HAMBANTOTA, Sri Lanka—When the Indian Ocean tsunami pulverized much of this town 10 years ago, locals wondered if it would ever recover.
A decade later, a $1 billion port is being built and a $209 million airport has opened, along with a convention center and a cricket stadium for 25,000. A 10-story hospital is under construction near signs warning of wild peacocks.
Much of Sri Lanka’s resurgence since the tsunami that killed 35,000 people here has been with help from China.
Phase one of the Hambantota port, for instance, is 85% financed by the Export-Import Bank of China. A joint venture of Chinese companies will handle further expansion.
Hambantota’s airport also relied on Chinese assistance, as do a $500 million Colombo port expansion, new highways and rail links, a $1.4 billion landfill development near Colombo’s financial district and a $1.3 billion power plant.
The infusion of Chinese money reflects how Beijing has replaced Western-backed financial institutions in many projects in developing countries over the past decade. Chinese President Xi Jinping has upped the ante recently, pushing a $50 billion Asian Infrastructure Investment Bank and a $40 billion Chinese “Silk Road Fund.”
Many Sri Lankans say the cash is exactly what the country needs after decades of war drained its coffers.
Even though the economy has grown by more than 6% a year since the war with the Tamil Tigers ended, businesspeople say it is still sometimes hard to get cash from Western lenders, who demand highly detailed feasibility and environmental studies. Officials say some of China’s loans come with discounted interest rates.
“China just came and said, ‘Let’s get it done.’ And [things] got done,” said Ajit Gunewardene, deputy chairman of John Keells Holdings, a tourism and services conglomerate. He cited a highway from Sri Lanka’s main airport to central Colombo cutting travel times by half. It was envisioned in 1969 but languished until China offered financing after the tsunami, he said.
To others, China’s money is a potential curse, making Sri Lanka overly dependent on a rising power that could demand payback in unexpected ways. Some worry Beijing could force Sri Lanka to welcome Chinese military vessels at facilities China is helping build in Hambantota and Colombo.
Others are concerned over what they say is a lack of transparency in the loans and over what happens if Sri Lanka can’t repay them. They worry President Mahinda Rajapaksa is pushing some projects that don’t make economic sense to bolster his support ahead of elections next year, which Sri Lankan officials deny.
“It’s a very dangerous game we’re playing,” said Harsha de Silva, an opposition politician. “At the end of the day you give your pound of flesh.”
China’s support is also alarming India, which views greater Beijing involvement in Sri Lanka as a security risk, especially after a Chinese submarine surfaced at Colombo’s port this year.
“If these sorts of activities become more frequent, the Indian Ocean will become a familiar operating area for the Chinese Navy, bringing them much closer to the Indian peninsula,” said C. Uday Bhaskar, a retired Indian Navy commodore and director of the New Delhi-based Society for Policy Studies.
A China Foreign Ministry spokesman said its support for Sri Lanka is aimed at boosting commercial ties for “mutual benefit” and that speculation over military or other objectives is “groundless.”
In the first state visit to Sri Lanka by a Chinese head of state in 28 years, Mr. Xi in September visited the Colombo Port City Project being built by China Harbour Engineering Co. on landfill, with plans for a Formula One track and a 100-story skyscraper.
David Brewster, a researcher at Australian National University, said China probably sees a number of upsides to its Sri Lanka investments, even if some projects underperform. Sri Lanka could become a new base for Chinese manufacturing as costs in China rise, he said, while big projects there yields contracts for its state companies.
Military considerations can’t be ignored, he said. “There probably is some element of truth that they’re trying to leverage their investments into some broader strategic advantage,” he said.
Chinese money is certainly changing Hambantota, a sleepy outpost of about 25,000 people, which lost more than 1,500 in the tsunami. survivors were moved to concrete and corrugated-metal homes a few kilometers inland.
The money really started flowing after Mr. Rajapaksa, a local politician, became president in 2005 and Sri Lanka’s war ended. In addition to China, South Korea helped pay for the convention center; European donors also helped.
For now, many of the big, new projects appear to be underused. Stray dogs sleep in the road leading to the airport, which opened in 2013 and handles a half-dozen flights daily. It had only one car in the parking lot during a recent afternoon visit.
But it is central to ambitions of turning Hambantota into a tourist hub, as arrivals surge nationwide.
Hong Kong-based Shangri-La Hotels and Resorts is planning a resort with more than 300 rooms. Signs advertise a Hyatt Regency opening in 2016.
The cricket stadium, opened in 2011, hosted some matches in the Cricket World Cup that year.
But it is the sprawling port complex that is Hambantota’s centerpiece. Designed to be one of the biggest ports in Asia when fully built, it attracts 45 to 50 ships a month, said Sri Lanka Ports Authority engineer Chaminda Bandara, compared with about 350 at Colombo’s port.
The goal is to better leverage Sri Lanka’s location north of one of the world’s busiest shipping lanes. Officials want more traffic to stop in Hambantota to refuel or transfer goods for distribution across South Asia.
Chinese factories could also take advantage of local labor in an industrial zone being set up nearby.
The port doesn’t generate enough revenue to pay its debt obligations, Mr. Bandara said. Sri Lanka’s government is responsible for the difference.
That is not a problem, said Eraj Ravindra Fernando, the local mayor. There will be new jobs and “significant profits, massive profits,” he said.
For some families, the upsides remain to be seen. Locals displaced by the tsunami say they are grateful for the houses and land they got from the government and aid groups. But conditions are grim, with standing water in dirt roads and trash piles, and they now have to travel far to fish or work.
Benefits from Hambantota’s big developments “may not come to us,” said 42-year-old N.M. Salahuddin, a laborer, inside his house of concrete blocks painted aqua blue.
“But we hope it will come to our children.”
—Uditha Jayasinghe in Colombo, Niharika Mandhana in New Delhi and Lilian Lin in Beijing contributed to this article.