economist nicaragua canal

Why a Chinese firm might dig a giant waterway through America’s backyard

NEAR the mouth of the Brito river there are no paved roads, no earthmovers and no signs of construction yet. There is a beach, a mangrove swamp teeming with crabs, and a shirtless drifter called Peyró, whose hobby is riding bulls. There are no ships. The only crafts along this remote stretch of the Pacific are surfboards. Could this really be the place where within a decade the world’s largest vessels will enter Nicaragua and pass through forest, lake, mountain and jungle between the Pacific and the Atlantic oceans? Peyró looks mystified. “Only God knows,” he says.

It is surely one of the world’s most improbable infrastructure projects

And China, perhaps. Two years ago Nicaragua put its sovereignty in hock by giving a concession of up to 100 years for a canal that could cost $40 billion-50 billion to Wang Jing, a Chinese telecoms magnate. His company, HKND, says it will soon be ready to start digging an entrance channel near this spot. The next step will be a port a few miles inland big enough to process 500-metre-long ships with five times the container-carrying capacity of those that currently traverse the Panama Canal.

Respectable firms such as McKinsey, a business consultant, and ERM, an environmental one, have put their reputations on the line assessing the feasibility of the 260km (162-mile) canal. It is surely one of the world’s most improbable infrastructure projects. However, Bill Wild, the chief project adviser, appears raring to go. “It’s massive. I can’t stress enough how big it is. But it’s technically relatively straightforward,” he says.

The construction alone would be a spectacle. Some 50,000 labourers (perhaps a quarter of them Chinese) might work on site, and 2,000 diggers, dredgers and other giant machines would excavate about 5 billion cubic metres (177 billion cubic feet) of dirt, using 5 billion litres of fuel in the process. They will lay what they dig up 1.5km either side of the canal, which HKND promises to turn into new arable land about three times the size of Manhattan, partly for the 30,000 people uprooted from their homes.

Construction will no doubt damage the environment. A 107km-long, 280-metre-wide trench will be dredged through pristine Lake Nicaragua, rainforests will be uprooted, big-cat migration routes traversed and indigenous families ousted from sacred lands. Mr Wild pledges that, when finished, the reforested land along the canal route will be better cared for than it is now. But can any pharaonic enterprise, let alone a Chinese one, be trusted not to cut corners? Environmentalists will try to block it every step of the way.

Size matters

If completed, the canal would symbolise a shift in global shipping. The two-lock waterway could take vessels with a proposed freight capacity of 25,000 20-foot containers, or 20-foot equivalent units (TEUs); currently the biggest ships have a capacity of around 19,000 TEUs and make up a tiny fraction of the world fleet. Even the expanded Panama Canal, due to open in 2016, is limited to taking cargoes of 13,000 TEUs, so ships that otherwise would have rounded Cape Horn or gone via Suez would be able to move more easily between east and west. But container trade is slowing, as consumer-goods production moves closer to home. HKND is betting that ship sizes will increase to bring down costs per container.

Some believe that if the Chinese government is a backer of the project, the transit of military as well as commercial vessels may be a hidden part of the agenda. “Just as the United States wants to expand in the Pacific, it’s not unreasonable that China will want to do so in the Atlantic. Any educated person can see the strategic possibilities,” acknowledges Manuel Coronel, the head of the Nicaragua Grand Canal Authority.

So far, America has been phlegmatic about the enterprise. Perhaps, like Jorge Quijano, administrator of the Panama Canal, it believes that financially the project is a bottomless pit and has no future. Mr Quijano reckons that for the Nicaraguan canal to earn a competitive return on investment, it would have to charge double the tolls levied in Panama, which would put off most customers.

Nicaragua’s Sandinista rulers shrug off the worry. “If China is behind the project, it will not be a big problem for Wang Jing to get the financing,” Mr Coronel says. After all, what wouldn’t China pay to see one of its naval fleets one day emerging from the Central American jungle right under America’s nose?

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