US Pours $553 Million into Adani Port in Sri Lanka, A Strategic Move to Counter China’s Growing Influence

China had invested about $2.2 billion in Sri Lanka as of the end of last year, its biggest foreign direct investor.

The US Commits $553 Million to Adani Port Project in Sri Lanka, Countering China’s Influence in South Asia

The United States is allocating $553 million in financing for a major port terminal in Colombo, Sri Lanka, which is being developed by billionaire Gautam Adani. This move reflects the joint efforts of the US and India to counter China’s increasing influence in the South Asian region.

The funding provided by the International Development Finance Corp. signals a renewed determination by the US and India to reduce Beijing’s dominance in Sri Lanka, especially after the country heavily borrowed to fund various Chinese port and highway projects before facing an economic crisis last year. For Mr. Adani, this investment from the US could serve as a mark of credibility, potentially mitigating the impact of fraud allegations by short seller Hindenburg Research that significantly impacted the conglomerate’s market value earlier this year.

The deepwater West Container Terminal in Colombo marks the largest infrastructure investment by a US government agency in Asia and ranks among its most substantial global investments. This project is expected to not only boost Sri Lanka’s economic growth but also enhance its regional economic integration, particularly with India, a key partner for both nations, as emphasized by the DFC in its statement.

In a worldwide push to enhance development projects, the International Development Finance Corp. (DFC) has committed substantial resources, totaling $9.3 billion in 2023. Notably, the US is directing its attention to bolstering engagement in development initiatives across the Indo-Pacific region, exemplified by the funding for the Sri Lanka port.

China’s substantial investment of approximately $2.2 billion in Sri Lanka as of the previous year positioned it as the nation’s most significant foreign direct investor. Publicly, US officials have expressed concerns over the sustainability of Sri Lanka’s underutilized southern Hambantota port, categorizing it as part of China’s “debt-trap diplomacy.”

DFC will collaborate with sponsors John Keells Holdings Plc and Adani Ports & Special Economic Zone Ltd., capitalizing on their local expertise and commitment to high-quality standards.

Colombo’s port, situated along key international shipping routes, stands as one of the busiest in the Indian Ocean, with nearly half of all container ships passing through its waters. Despite consistently operating at over 90% capacity for the past two years, there is a need for additional capacity, as indicated by the DFC.

This US funding carries broader implications, serving as an endorsement for the Adani Group, which has faced allegations of corporate fraud from Hindenburg Research and various media investigations, allegations that have been consistently refuted by the conglomerate.

DFC, initially launched under the Trump administration as a development finance agency, is dedicated to assisting developing nations while furthering US foreign policy goals. Overcoming early challenges caused by the COVID-19 pandemic, the agency has accelerated its funding efforts in recent years, effectively narrowing the development spending gap in comparison to China’s prominent Belt and Road Initiative. This insight emerges from a new report by the AidData institute at William & Mary in Virginia.

Scott Nathan, CEO of DFC, emphasizes that the funding will promote “greater prosperity for Sri Lanka—without adding to sovereign debt—while simultaneously strengthening the positions of our allies across the region.”