A Reverse Pivot: China’s New Grand Canal
Posted on Friday, March 6, 2015
by Samuel Krawitz
(Image Source: 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.
Conclusion
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.