US South China Sea Policy: The Case for UNCLOS

Posted on Friday, June 26, 2015 by Admin

Image Credit (GMA Network)
By:Ryan Henseler

Since 2012, the People’s Republic of China (PRC) has embarked on a vast land reclamation project and artificial island building program throughout much of the South China Sea (SCS). The most extensive reclamation has included increasing the size of islands within disputed chains such as the Spratly Islands off the western coast of the Philippines, as well as the buildup of “artificial islands” on top of previously uninhabitable rocks and reefs. The PRC has pursued a strategy of fait accompli in the region, literally creating facts on the ground as part of a larger strategy to assert claims within its 9-dash line.  Thus far, Beijing has been committed to completing its expansion and island building without inciting or being forced into armed conflict. But as the People’s Liberation Army (PLA) and Navy (PLAN) continue to build on 7 disputed islands, rocks and reefs throughout the SCS, the looming question of how the US can or should respond has become a focal point of US-PRC relations. Up to now, the US has pursued a policy whereby it has refused to “take sides” in the territorial disputes but has instead suggested that all sides seek a diplomatic resolution based on the principles of the law of the sea.  More recently the US has asserted that PRC activity in the SCS is in clear violation of its obligations pursuant to the UN Convention on the Law of the Sea (UNCLOS). However, the legitimacy of this argument is undercut because the US itself is not a ratifying party to UNCLOS. Therefore, in addition to many other compelling factors for the ratification of UNCLOS, recent events have made ratification more crucial in order to bolster US legal standing vis-à-vis Chinese actions.

The US must take a strong stand in the region for a variety of reasons, including protecting the $5.3 trillion in world trade that passes through the SCS each year and responding to pleas from allies to help protect their own sovereign interests. Perhaps most importantly, the US cannot allow Chinese aggression in this critical geostrategic area to advance unchecked. Much of the reason that the US has not yet felt a real pressure to ratify UNCLOS is that opponents of the treaty claim it is unnecessary. They argue that the US has been served well by a Reagan administration policy decision that the provisions of UNCLOS dealing with FON are reflective of customary international law and thus the US has no reason to be bound by other more onerous provisions.  However, since the essence of the US argument is that PRC expansion is in violation of UNCLOS, the time may be ripe to reassess the advantages that might inure to the US should it ratify the treaty.  Specifically, would UNCLOS ratification actually bolster the legitimacy of the US position vis-à-vis the PRC? If China’s advance continues, and China is allowed to dictate the terms of navigation in the SCS it would be well on its way to achieving its goal of supplanting US hegemony in the region.

Illegality of Chinese Claims

Chinese efforts to build extensive artificial islands have changed facts on the ground that do not conform to the standards of international maritime law prescribed in UNCLOS, which the PRC ratified in 2006. The PRC’s 9-dash line asserts that over 80% of the SCS is sovereign Chinese territory based on “historical and legal” grounds. Under this overarching claim, the PRC has deemed it “justified, legitimate, and reasonable” to build within the line. Because several countries, including the Philippines, Taiwan, Vietnam, and Brunei claim ownership of various SCS islands, the US has requested that all claimants cease land reclamations in order to mitigate the escalation of tensions in the region. The PRC has repeatedly flouted this request and stated that the US has no right to intervene in Asian affairs, and no jurisdiction to get involved with territorial disputes by invoking UNCLOS. While it is true that UNCLOS contains no provisions for the settlement of sovereignty disputes and lacks enforcement mechanisms, it is equipped to rule on the legitimacy of maritime claims asserted off of these islands. At the Shangri-La Dialogue, Secretary of Defense Ash Carter defended the US right to be involved in the dispute as a, “Pacific nation, a trading nation, and a member of the international community.”

Under UNCLOS, coastal nations are allotted a 12 nautical mile (nm) territorial sea (TTS) along with a 200nm Exclusive Economic Zone (EEZ). Foreign ships, both military and civilian, are allowed innocent passage through the territorial sea while ships and aircraft are free to operate in the waters and airspace outside the TTS to include conducting naval exercises and gathering intelligence. The PRC has frequently attempted to make US Naval operations difficult in parts of the SCS that it considers a part of its EEZ. Another part of the overall issue regarding the territorial dispute in the SCS revolves around which nation enjoys certain rights within their claimed EEZ’s.  Whoever “owns” an island also has rights to the natural resources within the EEZ surrounding that island such as fish, oil, minerals, and natural gas. Under UNCLOS, disputed maritime claims need to be multilaterally agreed upon by the countries in question, as opposed to the PRC invoking sovereignty based on the ever-ambiguous 9-dash line.

