Nicaragua sets sights on building rival to Panama Canal with Chinese backing

August 07, 2014

THE ASAHI SHIMBUN

A Chinese telecom billionaire has joined forces with Nicaragua's famously anti-American president to construct a waterway between the Caribbean Sea and the Pacific Ocean to rival the Panama Canal.

The massive engineering undertaking would literally slice through Nicaragua and be large enough to accommodate the supertankers that are the hallmark of fleets around the world today.

The proposed channel in what is virtually America's backyard would dwarf the Panama Canal built a century ago under U.S. entrepreneurship.

The protagonists in the project are 41-year-old Wang Jing, who heads the Hong Kong Nicaragua Canal Development Investment Co. (HKND), and Nicaraguan President Daniel Ortega.

Total construction costs are estimated at 5 trillion yen ($49 billion), which is about five times Nicaragua's gross domestic product. Ortega views the project as offering one of the best chances to reduce poverty in his nation, as it will provide jobs to many workers.

Earlier this year, a group of Chinese individuals was spotted inspecting the area around Las Lajas River, considered a candidate site for the canal. The group traveled in military vehicles and helicopters as they photographed and surveyed the site. The members were guarded by more than 10 Nicaraguan military personnel.

And yet, there are doubts as to whether huge tankers could pass through any canal in the area. Outside of the rainy season, some parts of the riverbed are exposed. Also, horses graze along some of the shallow parts of the river.

At nearly 280 kilometers, the waterway would be about three times the length of the Panama Canal. Extensive construction work will be required for dredging and expanding the width of the river.

HKND's Wang made his reputation turning around the Xinwei Telecom Enterprise Group. Wang announced in June that basic surveying had been completed.

On July 7, HKND officials announced further details in Managua about the proposed canal that will cut through Lake Nicaragua. They said the canal would be 278 kilometers in length and that construction work is set to begin by the end of 2014. Completion is envisaged in December 2019.

Officials said research into the environmental effects of the project would continue and the results would be announced shortly.

At Xinwei headquarters in Beijing, Wang said, "The canal would allow for passage of ships with displacement of 400,000 tons. About 10 percent of global maritime transport will eventually pass through the canal. International trade will become greatly activated."

He added that funds for the project would come from around the world, but offered no elaboration.

Paul Oquist, a close adviser to Ortega, noted that HKND has close ties to banks and companies in China.

"Those ties will allow for the procurement of funds even if problems should arise in the cash flow," Oquist said.

The United States turned over control of the Panama Canal to Panama in 1999. However, Washington still retains some influence over the canal and has led the push to monitor possible smuggling of weapons and drugs.

The U.S. State Department has withheld comment on the Nicaragua canal project, which would make China hugely influential in Central America.

The Nicaraguan parliament granted HKND rights to manage and operate the canal for 50 years after it opens. The company would also have the option to extend that period for 50 years.

In all likelihood, the canal will only revert to Nicaraguan control a century after it begins operations.

HINTS OF OFFICIAL CHINESE INVOLVEMENT

Despite the massive scale of the project, Wang has taken a decidedly low-key approach.

He describes himself as "an ordinary businessman."

But he clearly has close ties to the Chinese Communist Party. A painting hanging in the reception room of his office featured a poem written by Mao Tse-tung. The badge Wang wears on his suit lapel is in the shape of the Chinese national flag.

Wang was only 37 when he became the leading shareholder of Xinwei, which at the time was a money-losing subsidiary of a state-run telecommunications company.

When Wang is asked about his background before taking over Xinwei, he pauses for a moment before saying: "I learned about financial expertise from an acquaintance in Hong Kong. I gradually accumulated funds after becoming involved in investment and mining operations."

Wang turned around Xinwei's operations and in 2012 it recorded a net profit of 2.1 billion yuan (33.6 billion yen).

Because of the rapid success he had in turning around Xinwei, rumors spread of his close political ties. However, Wang said, "I have no close relatives who hold high-ranking government posts."

With regard to the Nicaragua canal project, Wang said he had already invested $100 million. He said the funds mainly came from HKND and other companies he is affiliated with.

Although HKND has no experience in huge development projects, Wang said the company would form partnerships with major companies either in China or the West. Some of the companies he mentioned were a major dredging company based in Belgium as well as China Railway Construction Corp., which has played a key role in building China's railway network.

"That should clear away any concerns," he said.

Five of the seven members of the Communist Party's Central Politburo Standing Committee, including General Secretary Xi Jinping and Premier Li Keqiang, have visited Xinwei to observe the way the business is operated.

Turning to the canal project once again, Wang said: "It is not related to politics, but is purely a business matter. It would be inconceivable to have the state give instructions or orders."

NICARAGUA'S ECONOMIC HOPES

In autumn 2013, a delegation of Nicaraguans numbering 20 or so visited China at the invitation of HKND. Among the participants were high-ranking officials of business groups as well as lawmakers.

One participant was Benjamin Lanzas, president of the Nicaraguan Chamber of Construction. Lanzas, 45, is also chairman of Nicaragua's largest construction company. In his office at company headquarters in Managua, Lanzas displays a photo of him with Wang taken in China.

The group visited the Three Gorges Dam, one of the world's largest, constructed in the upper reaches of the Yangtze River.

Wang told the group, "Nicaragua will soon possess a similar facility."

The final stop for the group was HKND headquarters in Hong Kong. At his office in a skyscraper with a panoramic view of the city, Wang said, "Within a few years, Nicaragua will have a similar metropolis."

Viewed from the Pacific side, the Nicaragua canal plan would first cross an isthmus some 20 km in length before cutting through Lake Nicaragua. The lake is about 80 km wide in an east-west direction. The canal would then connect to the Caribbean Sea, some 180 km away.

