Will Chinese economic troubles imperil plans for a canal in Nicaragua?

BY KEVIN NESLAGE – Since its announcement in 2012, there have been plans in Nicaragua for the construction of a second transoceanic canal in Central America, which will directly compete with the Panama Canal.[1] The purpose is to help boost the economy of the economically struggling country by being able to offer a canal that can accommodate ships that are too wide for the Panama Canal.[2]

However, the project is primarily supported by the Chinese businessman Wang Jing, who during the recent Chinese economic crash lost the majority of his fortune.[3] Since mid-June Mr. Jing has lost $9.1 billion, or 84% of his assets. No other billionaire has lost a greater portion of assets during the Chines economic downturn.[4]

Originally, the plan was projected to cost $40 billion,[5] but more recently the price has been estimated at $50 billion.[6] However, Panama Canal Authority CEO Jorge Quijano estimates that it would actually cost between $67-70 billion.[7] Mr. Jing has indicated that he would use part of his own fortune to finance the project, but due to the recent market downturn, he now has significantly less resources. There had also been indication of financing from private banks, but a canal has always seemed a risky proposition and Mr. Jing may no longer have the collateral for a secured loan of the size necessary to finance a project of this scale.[8]

In addition to the now ballooning financial obstacles, the project has already had to deal with significant environmental, political, and engineering obstacles.Serious environmental concerns have been raised about the project such as whether there is enough water to fill the canal, and whether there is a seismic risk from the project.[9]

The canal as it is currently proposed will travel through the Rio Escondido and then through Lake Managua, also raising concerns of the impact on freshwater ecosystems and deforestation from the digging of the canal.[10] These concerns have been raised by environmental groups and the government of Costa Rica, which in part are being addressed by the Britain based firm ERN, who conducted an environmental feasibility study elaborating in detail the impact of the canal.[11]

Further complicating the situation is the displacement of indigenous populations along the proposed route of the canal. According to the same ERN report, some 30,000 peoples might be displaced because of the construction of the canal.[12] These people would be displaced by the canal zone that was created by the signing of a concession by the Nicaraguan government to Mr. Jing’s company to administer a canal zone 3-5 miles wide on either side of the canal for 50-100 years.[13] The concession would allow that same company to expropriate land from people within the canal zone.

Finally, the project is also being proposed at a time when the Panama Canal is set to open its new widened locks, allowing for passage of wider cargo ships.[14] While the new locks being opened up on the Panama Canal do not support cargo ships as large as those on the proposed Nicaragua canal, Panama Canal Authority CEO Mr. Quijano says that he does not see the Nicaraguan Canal as a real competitor.[15]

If the proposed Nicaraguan Canal is to truly break ground as planned in 2016, it still has significant obstacles to overcome. While previous issues of geography, politics, and environment may have been surmountable, the growing problem of financing may now be too large for Mr. Jing to make a second Central American transoceanic canal a reality.


[1] Chris Kraul. Nicaragua canal raises questions that remain unanswered, says study, LA Times, (1 Oct. 2015) http://www.latimes.com/world/mexico-americas/la-fg-nicaragua-canal-environment-20151001-story.html. (last visited 31 Oct. 2015).

[2] Id.

[3] Gordon C. Chang. China Stock Crash Imperils Proposed Nicaragua Canal, World Affairs, (8 Oct. 2015)http://www.worldaffairsjournal.org/blog/gordon-g-chang/china-stock-crash-imperils-proposed-nicaragua-canal. (last visited 31 Oct. 2015).

[4] Id.

[5] William F. Jasper. China to Build $40-Billion Canal Through Nicaragua, The New American http://www.thenewamerican.com/world-news/north-america/item/16844-china-to-build-40-billion-canal-through-nicaragua. (last visited 31 Oct. 2015).

[6] Russia Ready to Join Nicaraguan Canal Construction When Progress Noted, Sputnik International, http://sputniknews.com/latam/20151026/1029105985/russia-nicaragua-canal.html. (last visited 31 Oct. 2015).

[7] http://www.wsj.com/articles/china-wants-to-dig-the-nicaragua-canal-1439159390

[8] Supra at 3

[9] Nicaragua Canal Project Faces Environmental, Financial Challenges, Hellenic Shipping News, (10 Aug. 2015) http://www.hellenicshippingnews.com/nicaragua-canal-project-faces-environmental-financial-challenges/. (last visited 31 Oct. 2015).

[10] Noah Ramirez. Further studies underway to define final Nicaragua Canal route, BN Americas, (29 Oct. 2015), http://www.bnamericas.com/en/news/infrastructure/further-studies-underway-to-define-final-nicaragua-canal-route-says-hkndl. (last visited Oct. 31, 2015).

[11] Id.

[12] Pratap Chatterjee. Nicaragua Grand Canal Project Hits Obstacles After Protests Against Developer, CorpWatch (8 Oct. 2015), http://www.corpwatch.org/article.php?id=16056. (last visited 31 Oct. 2015).

[13]Josh Ferry Woodard. Waiting for the Canal, Slate, (23 Oct. 2015), http://www.slate.com/articles/news_and_politics/roads/2015/10/a_50_billion_chinese_built_canal_will_transform_life_in_nicaragua.html. (last visited 31 Oct. 2015).

[14] Panama Canal: Bigger, Better and Ready to Rumble, Business Facilities (Sept./Oct. 2015), http://businessfacilities.com/2015/10/panama-canal-bigger-better-and-ready-to-rumble/. (last visited 31 Oct. 2015).

[15] Id.

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