Furthermore, it will be interesting to see what rights the PRC attempts to assert over the artificial islands it has built; UNCLOS specifies that artificial islands or rocks incapable of sustaining human life are not entitled to either territorial waters or an EEZ. At Shangri-La, Secretary of Defense Carter made it clear that, “turning an underwater rock into an airfield simply does not afford the rights of sovereignty or permit restrictions on international air or maritime transit.” China has not explicitly claimed territorial waters or EEZs around the artificial islands, but is very likely to regard them as such because it considers everything within the 9-dash line its sovereign territory.

The UNCLOS Solution

China’s claims to the South China Sea fall outside the scope of international law. The question then, is what the US can do to deter an aggressor that is comfortable with stepping over legal boundaries and making claims that most of the international community deems illegitimate. Though solving the problem and managing excessive Chinese claims in the SCS will undoubtedly be a many-step process, the next move that the US should make in this political chess match is ratifying UNCLOS. Although the US already adheres to the navigational provisions of UNCLOS as a matter of policy, actually ratifying the document provides a sturdy legal leg to stand on when denouncing Chinese sovereignty claims. Ratifying the convention assures others that the US is willing to play by the same rules that it is trying to enforce, while not doing so at best weakens its legal argument and at worst strips its legitimacy in making policy towards the South China Sea entirely. Because the United States has taken a rules-based approach in framing the issue, it is essential that it be bound to the same legal framework as every other country involved.

Ratifying UNCLOS would also give the US legal standing to protest Chinese assertions such as a "military alert zone.” This term was used by the PLAN on August 20, 2015 when a US P-8A Poseidon surveillance plane flew a routine mission over contested islands in the SCS, and was asked to leave. The US pilot responded that he was flying through international airspace in accordance with international law. Like territorial waters, a state’s airspace extends 12 nm past its borders. However, unlike territorial waters, foreign planes are not allowed to enter another country’s airspace without permission. The US is careful not to fly within 12nm of any of the disputed islands within the SCS, not necessarily because it is acceding that it is Chinese sovereign airspace, but because it is somebody’s airspace. The question remains; what exactly is a military alert zone? The term does not appear and is not defined under international law. If the US were a ratifying party to UNCLOS it would strengthen its argument that the Chinese use of ambiguous terms such as “military alert zone” to impede freedom of navigation does not comply with international law.

The move also would be highly appreciated by US allies in the Asia-Pacific, as ratifying UNCLOS would be a concrete show of commitment to the region and would solidify the US role as a legitimate international leader with a vested interest in easing tensions. Ratifying the treaty provides the US Navy legal basis to peacefully travel through Chinese territorial seas—a right that it already asserts, but would be strengthened by becoming an official party to UNCLOS.  Finally, ratifying UNCLOS could provide a way for the US to impose cost and penalties on the PRC when they break international law through litigation in the International Tribunal on the Law of the Sea (ITLOS).

The Debate

Why has the US refused to sign a treaty that is in US national interests? The answer lies in the original drafting of the document during the Reagan administration. After the plan was drafted, President Reagan refused to sign based on various objections, particularly that it could subordinate the US government to agencies such as the International Seabed Authority (ISA) created under the purview of UNCLOS. This objection was cleared up in 1994 when a revised version of UNCLOS provided the US and other countries with the power to veto ISA decisions. Many Republican Senators today who oppose UNCLOS still cling to the argument that Reagan disapproved of the treaty, and trumpet the false notion that US sovereignty would be compromised.

Throughout the years UNCLOS has been supported by an impressive collection of officials, including the Clinton, Bush, and Obama administrations; every Chairman of the Joint Chiefs of Staff; military legal experts; The Chamber of Commerce; “Big Oil”; “Big Labor”; environmental activists; and the National Association of Manufacturers. In addition to providing the necessary and relevant leverage in the SCS for US forces, UNCLOS would help to ensure that the US gains exclusive access to the resources of its own North American continental shelf beyond the 200nm EEZ that is already asserted, which could potentially boost the commercial viability of oil companies and create jobs. In addition, ratifying the treaty would ensure the US a place at the table with other the Arctic countries when discussing the distribution of the resources made available by the melting of the polar ice cap. Furthermore, the treaty sets environmental guidelines in the world’s oceans. It is clear that becoming a ratifying party to UNCLOS would be sound strategy for the US in both economic and security terms.  The current administration should prioritize the ratification of this treaty, especially now when it is needed the most.

