Sri Lanka gives China first exclusive investment zone

By Shihar Aneez

COLOMBO, July 1 (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.