Hambantota port was signed over to Beijing on a 99-year lease because Sri Lanka cannot repay Chinese loans it took out 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.