of the Sri Lanka-China Logistics and Industrial Zone earlier this month – a development backed by substantial Chinese investment under the terms of the Belt and Road Initiative (BRI) framework – is set to provide a substantial boost to Sri Lanka's shipping and industrial sectors. In particular, it is expected to transform the fortunes of the Port of Hambantota, Sri Lanka's second-largest marine freight handling facility.

Although work on the second phase of the port's development was completed in December 2011, it has struggled to establish itself as a trans-shipment destination. Set on Sri Lanka's southern coast, the deep-water port has the capacity to handle the largest container ships and oil tankers, facilities seen as essential if the BRI – China's ambitious global infrastructure and trade development programme – is to be successfully implemented. It is now hoped that this latest round of China-led investments will see the facility firmly positioned as one of the region's key import/export hubs and as a primary refuelling point for the global marine freight trade.

In line with this, in July this year it was announced that China Merchants Port Holdings, a state-owned port, cargo and logistics conglomerate, would invest US$1.12 billion in the Hambantota International Port Group (HIPG), the operating company behind the Sri Lankan port. In return, the company acquired an 85% stake in HIPG, with the Sri Lanka Ports Authority retaining the remaining 15%.

In addition, China Merchants was granted a 99-year concession, allowing it to exclusively develop and manage the port, as well as an adjacent 11 sq km industrial zone, while also taking over the day-to-day running of its commercial operations. This is the second Sri Lankan port to come under the control of China Merchants, China's largest port owner and operator, with the company also managing the Colombo container port on the country's west coast.

With the details of the administrational handover process set to be released in early December, the Hambantota Port deal is said to be hugely significant in terms of China's aspirations in the region. Sri Lanka's prime Indian Ocean location positions it as one of BRI's key hubs, while its proximity to India's south-east coast sees it ideally situated to function as a container-shipping nexus, providing an essential link between the industrial and consumer markets of Southeast Asia, South Asia, Africa and the Middle East. The busy shipping lanes running along its shoreline also act as the primary energy supply conduits between the Suez Canal and the Straits of Malacca.

The conclusion of the deal is also a timely one, coming as Sri Lanka and China inch closer to finalising a Free Trade Agreement that has been on the cards since 2014. In terms of the benefits to Sri Lanka, the signing of the China FTA – in conjunction with a similar agreement currently being negotiated with Singapore – could see the country's annual volume of duty free imports rising from its current level of 51% to 75%.

Hailing this new period of co-operation between the two countries, Ranil Wickremesinghe, the Sri Lankan Prime Minister, said: "This is the beginning of a new chapter in the Indian Ocean, one that will transform Sri Lanka into an important trading and logistics hub, as well as key transit point for China.

"We are already in discussions with regard to the construction of a new oil refinery, while additional investors are also being sought for the Sri Lanka-China Logistics and Industrial Zone. In particular, we are keen to find partners in the steel, minerals, real-estate, medical and educational sectors."

Geoff de Freitas, Special Correspondent, Colombo

Content provided by Picture: HKTDC Research
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