Sri Lanka’s Silk Road project delayed

COLOMBO: China will delay a planned $1.1 billion investment in a port on its modern-day "Silk Road" until Sri Lanka clears legal and political obstacles to a related project, sources familiar with the talks said, piling more pressure on the island nation.

Heavily indebted Sri Lanka needs the money, but payment for China´s interests in Hambantota port could be held up by several weeks or months, the sources added.

After signing an agreement last December, state-run China Merchants Port Holdings had been expected to buy an 80 percent stake in the southern port before an initial target date of Jan. 7. Beijing also has a separate understanding with Colombo to develop a 15,000-acre industrial zone in the same area, a deal that Sri Lanka was hoping to finalize later.

But Colombo´s plans to sell the stake and acquire land for the industrial zone have run into stiff domestic opposition, backed by trade unions and former President Mahinda Rajapaksa. A legislator close to Rajapaksa is also challenging the government´s plans in court.

Now Beijing has linked the signing of the port deal with an agreement to develop the industrial zone, saying it would hold off on both until Colombo resolved domestic issues, officials on both sides of the talks said.

"China has said that when they start the port, they want the land also," Sri Lankan Finance Minister Ravi Karunanayake said, although he added that China had not made it a precondition.

Yi Xianliang, Chinese ambassador to Sri Lanka, said the two deals were related. "If we just have the port and no industrial zone, what is the use of the port? So you must have the port and you must have the industrial zone," he said.