Hollywood and the Chinese Market

Posted on Wednesday, June 17, 2015 by Admin

(Image Credit: The Wrap)
By: Loujing Pan

China’s film industry has attracted intense interest from Hollywood, with industry specialists such as Ernst and Young predicting that will surpass even the American market—currently valued by IBIS at USD$31 billion—in 2020.   Aided by relaxed foreign film quotas—from 20 to 34 in 2012—and increased state efforts to crack down on piracy, Hollywood has sought to increase its presence in the Chinese film market.  Currently, Hollywood productions such as Avatar, Transformers: Dark Side of the Moon, and Titanic rank as some of China’s all-time highest grossing films.  Hollywood has been increasingly enticed by China’s film industry and its audiences, particularly as movie revenues in the U.S. fall and production costs rise —but at what cost? 

Political Appeasement or Self-Censorship?

Hollywood directors and studios looking to gain a foothold into China’s film industry face several barriers, particularly censorship laws.  Already there appears to be a trend of Hollywood directors practicing if not self-censorship, at least political appeasement to the Chinese Communist Party (CCP) by 1) casting Chinese film stars, 2) removing certain scenes, or 3) adding China-only scenes.  Given Hollywood’s towering presence in the global film industry, is this trend of political appeasement indicative of not only China’s rise, but also its future dominance?  If so, what are the implications for future Sino-American relations?

Superficially it may appear that Hollywood’s willingness to abide by, even arguably pander to China’s censorship laws, signals China’s rise and perhaps future dominance.  For example, in the past, Hollywood filmmakers have produced movies that were 1) critical of the CCP’s policies and 2) banned in China such as Kundun (1997) and Red Corner (1997).  More recently however, Hollywood filmmakers appear to have turned away from making politically sensitive films and are now focusing on gaining access to the Chinese market by appeasing the CCP’s censors. For many Hollywood filmmakers, the most efficient way to bypass China’s foreign film quota system is to register its films as a co-production and access Chinese funding.  On paper, co-productions seem ideal as they allow Hollywood to achieve its primary interests in the Chinese market—funding and market access.  However, any films produced as co-productions require the State Administration of Radio, Film, & Television (SARFT) and the China Co-Production Corporation (CFCC)’s approval at every step, from licensing a co-production to distribution.  Most notably, under a co-production, the script must be submitted in Chinese and reviewed by SARFT to ensure that it is in compliance with censorship laws, and after the film is completed, it is reviewed once more to ensure compliance.  Under such laws, blockbusters such as Iron Man 3, a U.S.-China co-production, have been released in China to include additional scenes featuring Chinese actresses.  Even Hollywood productions that have not been released as co-productions have had to edit their content for the Chinese audience. The 2012 thriller Red Dawn, for example, changed the antagonists from Chinese to North Koreans while scenes such as a Chinese security guard’s death were cut from Bond: Skyfall (2013) Given the SARFT’s tight control over film production and distribution in China, it may appear to be the case that Hollywood has had to bow down to Chinese interests.

Yet such a viewpoint does not convey the entirety of the situation.  While Hollywood has certainly had to take steps to appease SARFT, the CCP still has a strong interest in promoting Hollywood blockbusters.  Since the 1980s with the breakdown of the centralized, state-controlled and subsidized studio system, China’s film industry is highly dependent on commercial revenues.  As such, while some Chinese political elites may object to Hollywood’s dominance as a form of cultural and economic hegemony, Hollywood productions have played a crucial role in revitalizing China’s film industry post-1980.  For example, since China’s 2002 ascension to the WTO, it has increased its foreign film quota, its investment in the U.S. entertainment industry overall—according to the Rhodium Group, in 2014 alone, Chinese firms made 10 deals worth USD$275 million.  Thus, just as Hollywood is incentivized to engage in a degree of political appeasement, if not censorship, the CCP has demonstrated its current need for Hollywood and willingness to compromise.  Rather, what the current state of Hollywood’s relations with China’s film industry seems to indicate is a cooperative—albeit uneasy—mutually dependent relationship.   

