China and the World

Stamp of approval

Why Panama got a canal and Nicaragua didn’t

Canal w

At the turn of the last century the United States’ government was looking closely at Central America for a way to link the Pacific and Atlantic oceans. Its Canal Commission seemed to be leaning towards a longer route through Nicaragua after the failure of an earlier French attempt to build a waterway through Panama in the 1880s.

But bizarrely it was a simple postage stamp that swung the final decision.

Convinced that Panama was still the right route, a French engineer on the so-called “de Lesseps project” decided to send images of the Momotombo volcano to members of the US Congress to persuade them of the treacherous Nicaraguan terrain.

At short notice the only picture the engineer could find was on a set of stamps valued between 1-centavo to 5-pesos, which he inscribed with the words ‘An official witness to volcanic activity in Nicaragua’.

A day later when the American vote on the proposed canal route took place, the motion was passed 42 to 32 in favour of Panama.

But Panama’s century-long dominance as the bridging point between the two great oceans might be ending. That’s because of a similarly dramatic vote in Nicaragua’s National Assembly last week.

Despite political protests that the selection process has lacked transparency, the left-leaning national assembly granted a little known Hong Kong-based company a 100-year concession to build and operate a new east-to-west waterway, the cost of which is estimated at an eye-popping $40 billion. “The liquidity is in China,” Paul Oquist told the Wall Street Journal. This view from the Nicaraguan president Daniel Ortega’s private secretary for national policy also lent weight to suspicions that HK Nicaragua Canal Development Investment is a front for mainland money, and potentially even for the Chinese government itself.

Control of the Panama Canal, which processes 5% of world trade, passed to a local canal authority in 1999 although the US reserves the right to defend it if is threatened.

“Just as the Panama Canal was a projection of growing US power at the start of the 20th century, the Nicaragua project already reflects China’s influence and financial clout around the world. Another Hong Kong-based company has been operating port facilities on both ends of the Panama Canal,” the Associated Press wrote.

As China’s commercial reach has grown, so too has its interest in establishing a network of China-funded ports and shipping facilities in places as distant as Burma, Bangladesh, Sri Lanka, Pakistan, Nigeria, Togo and Greece.

This has led to mutterings in New Delhi that China is trying to encircle India with a so-called “string of pearls” stratagem. A variation on the theme is that these ports and container terminals could be repurposed to service Chinese warships in event of conflict.

But even some Indian analysts are starting to say this fear is overblown.

C Raja Mohan, the author of Samudra Manthan, a book on Sino-Indian rivalry in the Indian and Pacific oceans argues that Chinese activities outside the western Pacific are primarily commercial. China’s maritime preoccupation is with Taiwan and other territorial claims in the waters off its coast, Mohan suggests, although he also expects China to push further into the Indian Ocean to ensure access to overseas energy sources.

That suggests China’s further-flung activities are commercial rather than strategic.

Perhaps. Yet some already doubt that the canal project in Nicaragua makes commercial sense. Although the Panama Canal is working at full capacity currently, it is due to double its throughput potential by 2015 under an expansion project costing $5 billion. That’s a fraction of the cost of the much-longer Nicaraguan route, which will include an oil pipeline, an interoceanic  railroad, two deepwater ports, two international airports and a series of free-trade zones.

“Looking at the changing flows and where the growth is in the world economy, personally I’m not seeing it. I wouldn’t invest my money in it,” the Associated Press reported Rosalyn Wilson,  the author of a respected annual report on the US logistics industry, as saying. “It’s addressing a need that definitely is not here now and I’m not sure if it’s ‘a build it and they will come sort of thing,’” Wilson added.

But as The Economist has pointed out, China’s interest in assets like the proposed Nicaraguan waterway isn’t based simply on the question of trade volume.

Unlike older ports, much of the newer Chinese-built infrastructure will be able to service the modern generation of mega-vessels, which are more fuel-efficient and which should ensure lower costs for delivery of Chinese goods.

Then again, little is known about the proposed dimensions of the Nicaraguan canal – or even the plan for its route, for that matter (see map) – but the assumption is that it would have to be able to handle supersized vessels to make it worthy of the scale of the investment.

For the time being, the Panamanians seem unfazed by their northern neighbour’s ambitions, knowing that the project will have to overcome a bewildering range of challenges, especially the threat to Lake Nicaragua – the primary source of the country’s drinking  water – if the canal is routed though it.

The fact that HK Nicaragua Canal Development Investment Co and its sole owner Wang Jing are so little known doesn’t help either, fuelling rumours among the political opposition that it could be a scam, reports the Associated Press.

Despite the outward display of confidence, what President Daniel Ortega had to say at the signing ceremony this week suggested he might have had a few jitters too.

“Here we have our brother Wang Jing in flesh and blood,” he announced, pointing at the businessman to refute local speculation about Wang’s very existence. “Here is the ‘ghost’ in flesh and blood.”

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