By Charles Haviland BBC News, Colombo

	A hotel project by CATIC near Galle Face Green has recently been cancelled

The deal came as reports said the company, China National Aero Technology Import and Export Corporation or CATIC, might have been planning to sue the Sri Lankan government.

The Chinese state-owned CATIC is an exporter of military planes to Sri Lanka but also has other interests.

It is now secured a 90 million-dollar contract to relocate and develop a university department near the capital.

The cabinet approved the deal just nine days after the government withdrew a contract for the same company to build a luxury city hotel complex worth 500 million dollars on prime seafront land.

Hotel project

It hurriedly rescinded an agreement to sell the land outright, saying that in fact only leases were acceptable – despite an adjacent land sale to the Hong Kong-based Shangri-La hotel group having gone through.

The government now appears anxious to placate the Chinese conglomerate at a time when Chinese loans are funding many big building projects here including roads, railways, a port and an airport.

The main opposition party campaigned hard against the sale of the seafront land, and alleges that someone must be benefiting from the deals with Chinese firms.

The government accuses the opposition of discouraging investment.

But the Sri Lanka-based Sunday Times newspaper has accused the government of making business decisions “without any rational thought”, saying that as a result, no one is rushing to invest in Sri Lanka.

Meanwhile, government supporters have stormed and occupied the sugar factory in Sevanagala which is owned by an opposition politician but which the government has vowed to nationalise under a controversial new bill.