Fortifying its campaign against China, U.S. backs Adani Port in Sri Lanka

China has been long seated in the dominant position when it comes to South Asia – both for manufacturing and supply chain. It is also a fact that the United States has been taking several measures to contain the former’s influence in the region as well as globally. Most recently, and in a significant move, the U.S. has pledged USD 553 million in financing for a port terminal development in Sri Lanka’s capital Colombo. Billionaire Gautam Adani is spearheading the project and has garnered attention from New Delhi and Washington.

This financial backing from the International Development Finance Corp. (DFC) signifies a renewed effort by the US and India to reduce China’s sway over Sri Lanka.

The investment has an interesting backdrop – Sri Lanka’s heavy borrowing to fund Chinese port and highway projects, leading to an economic crisis in the country; and the allegations made not-so-long ago by Hindenburg Research on the Adani Group, which significantly impacted the conglomerate’s market value.

The ambitious project, known as the West Container Terminal in Colombo, is the largest infrastructure investment in Asia by a U.S. government agency and ranks among the most substantial globally. Its completion is expected to bolster Sri Lanka’s economic growth and strengthen its regional economic integration, particularly with India.

The investment in Sri Lanka is part of the broader trend of increased DFC investments, which reached USD 9.3 billion in 2023. With this investment, the U.S. further solidifies its commitment to engage in development projects across the Indo-Pacific.

Sri Lanka’s Colombo port, one of the busiest in the Indian Ocean, is strategically located along international shipping routes, with nearly half of all container ships passing through its waters. However, it has been operating at over 90% capacity for the last two years, necessitating the development of new capacity.

In the contentious global arena context, this US funding serves multiple purposes. It aims to promote prosperity in Sri Lanka without adding to the nation’s sovereign debt burden while strengthening the position of US allies in the region.

The development of the port terminal in Colombo and the US’s growing involvement in similar projects signify a shifting geopolitical landscape with economic and strategic implications for South Asia and the Indo-Pacific region.

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