What may be more telling regarding the future state of China-U.S. media and film relations, however, is China’s ability to step into Hollywood by either acquiring existing firms or creating independent subsidiaries.  For example, in March 2014, Huayi Brothers, one of China’s largest film studios, announced its plans to invest between $120 and $150 million in Studio 8, a firm to be launched by former Warner Bros. film studio chief Jeff Robinov.  Huayi Brothers ultimately lose out on this bid—to Fosun International, another Chinese conglomerate that has emerged as the dominant shareholder of Studio 8.  Furthermore, despite Huayi Brothers’ failed attempt to bid for Studio 8, it announced in September 2014 that it would invest USD$130 million to establish a U.S. subsidiary to produce and distribute movies and TV shows.  As illustrated by the case of Huayi Brothers and Fosun International, it appears clear that Chinese conglomerates are seeking to increase their foothold in Hollywood, portending an increasingly influential and assertive China.  

SPECIAL: Sun Tzu Simplified: An Approach to Analyzing China’s Regional Military Strategies

Posted on Friday, April 10, 2015 by Admin

Image source: AP
By Dennis J Blasko
 The Art of War by Sun Tzu can be summarized into what I call 1) the prime objective: to win without fighting and 2) the prime directive: to know yourself and know the enemy.
All other rules for fighting in The Art of War and in current PLA doctrine follow directly from these two guidelines. Today, Sun Tzu’s prime objective and prime directive are reflected in the PLA’s continued emphasis on:
1)      People’s War focused on the defense of Chinese sovereignty by leveraging the strengths of China’s large population and land mass.
2)      Active Defense, which is based on the premise that “We will not attack unless we are attacked; but we will surely counterattack if attacked.” This principle predicts, if not requires, an action-reaction dynamic when China perceives its interests are threatened and includes the obvious danger of an unending cycle of escalation.
3)      China’s multi-dimensional deterrence posture, which extends far beyond the concept of nuclear deterrence. PLA doctrine states specifically that effective deterrence is based on warfighting capabilities which must be demonstrated to the world. It also sees deterrence as a means to achieve strategic objectives, preferably without fighting.
4)      The preference to use traditional fighting methods of close battle, night combat, speed, deception, and stratagem, all of which, in order to be successful, require good intelligence on the enemy.
All of these atavistic concepts have been adapted and modified for the 21st century. They will continue to develop as conditions change, especially as new technologies become available to the PLA.
With regards to the prime objective, “winning without fighting” is the belief that China can achieve its objectives through methods other than the use of brute military force, such as political, economic, or diplomatic means. Nonetheless, this concept permits the gradual use of force through both deterrence and other non-military government agencies, while keeping a strong military in reserve as a basis for deterrence. However, if deterrence and other non-military means fail, deadly force may be employed as a last resort and is to be used cautiously and only when China feels confident in its ability to win.
As required by Active Defense, if China is attacked or its sovereignty is challenged, China will respond even when it considers itself weaker than the enemy. Though PLA doctrine is based upon a strategically defensive posture, the PLA understands that offensive operations are essential at all levels of war in all phases of a campaign to achieve victory. If circumstances require, doctrine permits China to use military force to preempt an impending hostile action if an enemy is clearly preparing to strike first at Chinese sovereignty, territory, or core interests.
Such calculations, whether at the strategic or tactical levels of war, require a significant degree of knowledge about China and the PLA’s capabilities, as well as the PLA’s potential opponents’ intentions and capabilities. The PLA constantly assesses its own and its potential adversary’s “comprehensive national power,” which consists of many elements beyond military force. Thus, we see the enduring emphasis on knowing yourself, knowing the enemy, and the use of all elements of national power present in PLA doctrine.
Additionally, the PLA operates under several principles that most other contemporary militaries do not:
1)      The requirement that all Chinese armed forces pledge loyalty to the Communist Party.
2)      The subordination of military modernization to economic development, even though the “coordination” of the two creates growing defense budgets.
3)      The assumption of a strategically defensive posture forced upon a relatively weak PLA, though this calculation is changing for some contingencies.
4)      Developing doctrine based on the precept that “technology determines tactics.”
5)      Efforts to mobilize the entire country  if forced to fight, resulting in an emphasis on military-civil integration. In theory, this helps reduce the amount of resources necessary to be dedicated to the military.
6)      A reluctance to be involved in alliances (a dependence on others to protect China).
These principles are reinforced by the continuing role of People’s War as the basis for PLA strategic thinking in conjunction with the strategy of Active Defense. The principles of People’s War are ingrained in the collective minds of PLA leaders. Various descriptions of People’s War can be found in many sources, but they are most easily accessible in the 2005 English-language version of The Science of Military Strategy, which actually contains two different but similar lists of the “Principles of People’s War” (pp. 107-112/230-31). The various colors show parallel principles in the two lists; note the light red and green entries below, stressing caution and prudence.

