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President Daniel Ortega and Wang Jing in Managua in July last year. (Photo: Nicaragua Vice President's Office)
A map of the planned canal.  (Courtesy: Nicaragua Vice President's Office)
Wednesday, January 14, 2015
Special Reports

Nicaragua Canal: China State Role

Chinese state lurks behind $50 billion Nicaragua Canal magnate.

LATINVEX SPECIAL
Tenacitas International

MANAGUA -- Just two years after Nicaragua’s signing of a memorandum whereby a start-up company run by the CEO of a Chinese military communications provider, Xinwei Telecom Enterprise Group, assumed the responsibility for financing the construction of a $30 billion, 173-mile canal between the Caribbean and the Pacific, the Grand Canal of Nicaragua officially broke ground on December 22. With a budget revised up to $50 billion and including a railway, an oil pipeline, deep-water shipping terminals at both ends, and at least one airport, it has an operational target date of 2020.

Breathtaking in scale – and for its pure chutzpah, given the current expansion of the neighboring Panama Canal (for a mere $5 billion) – Nicaragua’s canal will cater for the biggest container ships, bulk carriers and oil tankers, with capacities up to 250,000 DWT. Its Panamanian counterpart risks becoming a sideshow: it will be able to handle ships with only half the carrying capacity.

The Canal’s pre-agreed five-year construction timetable, its lack of identified financing plus the close ties of Wang Jing – the mysterious magnate behind Xinwei and the company that signed the memorandum, HK Nicaragua Canal Development Investment Co. Ltd (HKND) – with the Chinese communist party and the Chinese army, have led many observers to suggest that only the Chinese government could be behind such a massive undertaking.

For China, the Canal may prove an unprecedented geopolitical play to balance U.S. global power with a major foothold in its backyard. In addition, China would secure a route for the steady supply of raw materials from Latin America. China-Latin America trade surpassed $250 billion in 2012.

Wang said he would spend as much as $400 million of his own cash on the Canal and will use a combination of cross-shareholding, bank lending and debt issuance to raise the balance. By year’s end, he said HK Nicaragua Canal Development Investment Co. Ltd (HKND) plans to launch an initial public offering (IPO).

“I can’t imagine (Wang) would have gone forward without at least coordinating with the Chinese government,” said R Evan Ellis, assistant professor for Hemispheric Defense Studies at National Defense University in Washington in an interview with Reuters. “Big Chinese companies just don’t parachute down into Latin America.”

Two months before the original September 2012 memorandum, signed between the Nicaragua Grand Interoceanic Canal Authority and HKND, a Hong Kong corporation, a Netherlands consortium comprising Royal HaskoningDHV and Ecorys announced it had been awarded a contract to conduct a feasibility study for the canal.

While the rest of the world initially looked on in disbelief, it was neighboring Colombia who first hinted then at a Chinese geopolitical conspiracy fronted by Wang, whose Xinwei Telecom Enterprise Group grew profits from 30 million yuan ($4.8 million) in 2010 to 1.71 billion yuan ($273 million) in 2013.

Following the awarding by the International Court of Justice (ICJ), in the Netherlands, to Nicaragua of a maritime zone of 70,000 sq km in November 2012, former Colombian Foreign Minister Noemi Sanin voiced official concerns that one of the ICJ judges, Xue Hanqin, should have recused herself because as former Chinese ambassador to the Netherlands she was a colleague of Nicaragua’s ambassador and its ICJ proponent, Carlos Agüello, and must have known of the Canal project.

Sanín and Miguel Ceballos, a former vice-minister of justice, pointedly noted the ICJ ruling came after Nicaragua signed the memorandum with Wang, because China was “securing the territorial waters that Nicaragua needs for the project.” The disputed zone is also believed to be rich in oil reserves.

According to Forbes magazine, Wang Jing is now the 12th richest man in China. Wang has declined to say how he made his fortune and says he had no expertise in telecommunications before his acquisition of Xinwei in 2010. Its core enterprise Beijing Xinwei Telecom Technology Inc went public in 2013 in the biggest reverse takeover in Chinese stock market history.

According to an investigation by Nicaraguan lawyer Monica Lopez, HKDN has 15 associated companies including seven in the Netherlands and five in the Cayman Islands. They fall under a Chinese holding company, Beijing Dayang New River Investment Management Ltd. HKND’s only other known project is a $3 billion deep-water port in Crimea agreed with ousted Ukrainian President Viktor Yanukovich and suspended after the Russian invasion. Wang also has a mining company in Cambodia.

In spite of Xinwei’s astonishing growth, the Associated Press found in 2012 that in 12 of the countries where Xinwei’s group said it did business, there was no evidence of a successful operational project; in the other eight, industry sources had not heard of Xinwei or minimal information was available.

