Sri Lanka gives China first exclusive investment zone

COLOMBO (Reuters) - Sri Lanka has granted China an exclusive economic zone in its first post-war effort to attract more investment from Asia’s largest economy, the country’s investment promotion agency said on Wednesday.

Hong Kong-based conglomerate Huichen Investment Holdings Ltd. will invest $28 million to develop the zone located in Mirigama, which is 55 km (34 miles) from the main port in the capital Colombo and 40 km from the international airport.

“The Chinese company will establish, develop, and market the new special economic zone,” A.M.C. Kulasekera, BOI deputy director general, said in a statement.

China has long had ties with Sri Lanka and was a steadfast ally in the last stage of a 25-year war with the Tamil Tigers, using diplomatic heft at the United Nations to keep a Western-led move to impose a truce off the Security Council agenda.

It also sold weapons to the government as it built up its armed forces to defeat the separatist rebels.

China’s deepening ties with Colombo have stoked concern in the island’s giant neighbour India which fears it is part of Beijing’s policy of strategic encirclement by building close relations with all its neighbours.

Sri Lanka declared total victory on May 18 in a war that has been a drag on its $40 billion economy for decades. It is expecting foreign direct investment this year to surpass the record $889 million seen in 2008.

Already, Chinese firms have built or are building similar turnkey investment zones in African countries, including Ethiopia and Zambia, to house manufacturing and other businesses, besides their mainstay mineral and resource extraction firms.

Huichen has interests in coal, metal and gem mining mostly in Mongolia and Africa, and also in manufacturing of agricultural machinery, buses, cars and motorcycles, according to its English-language web site.

It also sells finished gemstones, and is preparing to add Sri Lankan sapphire and opal to its offerings, the web site said.

Already, China’s government and Chinese firms are taking part in two major projects, building the Hambantota port in southern Sri Lanka and the financing of a coal-fired electricity plant.

To build the second and third phases of the 900 megawatt coal-fired Norochcholai power plant, China offered an $891 million loan with a tenure of 20 years at 2 percent, state media reported this week.

China’s Exim bank also gave $360 million to finance the first phase of the Hambantota port, in which Chinese firms are building the harbour and fuel oil bunkering terminals to service ships plying the busy sea lanes at the Indian Ocean island’s south.