Sri Lanka cabinet suspends Chinese project on approval issue

COLOMBO (Reuters) - Sri Lanka suspended a $1.5 billion Chinese luxury real estate project in Colombo on Thursday until it obtains required government approvals, a move that risks a diplomatic row with its biggest foreign investor.

A warning sign is seen near the seafront construction site of a Chinese real estate project of a port city in Colombo March 5, 2015. REUTERS/Dinuka Liyanawatte

The new government, elected in January promising to end the corruption it said was rife, decided at a cabinet meeting to suspend the project critics have called a sweetheart deal between China and the previous administration.

The project, the biggest of several Chinese investments in Sri Lankan ports and infrastructure, involves a port on reclaimed land in the capital, complete with shopping malls, a water sports area, golf course, hotels, apartments and marinas.

Government spokesman Rajitha Senaratne said the China Communications Construction Co Ltd (CCCC) project had been launched “without relevant approvals from concerned institutions”. The government has said the deal was not transparent and did not meet environmental standards.

China’s Foreign Ministry said Sri Lanka had informed China of its decision, “stressing that the move was a suspension and not cancellation of the project”, spokeswoman Hua Chunying told reporters in Beijing.

“China will continue to pay close attention to how the situation develops,” she added.

The project has also raised security concerns in neighboring India, which has uneasy relations with China, because it appears to be part of a larger plan by Beijing to expand its presence and influence in the Indian Ocean region.

The project was to give the Chinese firm 108 hectares of land as payment, some of it outright and the rest on a 99-year lease, and that aspect of the deal worries India because many India-bound cargoes pass through Colombo.

China has said the Colombo port and another port under development in southern Sri Lanka were good for the country as tens of thousands of jobs would be created and millions of dollars of foreign direct investment would come in.

Earlier on Thursday, before the cabinet decision, the Chinese Foreign Ministry said it hoped Colombo would resolve the issue in a way that maintains the confidence of Chinese firms investing in Sri Lanka.

China has emerged as a major investor in the Indian Ocean island state, focusing on building ports and highways.

Sri Lanka had threatened legal action against the Chinese firm if it went ahead with work on the port project.

Additional reporting by Ben Blanchard in BEIJING; Editing by Sanjeev Miglani and Tom Heneghan