Last month, Wang’s Xinwei Telecom Enterprise Group announced on its website that it celebrated “The Inaugural Meeting of CPC [Communist Party of China] Beijing Xinwei Telecom Technology Group Co., Ltd. Committee and the First Party Congress”. The website reported that Wang Jing “reviewed the fidelity of every Xinwei member towards party’s cause”.

He stated: “Since the restructuring of Xinwei… we have set the general goal of ‘Devotion to the Country’, and fostered the spirit of ‘Devote to the Public and Sacrifice for Others, Fulfill Commitments and Serve the Country’. Both our goal and spirit are in accordance with the party’s guidelines, lines, and requirements. Today… with the achievements we have made one after another, we establish the CPC committee.”

Allegedly the son of a high-ranking military official and grandson of Wang Zhen, one of the “Eight Elders” of the CPC, Wang’s company is the first private firm to invest in China’s space industry, which is mostly military-run. The company, which has gained vendor certifications from the General Armament Department of the People’s Liberation Army, announced in October the launch of the first of a “constellation” of 32 satellites to create a space information network connecting objects on Earth with air and space craft.

Chinese investment bank Guotai Junan Securities writes that Xinwei is planning on becoming the “brain of the future military network” of China. Wang Jing affirms: “Through our efforts, we will serve the strategic requirements of our national development so as to enhance the competitiveness of our country and our nation, demonstrate our value in the realization of our national interests and contribute to the progress of world civilizations.”

Amid concerns that the Grand Canal of Nicaragua might just constitute a Chinese geopolitical initiative rather than the private entrepreneurial project Wang professes, HKND has hired an army of the world’s most prestigious legal and consultancy services, including Kirkland & Ellis, McLarty Associates, McKinsey & Co and Environmental Resources Management.

Colombia’s anger is aggravated by the fact it has long dreamed of creating an alternative to the Panama Canal having lost its isthmus to U.S.-backed separatists a century ago. Indeed, in 2011 advanced talks existed with China for building a 250-mile “dry canal,” a ship-to-rail system linking Buenaventura on Colombia’s Pacific coast to an Atlantic port to be built near Cartagena.

But Colombian accusations of irregularities in The Hague may also be nourished by the strange capitulation by the Netherlands last year to Venezuela, which has the world’s greatest proven oil reserves and in 2015 aims to provide China one million barrels a day – nearly half its current output – and is building a $9 billion joint refinery with China National Petroleum Corp (CNPC) on China’s southern coast.

When a former Venezuelan military intelligence chief was arrested in Aruba, in the Netherlands Antilles, on U.S. charges of drugs trafficking and the protection of terrorism, the Netherlands government intervened for his release. Aruba is home to an oil refinery whose owner Valero, a Texan company, reported in 2012 it had received an offer of $350 million plus working capital. Aruba’s prime minister, Mike Eman, stated the government was in talks with a subsidiary of CNPC.

According to sources cited by Reuters in 2012, PetroChina had reached a deal with Venezuela’s state oil company, PDVSA, for supplying the Aruba plant with crude produced jointly between Chinese firms and the state. The plant has two coker units able to semi-process the heavy Venezuelan crude. The product would be shipped to China for finishing in its refineries.

Two days before the visit to Aruba of the former Venezuelan intelligence chief, Hugo Carvajal, the Chinese president, Xi Jinping, had been in Caracas signing oil and mineral deals in exchange for a $4 billion credit line, bringing Chinese loan agreements to Venezuela since 2007 to more than $50 billion – half its total exposure in Latin America. The Venezuelan loans are repaid in oil. Was the Netherlands leaned on by China as well as Venezuela?

Last month, during a largely symbolic inaugural ceremony in Brito, a town five kilometers from where the first port will be built in Nicaragua’s Pacific coast, Wang Jing declared: “In more than two years, the doubts and speculations on the canal project about protection of the environment, resettlement, technology, machinery, finance, law, politics, experience, equipment, etc. never stopped. Today we proudly announce that we have overcome all those challenges.”

Meanwhile, local inhabitants fear for their livelihoods and that their lands will be confiscated without fair compensation. Others fear for Lake Nicaragua, the largest reservoir of drinking water in Central America, and for the wetlands and virgin rainforest where the dredging will slice through. Local journalist Fabian Medina says the worst scenario for Nicaragua “is not between building the canal or not, but rather seeing the lake and rivers destroyed and the Chinese abandoning it right in the middle of its construction.”

But if the Grand Canal of Nicaragua in fact represents for China what the Panama Canal represented for so long to the United States – a secure strategic military and transport base facilitating its supply of agricultural commodities and minerals at the same time as being a conduit for its exports of manufactured goods – then perhaps it might just happen.

Republished with permission from Tenacitas International.

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