Colombo, February 11

Just over a year after a new leader was elected and Sri Lanka’s business ties with China came under close scrutiny, Colombo is reversing course by resuming a stalled port project and naming Beijing as the front runner for a new special economic zone (SEZ).

India is nervous about losing influence over the island nation off its southern tip, while China’s push into the Indian Ocean, and the possibility of dual purpose civilian-military facilities in Sri Lanka, are raising alarm further afield.

The ouster of president Mahinda Rajapaksa, who steered Sri Lanka towards China until 2015, was a setback for ties, as his successor reviewed projects to check if they were fair and legal.

Now Maithripala Sirisena’s government, faced with falling foreign reserves, a balance of payments crunch and few, if any, alternative investors, is heading back into Beijing’s embrace, albeit on better terms than before.

“The stance on China has completely changed,” Cabinet Spokesman Rajitha Senaratne told Reuters. “Who else is going to bring us money, given tight conditions in the west?”

Most of the focus has been on the $1.4 billion port city China wants to build in the commercial capital, Colombo, where cranes and diggers have sat idle for months.

But according to International Trade Minister Malik Samarawickrama, Chinese investors have also expressed interest in a SEZ in Hambantota, southern Sri Lanka, where a $1.7 billion seaport and airport built by the Chinese are operating at a fraction of capacity.

“We will agree to that. They will invest their own money. That’s the way to go forward,” Samarawickrama told Reuters.

Beijing’s rehabilitation does not mean the door is closed to other potential investors in Sri Lanka’s $79 billion economy.