The port was signed over to Beijing on a 99-year lease because Sri Lanka cannot repay Chinese loans it took to build the port in the first place

Sri Lanka has formally handed control of a strategic port on its southern coast to China as part of a 99-year lease agreement.

Under a US$1.1 billion (Dh4bn) deal that the Sri Lankan political opposition and trade unions have called a "sell-out" move, Chinese firms now hold a 70 per cent stake in Hambantota port. 

The $1.3bn port was built with loans from a Chinese state-owned bank and opened in 2010. But the Sri Lankan government has struggled to repay the debt, with the project incurring heavy losses. Along with loans taken out for other infrastructure development projects, Colombo now owes China a total of $8bn. 

"With [the Hambantota port] agreement we have started to pay back the loans," Sri Lankan prime minster Ranil Wickremesinghe said during a handing-over ceremony in parliament on Saturday. "Hambantota will be converted to a major port in the Indian Ocean".

He added that the move would lead to economic development and promote tourism. Hambantota sits on one of the world's busiest marine routes, with much east-west trade passing through the Indian Ocean's sea lanes, but most ships bypass it and heads for the already well established harbour in Colombo, the Sri Lankan capital.

Chinese firms, under the state-controlled China Merchants Port Holdings company, now hold a majority stake in the port as part of a joint venture with the state-run Sri Lanka Port Authority. The lease agreement, which was signed in July, also includes wide-ranging tax concessions for the port and a 32-year tax break for the Chinese firms. For its part, China has paid Sri Lanka an initial sum of $300 million, with further payments to come, though exactly when is unclear.

International reaction to the port handover has focused on China's increasing geopolitical ambitions, while locals have voiced fears of a loss of Sri Lankan sovereignty. When the agreement was signed in July, local MP Namal Rajapaksa tweeted: "Government is playing geopolitics with national assets? #stopselling SL"

Also on Twitter, Brahma Chellaney, an Indian author and political analyst, described the deal as "debt-trap diplomacy", saying Chinese loans are often given in exchange for strategically important physical assets which can be "collateralised".