Early in the 20th century, after France abandoned plans to construct a canal in the region, the United States took over. At one point, Nicaragua was given consideration as a possible site. In the end, Panama was chosen because of volcanic activity in Nicaragua.

A major selling point for the Nicaragua canal will be passage of gigantic ships that cannot currently pass through the Panama Canal.

Nicaragua is also hoping to transform itself into a major trade base by constructing large ports on the Pacific and Atlantic coasts and building a railway line and pipeline to connect the two.

In mid-May, Oquist visited Japan to meet with captains of Japanese industry. During his visit, he met with 100 or so representatives of some of the biggest names in the Japanese corporate world.

He explained that construction of the canal would begin this year and that it would open in six years' time. The purpose of the meeting was to seek out companies willing to take part in the construction project or invest funds.

Oquist said, "The Nicaraguan government is constructing the huge canal to achieve economic growth, create jobs and reduce economic disparity."

In 2007, Panama began work to expand its canal, which helped push the nation's annual economic growth rate from around 8 percent to more than 10 percent.

The initial estimate for the expansion work on the Panama Canal was $5.25 billion (about 540 billion yen).

With a projected price tag of 5 trillion yen, construction of the Nicaragua canal is expected to have an even larger economic effect. One estimate is that economic growth in Nicaragua will double from an annual rate of 5 percent to more than 10 percent.

So how did HKND come to manage such a huge construction project?

Manuel Coronel Kautz, the president of the Nicaragua canal authority, said, "When we asked the Chinese government for cooperation, we were introduced to HKND."

Not everyone in Nicaragua supports the construction project.

Eliseo Nunez, 41, a lawmaker with the main opposition Independent Liberal Party, said: "It is dangerous to leave everything up to a Chinese company without holding public discussions. The government has been pushing this project too hard and there are problems with the contents of the contract with HKND."

Concerns have also been voiced about the environmental impact of routing the canal through Lake Nicaragua, which provides drinking water to residents of surrounding communities.

Activists fear that if seawater mixes with the fresh water, or if oil spills occur, the environmental impact would be huge.

Jorge Huete-Perez, 49, a professor of molecular biology at the University of Central America, has edited a scholarly volume about environmental problems that could arise with the canal's construction.

"Canal construction will lead to the loss of large amounts of tropical rain forest and water pollution in Lake Nicaragua will worsen if many ships pass through it," Huete-Perez said. "There are also doubts over whether more jobs will come to Nicaragua, since many are now working in the agricultural sector."

DOUBTS HELD IN U.S., PANAMA

Work to expand the Panama Canal will allow much larger ships to navigate the channel. Now, only ships up to 294 meters long and 32.3 meters wide can pass through. Once the construction work is completed, vessels up to 366 meters long and 49 meters wide will be able to use the canal.

However, the Nicaragua canal will be able to accommodate vessels up to 400 meters long and 60 meters wide.

Oquist tried to play down talk about a regional rivalry.

"It would be a win-win relationship because the Nicaragua canal would complement the Panama Canal by accommodating large ships that cannot pass through the Panama Canal," he said.

However, a high-ranking Panamanian government official was derisive about the Nicaragua canal project.

"It will be only a dream unless the Chinese government becomes seriously involved," he said.

To date, Beijing continues to deny any official involvement.

"There are no diplomatic relations between China and Nicaragua. (The contract between the Nicaraguan government and HKND) is the independent act of a company," said an official of the Chinese Foreign Ministry.

Those who believe the Chinese government will eventually support the Nicaragua canal project point to an incident that occurred in July 2013.

Panamanian authorities seized the North Korean cargo ship Chong Chon Gang that was trying to pass through the Panama Canal from Cuba. Under bags of sugar, inspectors found about 240 tons of weapons, including MiG-21 fighter jets.

According to a Panamanian government source, the U.S. government made the initial request that the Chong Chon Gang be searched. U.S. authorities asked for a thorough inspection, citing suspicions the cargo ship was smuggling weapons, illicit drugs and large amounts of U.S. currency that went through money laundering.

Yoichi Ishii, professor emeritus of Latin American studies at Kanagawa University, said, "If the Nicaragua canal is constructed with official Chinese support, China would be able to transport anything it wanted through that canal. From a geopolitical perspective, it would be like driving a stake into 'the backyard of the United States.'"

According to a Nicaraguan government source, during a meeting in May 2013 in Costa Rica of the Central American Integration System, Ortega told U.S. President Barack Obama: "Nicaragua will construct a canal with the support of a Chinese company. We would also welcome the participation of U.S. companies."

There was no noticeable response from Obama, the source said.

There are also doubts in the United States over whether the Nicaragua canal will be built. What could change the wait-and-see attitude in Washington is if the Chinese government is found to be involved in the canal construction project.

(This article was written by Yoshiaki Kasuga and Tsuyoshi Tamura in Managua and Kentaro Koyama in Beijing.)

THE ASAHI SHIMBUN
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Nicaraguan President Daniel Ortega, left, and Chinese businessman Wang Jing hold up a concession agreement for the construction of a multibillion-dollar canal in Managua in June 2013. (AP file photo)

Nicaraguan President Daniel Ortega, left, and Chinese businessman Wang Jing hold up a concession agreement for the construction of a multibillion-dollar canal in Managua in June 2013. (AP file photo)

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  • Nicaraguan President Daniel Ortega, left, and Chinese businessman Wang Jing hold up a concession agreement for the construction of a multibillion-dollar canal in Managua in June 2013. (AP file photo)

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