Nicaragua Starts Work on $50 Billion Rival to Panama Canal

Glittering celebrations in Nicaragua have marked the start of a Chinese-backed project to build a $40bn waterway to rival the Panama canal.

The ambitious project will see a 172-mile (278 kilometer) route carved through the Central American country alongside an airport and two ports, and is predicted to be operational by 2020. The size of Nicaragua's canal will dwarf the current capacity of the passage through Panama, putting it directly in competition with the US ally for business.

In charge of the project is a newly created Chinese company, the Hong Kong Nicaragua Development Group. The company is led by an elusive Chinese businessman Wang Jing, a 41-year old telecoms executive, who hailed the beginning of work on the canal as a historic moment.

The Nicaraguan government, led by longtime US foe Daniel Ortega, has bent over backwards to accommodate the ambitious plans, granting Jing a 100-year lease on the canal alongside sweeping powers to appropriate land if it is deemed necessary for the project. Named the Grand Canal of Nicaragua, the project is forecast to bring significant economic growth to the country, one of Latin America's poorest.

Vice-President Omar Halleslevens said the canal would transform Nicaragua.

"With this great canal, Nicaragua expects to move 5 percent of the world's commerce that moves by sea, which will bring great economic benefits and double the GDP (gross domestic product),'' Halleslevens said

Yet not everyone has greeted the proposed construction with fanfare. Monday's ceremony, which marked the breaking of ground on an access road for the project, was accompanied by protesters blocking the highway to the capital Managua. Opponents of the plans have pointed out that the proposed route of the canal will cut through Lake Nicaragua, the region's largest fresh water resource and a source of drinking water for local residents. Carving out such a large amount of earth will force an estimated 30,000 local farmers and indigenous people from their land, according to AFP, with residents complaining of a lack of consultation and that they were offered "10 hens and a rooster" by the government to drop their protests. The Nicaragua population has been largely kept in the dark with financial and economic studies kept secret and approval for the project granted without any rival bids.

The mystery surrounding the project has lead some to speculate that it is a front for expanding Chinese national interests in the area. Although the Chinese government is not officially involved in the project, some analysts speculate that it is one of the few parties who could afford to foot the $50bn cost. Despite describing himself as an "ordinary man," little is known about the man at the helm of the development. Jing reportedly has strong links to powerful Chinese communist party members alongside multiple business connections to state owned companies. A Chinese state-owned company was involved in the initial feasibility study.

The project also highlights the geopolitical inroads that China is making in a region traditionally regarded as America's backyard. Panama recently began a massive $5.4bn upgrade to its canal in an attempt to see off the looming challenge from Nicaragua, and the US has thrown its weight behind those efforts, with Vice-President Joe Biden describing them as "a very important thing for the United States" during a tour of the construction work in November 2013. Having controlled the canal from its opening in 1914 until its handover to Panama in 1999, the US retains a strong interest in the waterway, and an estimated two thirds of all canal traffic is either coming from or going to the American mainland. Washington still holds enough diplomatic pull in Panama that it can order the search of vessels coming through the port. In July 2013 one such search, of a North Korean ship, uncovered 240 tons of Cuban weapons, including fighter jets, hidden under bags of sugar. The United Nations later fined the ship's operator and accused Cuba and North Korea of attempting to evade sanctions on arms sales to Pyongyang.

The new canal will undoubtedly take further revenue away from the Panamanian waterway, already struggling to see off competition as alternative routes increase in viability. The global shipping industry is rapidly outgrowing the ageing canal, with the biggest ships now capable of carrying 12,000 boxes, far too large for Panama's limit of 4,500. The decision, in 2013, by two of the world's largest shipping firms to divert some ships through the Suez Canal is already estimated to have cost Panama $40m a year in revenue. With the canal contributing an estimated $800m to the public coffers every year, it is business the small Central American country cannot afford to lose.

As ships outgrow Panama's creaking canal and Ortega presides over the Chinese construction of a new super-sized waterway, the US may soon see its hold on the inter-oceanic crossing starting to weaken — and passing into hands eager to challenge American power.