Nicaragua announces start of China-backed canal to rival Panama

Nicaragua has announced the start of work on a $50 billion shipping canal, an infrastructure project backed by China that aims to rival Panama's waterway. The groundbreaking was largely symbolic, as work began on a road designed to accommodate machinery needed to build a port for the canal on the Central American country's Pacific coast.

Nicaragua's government says the proposed 278-kilometre canal, due to be operational by around 2020, would raise annual economic growth to more than 10 per cent, revitalising the economy of the second-poorest country in the Americas. The canal could also give China a major foothold in Central America, a region long dominated by the United States, which completed the Panama Canal a century ago.

Construction will begin at the mouth of the Brito river on Nicaragua's Pacific coast and the canal will then run across Lake Nicaragua, through rainforest and at least 40 villages before terminating at the mouth of river Punta Gorda in the southern Caribbean. Some farmers and native peoples living on the route oppose the project that will disrupt life along a 278-kilometre long corridor. The canal itself will be between 230 and 520 meters wide. A canal through Nicaragua has long been considered but was only thought to be financially viable in recent years.

Questions surrounding the project, financing remain

Construction of the new waterway will be run by Hong Kong-based HK Nicaragua Canal Development Investment Co Ltd (HKND Group), which is controlled by Wang Jing, a little-known Chinese telecom mogul well connected to China's political elite. Flanked by Nicaraguan president Daniel Ortega, who is a former Marxist guerrilla leader, Mr Wang said the tender for the preliminary design of the project would be offered by the end of the first quarter of 2015, by which time an environmental impact study would also be finished. By the end of the third quarter, excavation work would begin, with a tender for the design of the locks due by the end of the year, he said.

The company is expected to employ 50,000 workers over five years of building work. More than a year since it was first announced, the project faces widespread scepticism, with questions still open about who will provide financing, how seriously it will affect Lake Nicaragua and how much land will be expropriated for it. "Given how much this will cost, it's hard to take a stance on whether it will happen or not until there is a signal whether that money is available or not," said Greg Miller at consultancy IHS Maritime.

In the Americas, only Haiti is poorer than Nicaragua. Earlier, Nicaraguan presidential spokesman Paul Oquist said feasibility studies, including a McKinsey report that experts say will define interest in financing the canal, had been delayed by changes to the route and would be ready by April. Mr Oquist said the "core financing" would come from public and private Chinese money, without giving a percentage. But he added that Nicaragua is seeking international funding and rejected the idea that China will bankroll the project, worth roughly four times Nicaraguan gross domestic product.