A Foothold for China?

A Nicaragua canal would have, as Jonathan Watts noted in The Guardian recently, ‘significant geostrategic implications both as a rival to Panama and as a base for Beijing to extend its influence in the Americas’.

If estimates prove correct, about 5% of global trade would pass through the Nicaragua canal.  Some analysts see the canal as part of a long term Chinese strategy to expand their maritime influence, and to develop trade routes that are beyond the control of western powers.

Juan Gabriel Tokatlian, associate professor in international relations at the Universidad Di Tella, Buenos Aires told the Buenos Aires Herald that ‘In the same way that the Panama Canal was the US canal in the 20th century, a Nicaragua canal would eventually be the Chinese canal in the 21st century’.

Such influence is necessary because of China’s emergence as a major maritime power.

China Shipping Line Xin Chang Shu by Beat Strasser Source: Wikimedia Commons

World Bank statistics indicate that China’s container traffic is three times that of the US. This analysis certainly sees the hand of the Chinese state behind Wang Jing, the billionaire businessmen who has signed an agreement with the Ortega government to build the Nicaragua Canal.

HKND, the company set up by Jing to develop the project, acts as a buffer which protects the Chinese government against the embarrassment of the project not being completed.  As Rebecca Keller has observed, the willingness of Chinese private investors to get involved in foreign direct investment initiatives and opportunities gives ‘Beijing some protection against a risky investment’.

A Chinese Port?

As part of their efforts to develop their maritime economy, the Chinese have certainly invested heavily in port infrastructure from, as Jon Lee Anderson put it, ‘Piraeus to Antwerp’.

Indeed, some commentators have argued that the canal project is in fact a smokescreen for another, more limited, project: the establishment of a deep water port and a free trade zone on Nicaragua’s Atlantic and / or Pacific Coast.  Such a port would, of course, facilitate China’s trade with the US and Mexico.

The investment in port infrastructure is part of a wider foreign direct investment strategy that has seen China become the world’s third largest investor nation behind only the Americans and the Japanese.

China in LatAm

China’s influence in Latin America has been on the rise for some time as many commentators have pointed out.  Kevin Gallagher notes that China is now the ‘number one trading partner some of the region’s largest economies’.   According to Anderson, China’s trade has increased dramatically from $12 billion in 2000 to about $250 billion in 2012.

The commodities boom that meant that many countries in Latin America were less affected by the global economic downturn than other parts of the world was driven and fuelled by China.  China has hoovered up oil from Venezuela, iron ore from Brazil and copper from Peru.

Nicaragua is not one of Latin America’s largest economies, but in common with the other countries of Central America, it was one of a comparatively small number of countries to recognise Taiwan.

Aleksander Aguilar, writing for LAB, characterised Central America asbeing central to in the ‘diplomatic war’ between China and Taiwan.  Aguilar argues that China’s engagement with Central America is motivated, at least in part, by a desire to reduce Taiwan’s influence in the region and, in doing so, further isolate it.

The American Reaction

It is hard to believe that the United States is not a little concerned about the possibility of a Chinese-run canal in Nicaragua, yet curiously, theObama government has chosen to remain silent on the canal issue.

During the Cold War, the US viewed Central America as its own backyard.  The US stopped at nothing to stop the spread of communism in the Isthmus, overthrowing Guatemalan President Jacobo Arbenz in 1958, supporting the government of El Salvador in its repression of the population during the 1980s and, of course, supporting the Contras against the Sandinistas again during the 1980s.

Document showing the involvement of the CIA in overthrowing President Jacobo Arbenz. Source: Wikimedia Commons

Only the US embassy in Managua has commented on the canal project and they waited until early January to do so.  In a statement issued on January 6, the embassy asked that the various reports pertaining to the canal’s construction – including the canal’s feasibility, its financing and its environmental impact – be made available.  The statement also indicated that the embassy was going to monitor the methodology for resolving property disputes and would be seeking clarification from the Nicaraguan government on the bidding process for overseas companies.

Perhaps the US government shares the view of the American media which seems to view the canal as a mirage and as something which is unlikely to be built.  There would seem, then, to be very little point in potentially antagonising either Nicaragua or China.  As Jon Lee Anderson notes ‘As long as the canal is officially a private project, there is little benefit in provoking a public fight with China’.

However, if the canal project does go ahead, it is hard to believe that it won’t cause some tension between the two economic superpowers of the twenty first century.

The Reaction from Central America

If the reaction from the US has been muted, the reaction from the rest of CentralAmerica has not been much more vocal.

The Costa Rican government have expressed concerns that the environmental impact of the canal will potentially spread beyond the borders of Nicaragua to affect Costa Rica as well.

Costa Rica is concerned both about how the project might impact on water levels in the Colorado and San Juan rivers and about increased sedimentation in the former. Costa Rican officials claim that requests for information and for various impact and technical studies have so far fallen on deaf ears.

In Panama, there is some scepticism that the canal will be built and that it is even needed. As former Panama Canal administrator Alberto Alemán told Jon Lee Anderson: ‘It’s a humongous project, to be used for what, by whom?’

The Panama Canal Authority has nevertheless responded to the threat posed by the proposed canal in Nicaragua by reducing the toll for line operators next year.

Panama Canal Miraflores Locks by Stan Shebs Source: Wikimedia Commons

It is clear that, however sceptical the Panamanians are, the country is looking to bolster its position.  The Panama Canal has itself undergone expansion and a new container terminal is also being built.

And so…

The international reaction seems to be based on based on the principle of wait and see.

The consensus view seems to be that it is unlikely that the canal will actually be built.  Certainly, it is currently very difficult to see how HKND is going to raise the finance needed to undertake and complete this mega-project.

And yet, there must at least be a possibility that Ortega and HKND will manage to pull this off.  For all his failings, Ortega is no fool.  He has mortgaged his political future and his legacy on a Nicaraguan Canal.  He surely would not have done so had he not been confident of success.

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