China pulls out of $392 million Sri Lanka Port project

China’s state-owned China Merchants Port Holdings has decided to withdraw from a $392 million logistics centre project at Sri Lanka’s Colombo Port, dealing a setback to one of the country’s major planned foreign investments following its devastating economic crisis.

The Sri Lanka Ports Authority confirmed that the project would no longer proceed under the existing partnership, although efforts to find a new investor would continue.

The project, announced in 2023, aimed to establish a modern logistics centre covering approximately 150,000 square metres at Colombo Port. The facility was expected to provide cargo handling, storage and other commercial services to strengthen the port’s role as a regional shipping hub.

Under the original arrangement, China Merchants Port Holdings was to hold a 70 per cent stake, while the Sri Lanka Ports Authority and local construction company Access Engineering would each own 15 per cent.

According to Agence France-Presse (AFP), the decision followed a review of external circumstances, commercial considerations and the interests of the project partners.

In a statement to the Hong Kong Stock Exchange, the Chinese company also said ending the joint venture would be in the interests of all parties.

The withdrawal is significant because the project was the first major foreign investment announced after Sri Lanka plunged into a severe economic crisis in April 2022. The country subsequently faced serious financial difficulties, including debt repayment pressures and shortages of essential supplies.

However, the decision does not signal a complete Chinese retreat from Sri Lanka’s port sector.

China Merchants Port Holdings continues to operate a deep-water container terminal at Colombo Port, built at a cost of approximately $500 million. The company also plays a role in managing Hambantota Port in southern Sri Lanka.

Hambantota has become a prominent example of the financial and political challenges surrounding major Chinese-backed infrastructure projects. Developed during former president Mahinda Rajapaksa’s administration with substantial borrowing, the port was later leased to China for 99 years as Sri Lanka struggled with debt repayment.

The latest withdrawal raises fresh questions about the future of the Colombo logistics centre and the challenges of attracting large-scale foreign investment.

Sri Lankan port authorities have maintained that the project remains on the table and that a replacement investor will be sought to develop the planned facilities.

However, no new investor, revised project cost or construction timeline has been announced.

The next challenge for Sri Lanka will be securing a partner capable of financing the development and delivering the infrastructure needed to expand Colombo Port’s commercial capacity.