Nicaragua’s Chinese Canal: Behind the Audacious $40 Billion Bid to Build a Rival Panama Canal

The Nicaraguan government muscled into law a 50-year concession allowing a Chinese company to handle the Great Nicaragua Canal megaproject, which is estimated to cost $40 billion

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Esteban Felix / AP

People push a boat into Lake Nicaragua, near Granada, Nicaragua, on June 7, 2013

More than 150 years ago, U.S. businessmen and politicians plotted the creation of a canal through the isthmus nation of Nicaragua that would link the Pacific and Atlantic Oceans. Now, according to Nicaraguan officials, what Americans like the powerful Vanderbilt family (and later former President Theodore Roosevelt) once dreamed, a Chinese consortium intends to make real.

On Thursday afternoon, the Nicaraguan government of President Daniel Ortega muscled into law a sensational 50-year concession that grants a little-known private Chinese company the authority to “design, develop, engineer, finance, construct, possess, operate, maintain and administer” the Great Nicaragua Canal megaproject. Estimated to cost $40 billion, it includes an interoceanic canal, an oil pipeline, an interoceanic “dry canal” freight railroad, two deepwater ports, two international airports and a series of free-trade zones along the canal route. The canal would be at least twice as long as the Panama Canal and wider in order to accommodate the newest generation of supertankers. An executive representing the enterprise suggested that it would be the biggest such project in Latin American history.

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No information has been made public about the proposed route of the Nicaragua Canal, the timeline for its construction, its potential environmental impact on the country’s delicate tropical ecosystem, or who will finance the project. Ortega’s Sandinista government insists the project will be a game changer for the country and the region. Paul Oquist, Ortega’s private adviser for national development policies, says the canal project will allow Nicaragua to double its economic growth to double digits and triple the country’s formal employment within the next four years. The government claims the project would eradicate poverty in the hemisphere’s second poorest country and would be nothing short of a “social and economic revolution,” says Oquist.

The bill authorizing the concession was presented to Nicaragua’s Congress last week, just ahead of the meeting in California between President Barack Obama and his Chinese counterpart, Xi Jinping. Before arriving in the U.S., Xi had stopped at three countries in Latin America, including Mexico, lavishing the Middle Kingdom’s largesse with new construction contracts, energy deals and trade pacts. China is the fastest-growing investor in Latin America, with its state companies invested in billion-dollar projects across a part of the world that Washington has long seen as its backyard. The increasing size of China’s western-hemispheric footprint recently spurred the Obama Administration into diplomatic action. “The bottom line is that there has been a change in the environment of the Americas,” says Carl Meacham, director of the Americas program at the Center for Strategic and International Studies in Washington. “Now the U.S. has to compete.”

But Nicaragua is an unlikely beachhead for Beijing’s expanding geopolitical clout. The Central American nation is among a handful of countries that maintains diplomatic ties with Taiwan, which Beijing still considers a renegade province. The Chinese company that was granted the generous concession, HK Nicaragua Canal Development Investment (HKND-Group) — an enigmatic firm that was recently registered in the Cayman Islands and supposedly based in Hong Kong — doesn’t appear to have any direct ties to the Chinese government, nor any international experience managing infrastructure projects. Nor are there any immediate signs of Nicaragua following what Costa Rica did in 2007 and breaking ties with Taiwan in favor of new benefactors from the Chinese mainland.

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The company’s CEO, Wang Jing, is a Chinese telecom tycoon. On the website of his flagship cell-phone company Xinwei, Wang says his wireless company, which consequentially just received a full-service telecom concession to operate in Nicaragua, is dedicated to the “progress of the world civilization” and “will become a legend!” But other than his official bio, little is known about Wang. He has visited Nicaragua only once— a stiff, no-smiles photo op with President Ortega last September.

“Why Wang Jing? I really don’t know, but I would guess that no one else was willing to fund a project of this sort,” says Margaret Myers, director of the China and Latin America program at the Inter-American Dialogue. Myers says Wang is rumored to have government connections, but so far there is no indication that the Chinese government is interested in the project. “I haven’t seen the project referenced at all in Chinese official or social media,” she says.

At present, it’s unclear where a $40 billion investment — an amount greater than four times Nicaragua’s GDP — will come from. Ortega has been eagerly pitching the project to every government that will listen — from the Americas to Europe, Asia and the Middle East. But with few technical details to disclose, the pitch so far has rung hollow. HKND says it too hopes to attract additional funding from investors elsewhere.

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Money isn’t the only concern. Environmentalists — including Ortega’s top environmental adviser — warn that the project could have disastrous consequences for the country’s water supply, including the massive Lake Nicaragua, considered a key source of drinking water for Central America in decades to come. Meanwhile, José Adan Aguerri, president of Nicaragua’s largest business chamber, warns that private-property owners will be “defenseless” against expropriations by the canal project. Until the canal’s route is established, everyone owning property in the indeterminately large canal zone that’s been penciled across the middle of the country is at risk of being expropriated — a legal uncertainty that may bring an instant chill to Nicaragua’s investment climate.

Civil-society groups also worry that Ortega’s Sandinista politburo and their new Chinese business partners intend to essentially create a privatized enclave in the middle of Nicaragua — one that will be governed for the next 50 to 100 years by their self-styled Canal Commission, regardless of which government is in power in Managua. “Nicaragua is not for sale. Nicaragua belongs to all Nicaraguans and is not the private property of Ortega and his family,” reads a declaration signed by 21 civil-society organizations.

But as questions surround the venture, so does cynicism. Nicaragua has long sought to leverage its unique geographic position, but political turmoil and shallow commitments have doomed more than a century of mooted projects to failure. It’s also worth noting the current Chinese backers won’t have the same drive and hubris as the Americans who built the Panama Canal — construction started there in 1904 only after Washington had meddled with regional politics and sent in a warship bristling with armed marines. “I’m skeptical,” says Eric Farnsworth, vice president of the Council of the Americas in Washington, referring to the proposed Nicaraguan megaproject. “There’s already a canal. The expense is going to be significant and success is far from guaranteed.”

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