Mao’s Strategic Guidance Principles of People’s War, Chapter 3

Strategic Principles for People’s War, Chapter 10

  1. To Preserve Ourselves and Annihilate the Enemy
  2. Founding Base Areas and Creating Battlefield Are Strategic Tasks
  3. Change the Main Forms of Operations in Accordance with the Development and Changes of War
  4. Fight No Battle Unprepared and Not Sure to Win, and Formulate Strategy Beforehand Based on Worst Condition
  5. You Fight in Your Way and We Fight in Ours. We Will Fight If There Is Possibility to Win; If not, We Will Move
  6. Concentrate Superior Forces to Annihilate the Enemy Forces One by One
  7. The Main Target Is to Annihilate the Enemy’s Effective Strength Regardless of the Gain or Loss of One or Two Cities or Places
  8. Be Prudent in the First Battle and Fight the Decisive Battle to Our Advantage

  1. Knowing ourselves and the enemy
  2. Preserving ourselves and destroying the enemy
  3. Striving for the initiative and avoiding the passive
  4. Employing military forces and tactics flexibly
  5. Combining closely the three battle forms of mobile war, positional war, and guerrilla war
  6. Concentrating superior forces and destroying the enemy one by one
  7. Fighting no battle unprepared, fighting no battle you are not sure of winning
  8. Being prudent in fighting the initial battle
  9. Unifying command and being coordinated and united
  10. Closely coordinating military and non-military struggles, etc

