The Blog

Chinese Businessman Seeks to Build Nicaraguan Canal

4:04 PM, Jul 24, 2013 • By JAIME DAREMBLUM
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts
Chinese flag.png

The idea of building a $40 billion canal in Nicaragua, Central America’s poorest nation, seems highly improbable. Yet Chinese businessman Wang Jing insists he is serious about constructing such a waterway, and Nicaraguan lawmakers have given his Hong Kong–based company, HKND Group, a green light to proceed. Meanwhile, the ruling Sandinista Party is depicting the canal project as a symbol of national pride (“Opposing it is unpatriotic,” said one congressman) and promising that it will greatly reduce Nicaraguan poverty (“Today is a day of hope for the poor of this country,” declared another legislator). President Daniel Ortega has offered his robust support, vowing that the project “will help us conquer our final independence.” On June 14, Ortega officially signed a 50-year concession that will allow HKND Group to build and operate the canal.

But will the project ever actually get completed? Most experts are doubtful. “It’s not going to happen, that was my first reaction,” Harvard Business School professor Noel Maurer, the co-author of a book on the Panama Canal, told the New York Times. “A pipe dream might be too strong, but I would just consider it a really bad investment.”

Leave aside the fact that Wang Jing has only visited Nicaragua two times (“for a combined 48 hours,” according to journalist Tim Rogers) and seems to have a shaky grasp of its geography: Even if Wang had spent his entire life in the country, his proposed canal would still face major logistical and environmental challenges. Green activists are already denouncing the idea, warning that it will harm Nicaragua’s ecosystems and jeopardize its water supply, since all the proposed canal routes travel through Lake Nicaragua. One environmental consortium has complained that the project will “extend, expand, dredge, or reduce bodies of water and water resources that are subject to protection and conservation safeguards.”

A bit of historical background: Interest in a trans-oceanic Nicaraguan canal dates back to the 19th century. In 1849, Cornelius Vanderbilt signed a contract with the Nicaraguan government to build such a canal, but his plan ultimately collapsed. In the late 1880s, American companies tried to spearhead a similar canal project, but their plan failed, too. In 1897, President William McKinley established the Nicaragua Canal Commission, which actually issued recommendations on a possible route. But the project was stalled by feasibility concerns and diplomatic obstacles. In 1903, it was eclipsed by the Panama Canal Treaty. More recently, in 2008, then–Russian president Dmitry Medvedev agreed to study the possibility of building a Nicaraguan canal. Last year, Nicaraguan lawmakers authorized the construction of a $30 billion canal, though they did not specify who would finance it.

Both Wang Jing and HKND Group remain shrouded in mystery. The 40-year-old billionaire claims he is “a very normal Chinese citizen” who lives with his mother, but he has declined to say where he attended college, and it’s still unclear how exactly he amassed his fortune. Despite all the skepticism that greeted their announcement, and despite all the obvious hurdles their project will encounter, Wang and Ortega say they are optimistic that the canal will eventually become a reality. “There would . . . not be much reason to take Wang and Ortega seriously,” writes journalist Gwynne Dyer, “if it were not for one fact: Chinese businessmen do not launch projects of this scale without the support of the Chinese government. The risk of embarrassment is just too high.”

For now, nobody knows precisely what role the Chinese government is playing in Wang’s venture. However, the South China Morning Post has reported that a prominent Chinese state-owned company, China Railway Construction Corporation, is conducting a feasibility study of the canal project. “I don’t want it to become a joke or an example of a failed overseas Chinese enterprise,” Wang said last month.

Whatever Beijing’s influence over the canal scheme, China is clearly expanding its activity and presence in Central America and the Caribbean. The Obama administration, which continues to neglect the region, may want to take notice.

For example: China is currently building a $350 million hydroelectric plant in Honduras and a $3.5 billion mega-resort in the Bahamas. Meanwhile, Nicaragua is trying to purchase a $300 million Chinese satellite. In Costa Rica, China is financing a $25 million national police academy, a $296 million highway project, and possibly a $1.5 billion oil refinery. The highway and refinery projects were announced during Chinese president Xi Jinping’s recent trip to the region, a trip that also saw Xi approve more than $3 billion worth of loans for a group of Caribbean nations. (The Costa Rican refinery project has since been halted because of disputes over a feasibility study.) Over the past few years, China has built several high-profile stadiums in Central America and the Caribbean, including a $100 million stadium in Costa Rica and a $35 million stadium in the Bahamas. It spent at least $132 million building facilities for the 2007 Cricket World Cup, which was held in the West Indies. Beijing is now funding a $31.5 million stadium in Grenada. On the diplomatic side, David Jessop of the Caribbean Council tells the Financial Times that “Chinese missions are growing in size, many Caribbean states have set up missions in Beijing, and there are frequent high-level exchanges of politicians.”

China’s motivations in South America have always been obvious: Its economy needs raw materials and commodities from countries such as Argentina, Brazil, Chile, and Peru. By contrast, Beijing’s motivations in Central America and the Caribbean have less to do with economics and more to do with geopolitics. A 2009 U.S. diplomatic cable warned that China was using its investments in the Bahamas “solely to establish a relationship of patronage with a U.S. trading partner less than 190 miles from the United States.” At a time when the Obama administration is “pivoting” to East Asia, Beijing wants to remind Washington that it can easily pivot to the Caribbean.

Then there is the Taiwan factor: China refuses to have diplomatic relations with any country that formally recognizes the island democracy. Back in the late 1990s and early 2000s, the Chinese conducted an aggressive international campaign to reduce the number of countries recognizing Taiwan. The campaign was quite successful, especially in the Caribbean: Between 1997 and 2005, the Bahamas, Saint Lucia, Dominica, and Grenada all switched recognition from Taipei to Beijing. Costa Rica followed suit in 2007. Each country was rewarded with a Chinese-financed stadium and other economic goodies.

After the Taiwanese elected a more Beijing-friendly government in 2008, China halted its efforts to poach Taipei’s diplomatic partners. But its fundamental position on Taiwan has not changed: China still considers it a renegade province that must be unified with the mainland, and Communist officials still want to delegitimize the Taiwanese government. They are aware that eleven of the 23 countries recognizing Taiwan are located in Central America or the Caribbean. Indeed, with the exception of Costa Rica, every single Central American nation—including Nicaragua—still has formal diplomatic relations with Taipei, as do five Caribbean nations: the Dominican Republic, Haiti, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines. (Saint Lucia switched recognition back to Taiwan in 2007, after ten years of recognizing China. Beijing was not pleased.)

As you might imagine, the Taiwanese are worried that Wang Jing’s Nicaraguan canal project will encourage the government in Managua to distance itself from Taipei diplomatically. Again, we still don’t know whether the canal will actually get built, and we still don’t know how much influence Beijing is exerting. But we do know that China is rapidly expanding its presence in Central America and the Caribbean—and Washington needs to start paying more attention.

Ambassador Jaime Daremblum is director of the Center for Latin American Studies at the Hudson Institute.

Recent Blog Posts