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China may be behind $40 billion Nicaragua canal project

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HKND Group chairman Wang Jing speaks during a discussion group with students from the National Engineering University in Managua, July 7.   © Reuters

SAO PAULO -- A Nicaraguan plan to build a canal that would link the Pacific and Atlantic oceans is slowly getting off the drawing board and into reality. Construction is set to begin as early as later this year, with a view to having the waterway begin operations in about 10 years.

     A Hong Kong company believed to have ties to the Chinese government has landed the contract for the $40 billion project. The deal has made observers think that Beijing may be behind the undertaking, aiming to expand its presence in Central America by building a shipping channel that would rival the Panama Canal in the same area, which has long been under the influence of the U.S.

     The plan, which planners boast will be the biggest public-works project ever undertaken in Central America, calls for a canal stretching about 280km, more than three times longer than the 79km Panama Canal. The new canal would be wide and deep enough to service ships of the 250,000-ton class, a larger capacity than the Panama Canal even after its expansion, which is due for completion in 2015, to allow 200,000-ton vessels to pass through.

     The initiative for the plan to build the waterway across the Central American country is coming from Nicaraguan President Daniel Ortega, a former left-wing guerrilla. He said that the canal project would "combat poverty, and bring well-being, prosperity and happiness to the Nicaraguan people." He aims to get the project to serve as the main engine for economic growth, lifting the country's per-capita gross domestic product from the current $1,800.

     If the canal construction goes according to plan, the Nicaraguan government forecasts that real economic growth will surge to 15% by 2015. The number of regular employees in the construction industry is projected to rise to 1.9 million in the country, which has a population of about 6 million people.

Proxy for Beijing?

The construction and management of the canal is to be undertaken by HK Nicaragua Canal Development Investment (HKND Group), based in Hong Kong. HKND CEO Wang Jing said the enterprise has no affiliation with the Chinese government. But he founded a telecommunications company in mainland China, and when Chinese President Xi Jinping visited HKND, a photo taken on that occasion was published, leading many people to talk about the likelihood that the Hong Kong-based business has close ties to the Chinese government.

     While Nicaragua has diplomatic relations with Taiwan, it has not established ties with China. Many people believe that HKND is pushing forward the canal plan following the intentions of Beijing, which lacks a network of diplomatic contacts in Nicaragua.

     In July 2013, a North Korean-flagged cargo ship underwent an inspection by Panamanian authorities in the Panama Canal, which found fighter jet and other military equipment on board. It would be natural for China to think that having a canal on which it could have influence in a geographical territory close to the U.S. would give it a great advantage in keeping Washington in check.

     But the canal plan faces a backlash from environmentalists and other opponents in Nicaragua. Environmental groups warn of possible pollution in Lake Nicaragua. Opposition parties censure the government for granting HKND the right to build and manage the waterway without going through an open, public tender process. Under the contract, HKND will keep the right to manage the canal for 50 years after the start of its operation, with the right extendable for another 50 years.

     The feasibility of the plan overall remains uncertain. On top of that, now that global warming is prompting maritime transport companies to develop shipping routes through the Arctic Ocean, it would not be easy for the new canal to secure demand from them.

     While HKND itself will raise part of the funding, there is some concern about whether Nicaragua, which has no major industries, will manage to procure the funds required. Twists and turns lie ahead for the project, as it will be a long time before it materializes.

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