Sri Lanka is indeed such an economy, situated strategically along vital shipping routes linking East Asia to Middle East and Europe. A long history of cooperation between China and Sri Lanka gathered pace over the last decade whereby China has emerged as Sri Lanka’s largest source of development finance for key infrastructure projects and is also emerging as a primary source of FDI. Relations between the two countries, however, have not been withoutchallenges, particularly in view of geo-political interests in the Indian Ocean and the regional presence of Sri Lanka’s immediate neighbour, India, as an emerging regional power of its own. This paper examines some of these developments and draws some lessons to be learnt in China’s quest to build a Community of Common Destiny with its neighbours in the Asian region.