The Nicaraguan Canal Project Explained

China’s latest big project idea involves blasting a ship canal through the Nicaraguan mainland. Formally announced in mid-2014, the canal will consist of a 276 kilometre long channel with a width ranging from 280 to 500 meters that will cost an estimated $50 billion.

An Alternative to the Panama Canal

When finished, the canal will compete for shipping traffic with the Panama Canal due to both its proximity to the United States and - with wider channels - its ability to handle the new generation of super-size freight ships currently emerging in the shipping industry.

Nicaragua Canal Can Save Shippers Money and Time

Independent estimates cited by World Maritime News state that the canal will prove attractive to shippers because it will result in 30% less fuel consumption and a 6% reduction in journey length. Ships plying the Asia-US East Coast route will spend less on fuel by having shorter journey times of 20,200 miles through the mooted Nicaragua canal, compared with 21,500 miles when travelling through the Panama Canal.

The Nicaragua and Panama Canal

Source: BBC

HKND: Shipping Volumes to Double Between 2020 and 2070

Attracted by the shorter journey times and reduced fuel spends, Hong Kong Nicaraguan Canal Development Group (HKND), the company building the project, forecasts annual shipping frequencies of 3,576 ships in 2020, rising to 6,598 vessels by 2070, with total traffic dominated by container vessels as well as oil tankers, grain carriers and iron ore ships.

The company expects to cash in on the lucrative shipping canal industry. The Panama Canal alone generated $1 billion in profits in 2012 and, with trade volumes expected to grow 10.5% annually between 2015 and 2030, shipping routes between the Americas and Asia are an attractive investment opportunity.

Nicaragua Canal Supports China's Geopolitical and Commercial Goals

Aside from the commercial opportunity, HKND is likely working with the implicit backing of the Chinese government, which is looking to expand its global influence. Building a trade link such as the Nicaragua Canal can help China diversify its sources of freight and ease pressure on trading ‘choke points’, areas which can be easily shut down to enforce embargoes in the event of political conflict. Also, by forging ahead with canals and free trade zones, HKND can set up infrastructure for Chinese industries looking to move overseas to exploit cheap labor and attain proximity to key markets such as the United States.

Feasibility and Political Risks Are Emerging

Doubts remain, however, about whether the project can actually be realised. Such a canal has been mooted for years but previously rejected due to concerns about whether a canal of such size can actually be constructed, particularly by a company such as HKND, which has no track record of developing large-scale infrastructure projects. Nicaragua also presents risks from earthquakes and political instability in the country itself.

Furthermore, opposition is growing in Nicaragua since there have been no independent impact assessments of the project on the local environment. The project announcement in December was met with protests in Managua, Nicaragua’s capital, due to concerns about the environmental impact of the canal, which Rachel Nuwer of the Smithsonian, says will, ‘destroy 400,000 hectares of rainforest and wetlands…..coral reefs and mangroves.’ Furthermore, Nicaragua’s water supplies will be impacted by opening up inland lakes to seawater.

Nicaragua Project a Sign of China's Growing Presence on the Global Stage

But, this case illustrates the impact of ongoing development trends in the Asia-Pacific region. China’s growing global influence is driving investment out of the mainland and changing the form of global trade infrastructure as energy and geopolitical concerns are pushing even more ambitious projects across the globe. As such, these developments present opportunities and challenges for the corporate sector, such as looking hard at future startegies, taking advantage of new trade links and contending with aggressive competitors from Asia.

Can China Contend With Being a Global Player?

These trends give rise to even more concerns/challenges at the geopolitical level, such as how China will export its corporate development model overseas and how the global political system deals with Asian nations becoming more prominent on the scene.

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