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China, India tussle for influence as Sri Lanka seeks investment

Situated almost in the middle of the Indian Ocean, there is no escaping Sri Lanka's centrality.

The country lies just a few nautical miles away from the super-busy east-west shipping route, through which an estimated 60,000 ships pass every year, carrying two-thirds of the world's oil and half of all container shipments.

Now, with Asia's economic rise, experts say Sri Lanka's location has become even more alluring. Not only are three Asian powers – China, Japan and India – playing dominant roles in the global economy at the same time for the first time, there are also increasingly attractive markets and trade opportunities in Asia.

"Sri Lanka is the pivotal point for a global grand strategy," R. Hariharan, a retired Indian army colonel and specialist in South Asian geopolitics, told CNBC. "Sri Lanka's geography gives it an advantage disproportionate to its size."

The small island nation with a population of 22 million has been rediscovering its strategic location for the past few years as it comes out of a 26-year civil war that depleted government resources and held back development. As Sri Lanka looks for assistance to reboot its economy, a largely two-way tussle for influence in the country and, in turn, the region is on.

China, India tussle

Activists demonstrate in Colombo in March 2015 over the $1.4B Chinese-funded Port City project, which began construction in 2014 despite claims of the sea reclamation process would cause environmental damage.Ishara S. Kodikara | Getty Images

China has identified the tear-drop shaped island as a key point on the Maritime Silk Road, as it plans to build infrastructure along this ancient trade route that extends from China to Africa.

Sri Lanka also holds an attraction for both India and groups that would like access to India. Asia's third largest economy is within "artillery range" of Sri Lanka, situated some 30 kilometers (19 miles) to the north of the island.

"We are at the doorstep of a dynamic market," Anushka Wijesinha, chief economist at Ceylon Chamber of Commerce, said. "The Indian middle class market alone is set to be 10 times our entire population. Imagine the opportunities there."

A tricky balancing act

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