Additionally, later in the book (pp. 456-57) “five combinations” of People’s War provide additional details in general terms of how Chinese forces and resources will be used. These “five combinations” overlap in the following ways:
1) Regular troops with the masses, including capabilities found in civilian government ministries.
2) Regular naval warfare with guerrilla warfare on the sea, developing the strategy and tactics of People’s War on the Sea, including tactics of “sparrow warfare” and sabotage, as well as ambush and covering operations.
3) “Trump card” or “assassin’s mace” weapons with flexible strategy and tactics, especially in playing “hide and seek” with the enemy.
4) Combining high-tech weapons with common weapons and understanding that several generations of weapons and equipment will coexist for a long time. Both combinations 3 and 4 demonstrate that People’s War is not confined to the war of low technology only.
5) Combining military warfare with political and economic warfare in order to present the widest front possible to the enemy.
The 2006 Chinese Defense White Paper states, “The Navy is enhancing research into the theory of naval operations and exploring the strategy and tactics of maritime people’s war under modern conditions.” Needless to say, one can find many examples of the “five combinations” in PLA organization, training, and in its real world missions. Based on the location, opponent, and other variables, the “five combinations” can result in a multitude of operational methods and techniques. However, PLA leaders most likely understand that the farther away from China’s borders they attempt to apply People’s War principles, the lower the chances of success. Therefore, we now see an emphasis on building forces and creating doctrine for air and maritime operations in waters beyond the near seas.
For the last six to eight years we have been watching the Chinese government execute a maritime People’s War under modern conditions; incorporating the principles of both deterrence and Active Defense in the South and East China Seas. Beijing’s objectives in this total government effort are to demonstrate its sovereignty over disputed territories and to deter the U.S. military from conducting close-in surveillance in its Exclusive Economic Zone, utilizing all available methods short of going to war.
Two examples illustrating the combinations of People’s War are found in the case of the USNS Impeccable and in Chinese efforts to challenge Japanese administrative control of the Senkaku Islands. In March 2009, the USNS Impeccable was operating in international waters in China’s EEZ in the South China Sea when two civilian trawlers “shadowed and maneuvered dangerously close” to the Impeccable. These trawlers were backed up by a Fisheries Patrol vessel, a State Oceanographic Administration vessel, and a PLAN intelligence collector, an example of combining regular troops with the masses. They combined the low-tech trawlers with the high-tech naval intelligence collector and could have been vectored to the area based on high-tech reconnaissance or low-tech visual means. The close quarter operations to cut the towed array were an example of “sparrow warfare” or ambush. These actions, however, did not achieve China’s objective of deterring U.S. surveillance in its EEZ and, in fact, it only hardened U.S. resolve over its Freedom of Navigation missions (if that resolve needed to be hardened any more than it already was).
In the East China Sea, around the Senkakus, once again we see China’s mix of the masses with regular PLA forces with the use of Chinese Coast Guard vessels and aircrafts to patrol near the islands, coupled with a mostly over the horizon presence of the regular PLA Navy. Presumably, there is some sort of high-tech communication between these forces. What Beijing is attempting to do is send the political message that the Chinese Coast Guard can exert control over the waters around the islands in the same way Japan can. They could send the same message much more forcefully by substituting gray Navy ships for the white colored Coast Guard, which they do occasionally.
We can find other recent examples of variations of the “five combinations” in action, such as the land-reclamation construction underway in the Spratly Islands or the activities of the civilian Haiyang Shiyou 981 oil rig and its accompanying escort in the SCS last year.
In the East China Sea, Beijing knows that the U.S.-Japanese Security Treaty would apply if it first used military force in a hostile action over the Senkaku islands. It likely calculates the PLA could not at this time win a shooting war 300 kilometers from the Chinese coast against combined Japanese and U.S. naval and air forces.
The distances are greater in the South China Sea and the chance of U.S. involvement still remains high, therefore China’s current calculations regarding the South China Sea are most likely the same. However, China is actively working to shift that balance over the long term.
For the foreseeable future, in any of its contingency operations where the U.S. military has a potential role, the PLA’s calculations of the balance of power will not provide it with the confidence it desires in order to initiate major hostilities. However, no matter what those calculations, if China’s core interests are threatened it will respond. Though how it responds will depend on the specific situation, the time, and other international factors.
Yet, the Chinese government probably understands its People’s War at Sea strategy for the ECS and the SCS has not achieved its objectives and has resulted in an escalated spiral of action taken by both China and the countries with which it has territorial disputes. Fortunately, to date, all sides have succeeded in keeping the level of intensity below the intentional use of deadly force, but accidents and miscalculations could change that in an instant. If any participant in these territorial disputes intentionally decides to use deadly force in this action-reaction cycle, then China’s strategy will have failed and what comes next could be devastating. The best solution, desired by everyone in the region, is a negotiated settlement and while the beginning of that process may be underway with Japan, it will require the good faith support of all military, paramilitary, government, and civilian actors from all sides who have a stake in the outcome.
China’s calculations of its relative political, diplomatic, economic, and military strength will change as conditions in China and the region evolve. Unless compelled to respond to a challenge with direct military action, Beijing likely will attempt to calibrate its actions by continuing to employ a wide array of civilian, government, paramilitary, and military capabilities up to the line of the intentional use of deadly force to achieve its objectives. To do so effectively will require the Chinese government and the PLA to understand their own strengths and weaknesses as well as the strengths and weaknesses of the other players in the region. China’s use of integrated, multi-dimensional approaches that differ based on the specifics of each dispute presents an asymmetrical test to foreign governments who do not have the same range of options available but, unlike China, may have the explicit, implied, or potential support of the American military presence in the region.
(This essay is adapted from remarks presented at Project 2049’s conference on “China's Military Development and the U.S.-Japan Alliance,” March 20, 2015.)
Dennis J. Blasko, Lieutenant Colonel, U.S. Army (Retired), was an army attaché in Beijing and in Hong Kong from 1992-1996 and is the author of The Chinese Army Today: Tradition and Transformation for the 21st Century, second edition (Routledge, 2012).


A Reverse Pivot: China’s New Grand Canal

Posted on Friday, March 6, 2015 by Samuel Krawitz

(Image Credit: The Economist)

By: Samuel Krawitz

On December 22, 2014, a groundbreaking ceremony was held in the small city of Brito on the Pacific coast of Nicaragua, marking the start of construction on the Grand Canal of Nicaragua— the world’s newest megaproject. The construction is being headed by China through the newly established Hong Kong Nicaragua Canal Development Investment Company (HKND), led by Chinese businessman Wang Jing. The massive project will span 172 miles and cost upwards of USD 50 billion.  The construction plans include ports, power plants, and a bridge over the canal for the Pan-American Highway, as well as proposals for an international airport, free trade zone, and two concrete factories.  

