China’s increasing influence in the Indian Ocean region, the United States has announced an investment of $553 million in a Adani port terminal project in Sri Lanka’s capital, Colombo. This development is seen as part of a strategy by the US and India to curtail China’s growing presence in South Asia, particularly in Sri Lanka, where China has been a major investor in various infrastructure projects.
The funding for the port terminal project is coming from the International Development Finance Corporation (DFC), a US government agency.
This investment is not only for its size but also because it marks the first time that a US government agency is funding an Adani project.
Adani Ports and Special Economic Zone Ltd., led by billionaire Gautam Adani, is developing the deepwater West Container Terminal in Colombo as a joint venture with Sri Lanka’s John Keells Holdings Plc and the Sri Lanka Ports Authority.
The DFC’s decision to invest in this project highlights the renewed efforts of the United States and India to counter China’s influence in Sri Lanka and the Indian Ocean region.
Sri Lanka, like many other countries, had previously borrowed heavily from China for various infrastructure projects, including ports and highways.
However, this reliance on Chinese financing led to economic challenges for Sri Lanka, which eventually resulted in a need for external support.
Colombo’s port is one of the busiest in the Indian Ocean, primarily due to its strategic location along international shipping routes.
Nearly half of all container ships pass through its waters. The port has been operating at over 90% utilization for the past two years, indicating a need for additional capacity.
The new terminal, known as the Colombo West International Terminal, aims to address this issue and boost Sri Lanka’s economic growth.
The DFC was established under the Trump administration as a development finance agency with the dual goal of aiding developing nations and advancing US foreign policy objectives.
While the agency faced initial challenges in staking out projects worldwide due to the COVID-19 pandemic, its funding has accelerated in recent years.
The DFC aims to close the development spending gap between the United States and China’s Belt and Road Initiative, which has been instrumental in China’s influence in numerous countries through infrastructure investments.
China has emerged as a foreign direct investor in Sri Lanka, having invested approximately $2.2 billion in the island nation by the end of the previous year.
However, this level of Chinese investment has raised concerns, with some US officials criticizing what they refer to as China’s “debt-trap diplomacy.”
The term implies that China’s financial assistance to other countries may lead to a situation where these nations become heavily indebted to China and, in turn, more to Chinese influence.
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The US investment in the Adani port project also carries for the Adani Group, which has faced allegations of corporate fraud by short seller Hindenburg Research, resulting in a loss of market value.
This endorsement from the US government is seen as a vote of confidence in the Adani Group’s capabilities and the legitimacy of the port project.
This investment by the US in Sri Lanka’s port terminal project is part of a effort to counterbalance China’s influence in the Indian Ocean region.
The Indian Ocean is a maritime domain, and control over key ports and shipping routes has geopolitical implications.
The US and India view Sri Lanka as a partner in this effort aiming to strengthen its economic ties with both countries and reduce its dependence on Chinese financing.
Sri Lanka has been struggling with severe economic challenges, including a financial crisis that has been described as the worst in over 70 years.
The country’s economy contracted by 7.8% in 2022, and foreign reserves reached record lows. The US investment is expected to provide much-needed economic support and contribute to Sri Lanka’s recovery.
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