Next month, a company promoted by a supplier of telecommunications equipment to the Chinese People's Liberation Army (PLA) is set to begin work on constructing a 278-kilometre waterway across Nicaragua, which would compete with the Panama Canal in connecting the Pacific and Atlantic oceans. It is a project that by all accounts - except those of the Chinese promoters and the Nicaraguan government - does not make commercial sense.
The investors have been awarded a renewable 50-year concession in return for an investment upwards of $50 billion, under terms so loaded in their favour that Daniel Ortega, Nicaragua's onetime-guerilla-leader-turned-president, is being accused of being a vende patria ("traitor" in Spanish). Hong Kong Nicaragua Canal Development Investment Co Ltd (HKND), the firm fronted by Chinese tycoon Wang Jing, gets extraordinary rights to appropriate land, and build ports, an airport, a free-trade zone, hotels and resorts, in addition to constructing the waterway. It has promised to complete the job in a mere five years.
Project risks are heavily borne by the Nicaraguan government, which has justified this deal on the basis that it will alleviate poverty by the end of this decade. HKND will own all shares, which will be transferred gradually - over 100 years - to the Nicaraguan government, starting 10 years after the canal opens for traffic. Nicaragua gets $10 million a year until then.
The usual bananas are involved, and in no small measure: President Ortega's son is personally overseeing the project, Chinese "census" teams are surveying people's homes, ghastly ecological impact is being overlooked, the judiciary is throwing out petitions against the project and so on. No one knows much about Mr Wang, or the private investors he claims to be bringing on board, the exact route of the canal, or even its business case.
The Panama and Suez canals are anyway being upgraded to carry the estimated growth in traffic volume and size of ships. Shipping industry analysts note that while the Nicaragua canal will be navigable by 400,000-tonne ships, the cargo such ships carry will be more cost-sensitive and less time-sensitive - which makes it hard to build a strong enough case for the new canal. Unable to see the business case, they attribute the project to geopolitics.
While Mr Wang does appear to have strong connections with the PLA and the Chinese government entities, both Beijing and HKND have denied that the project has official backing. Nicaragua and the People's Republic do not even have diplomatic relations (Managua recognises Taiwan). That said, it is inconceivable that Mr Wang is attempting a $50-billion project without the backing of elements of the Chinese government, albeit with (barely) plausible deniability.
What is China buying? The most innocent explanation is WYSIWYG. It's investing in a canal project with some large infrastructure and real-estate businesses thrown in to make the business case more attractive. The prestige of achieving a massive feat of civil engineering will add lustre to Chinese firms, boost China's international standing, and make it a credible player in the United States' immediate neighbourhood. Another innocent explanation is that Mr Wang and Co have just hustled a Latin American president in a mega real-estate scam, or even that Messrs Wang and Ortega have hustled the Nicaraguan people into parting with their land.
It would be naïve to rely entirely on innocent explanations. For instance, in 1998 Chong Lot Travel Agency, a Chinese company, purchased the Varyag, an incomplete Soviet-made aircraft carrier, from the Ukrainian government for $20 million to tow to Macau and convert into a floating casino. It now sails as the PLA Navy's Liaoning, and is used to train naval pilots after considerable refitting.
The Nicaraguan deal gives Beijing a territorial foothold in Central America, which it can decide to convert to outposts, bases or even a colony. If the United States can have military bases in China's neighbourhood, then China would only be returning the favour by setting up its own in Central America. Nicaragua is not the new Cuba yet, but it can be. The option comes with a big price tag, but Beijing has enough time and enough room to decide whether and when it's worth it.
Meanwhile, the arbitrariness, opacity, strong-arm tactics and sheer disregard for massive environmental damage has raised hackles among the Nicaraguan people, as across Latin America. Like in Africa, while Beijing makes nice with top leaders, expatriate Chinese workers do not integrate well with local communities. Despite the billions and partly because of them, Nicaraguan villagers have been carrying placards saying "No Chinos!". Unlike in Africa though, Beijing will have to contend with far more powerful civil society groups and a lot more attention from the international media.
Evan Ellis, a professor at the US Army War College, does not expect China's presence in Latin America to create a Cold War-type ideological conflict, but "the mercantilist way in which it promotes its economic development, combined with its lack of commitment to international norms that it didn't create, makes it more difficult for the United States to conduct business and pursue policy goals in Latin America and other parts of the world".
When seen in context with China's outreach the Latin American and the Caribbean countries, especially Venezuela, Cuba and Argentina (who have an anti-United States disposition), the Nicaraguan investment can be seen as Beijing's way of managing the United States involvement in the Indo-Pacific. Regular readers will recognise this calculation as being similar to this column's call for India to deepen its presence in East Asia: to manage China's involvement around the subcontinent. Fishing in each others' waters can lead to balance.
The writer is co-founder and director of the Takshashila Institution, an independent, non-partisan think tank
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