China is currently working to increase its influence in Latin America; a region the United States has traditionally considered its sphere of influence. While the canal could act as a major stepping stone in balancing against the U.S. “pivot” to the Asia-Pacific region, using the canal in this way is ultimately a double edged sword. Completing the canal’s construction could potentially bring economic and strategic benefits to China and Nicaragua, as well as strengthen China’s ties with Latin America; or, depending on the canal’s impact on the environment and economy in both Nicaragua and its neighbors, the canal’s construction could inflict significant damage on Chinese-Latin American relations.

China’s Pivot

This canal project is just the latest of Chinese attempts to increase its influence in Latin America. Recently, Xi Jinping announced plans for investments in the region to reach USD 250 billion in the next 10 years, with projections for trade between the China and Latin America to reach USD 500 billion. In addition to the canal, massive infrastructure projects are being discussed or are under construction throughout Latin America, including twenty-two dam projects and a transcontinental railway. Military engagement between China and Latin America has also been on the rise, mostly to promote good will in countries that are business partners with China. Many of the loan agreements between China and Latin America have very few conditions attached unlike agreements forged with western monetary institutions, making working with China an attractive opportunity.

Value of the Canal for China and Nicaragua

The completed canal is intended to capture the market of triple-e class container ships which the Panama Canal, even with its expansion, would be unable to handle. The Chinese would have the only avenue into the Atlantic which could accommodate these larger ships and could leverage that position to its benefit. The agreement between Wang Jing and Nicaraguan President Ortega also includes a concession to secure HKND’s ownership of the canal, facilities, and lands surrounding the canal for the next 50 years, with the option of renewing for another 50 years. According to experts, having a Chinese company operate the canal in a country that is not strategically aligned with the U.S. eases Chinese fearsthat the U.S. can block Chinese warships from the Atlantic. Unlike the Panama Canal, the Nicaraguan canal would be free from neutrality agreements. Chinese canal ownership also secures an avenue for China’s energy shipping from the Atlantic, potentially from off the coast of West Africa or Brazil.

For Nicaragua, the canal would catapult Nicaragua’s development forward similarly to how the Panama Canal launched Panama’s development. The canal would create thousands of jobs and put Nicaragua on track from being the second poorest nation in the western hemisphere to one of the region’s fastest growing economies, with a projected 14.6% annual growth rate. A canal that brings economic benefits to Nicaragua may entice other Latin American states to cooperate with China in the future, making the canal a worthwhile investment.

Criticisms and Impacts on Chinese Interests

Despite the canal’s potential benefits, there is also a chance the canal’s construction would obstruct Chinese and Nicaraguan interests. Domestic and international critics, including Nicaragua’s neighbor Costa Rica, fear the canal would pollute Lake Nicaragua, a major source of fresh water to Nicaragua and neighboring countries. The planned route also runs through an area with an active hurricane belt, volcanoes, and seismic activity which could further damage the canal, increasing canal costs and deterring shippers from using the riskier route. Furthermore, Colombia has expressed concern over the potential influx of commercial ships operating near disputed maritime territory with Nicaragua. Angering Nicaragua’s neighbors would be detrimental towards China’s pivot to Latin America.

Social impacts to the Nicaraguans may also lead to trouble. Around 30,000 Nicaraguans and indigenous tribesmen live along or near the proposed canal route, but no details have been released about relocation plans or compensation. Only half the labor working on the canal project is going to be Nicaraguan, with Chinese labor and foreign specialists comprising the other half. With growing protests from the Nicaraguan population, this labor divide could further exacerbate the problems between the Chinese and Nicaraguan people due to anger over lost jobs and an influx of Chinese immigrants. Many Nicaraguans also claim that President Ortega rushed the deal through the National Assembly just to sell the country to the Chinese, diminishing Nicaragua’s national sovereignty.


As the U.S. seeks to renew its focus on Latin America, China hopes the canal will increase its sway in the region, not just for the economic benefits but also as a means of demonstrating to the U.S. that they, too, are able to play in another’s backyard. However, even if the canal is not completed, the United States must not become complacent. The canal is far from the only tool in China’s repertoire to advance China-Latin America relations. And while the United States has recently taken steps to mend its relationship with Latin America—mostly notably the decision to normalize relations with Cuba—unless the United States makes significant advances in courting its Latin American neighbors, the U.S. may find itself with a China that is too close for comfort. 

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