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Topic: Latin America (Read 24883 times)
China's growing presence in Central America
Reply #100 on:
July 01, 2013, 04:59:29 PM »
China's growing economic activity and diplomatic involvement in Central America show Beijing strengthening its ties with the region, despite the United States' historical dominance there. The current presence of the Chinese government and corporations is relatively small, and Chinese strategy in Central America does not immediately threaten U.S. economic and political power in those countries. In the long term, however, China intends to use steadily increasing trade and investment to obtain access to Central America's emerging markets and gain political allies.
China's strategy in Latin America seeks to fulfill three principal interests: securing resources abroad to maintain domestic economic growth, encouraging nations to recognize China instead of Taiwan and opening new markets for Chinese goods. For example, these objectives define the Chinese relationship with Venezuela. China has invested billions of dollars in joint ventures for oil extraction and maintained political recognition from Venezuela, while its trade relations with that country have flourished.
Central America's relationship with China differs from this because of its relative resource scarcity and deeply rooted political and economic connections to the United States. This lack of energy or mineral resources has led Chinese firms and diplomats to focus more on bilateral trade and political recognition.
The favorable geographic characteristics of the narrow Central American isthmus separating the Pacific and Atlantic oceans also stoked interest from Chinese representatives, among others, in constructing an alternate transit route to the Panama Canal. A proposed canal in Nicaragua, which has been envisioned for more than a century, would connect Nicaragua's Caribbean and Pacific coasts. In June, the Nicaraguan legislature approved a $40 billion proposal by a Hong Kong-based company to construct it. The company's owner said construction would begin in 2014 and end in 2020. The planned canal would be 286 kilometers (178 miles) long and allow ships displacing 400,000 tons to pass. Private Chinese companies have also expressed interest in studying the feasibility of proposed railroads between the Caribbean and Pacific coasts of Honduras and Colombia as alternatives to shipping cargo through the Panama Canal.
Despite reports of China's involvement in significant infrastructure projects, recognition of China and expanded trade remain the dominant issues in its relationship with Central America. China increased its trade with the region and obtained political recognition from Costa Rica by providing states with public works and economic incentives. In 2007, for example, China incentivized Costa Rica to expel Taiwanese diplomats and recognize China by offering the country a $130 million aid package and purchasing $300 million in Costa Rican bonds. Central America's relative poverty and lack of infrastructure make recognition of China a lucrative decision for regional leaders seeking financial aid. China has also increased its economic presence in Central American states more than Taiwan has, with China's exports to all nations there outpacing those of Taiwan. Costa Rica remains the only regional country to date that recognizes China, but Honduras previously expressed interest in reversing its recognition of Taiwan.
The United States' historical control of the area remains a barrier to any significant inroads by the Chinese. Central America's proximity to the world's largest importing market and U.S. political and military interventions in the region have ensured U.S. dominance.
Central America's proximity to the strategically important Gulf of Mexico makes it critical for the United States to ensure that no foreign competitor dominates that region. Central America also has traditionally acted as a buffer between the United States and any threats. During the first half of the 20th century, the United States secured Central American countries against internal political instability by conducting frequent military interventions to end conflicts and install U.S.-allied governments. After World War II, both the United States and the Soviet Union vied for ideological and material influence in the region. The result of these American efforts was its uncontested dominance of Central America and sensitivity toward potential threats from the region.
This U.S. authority discourages significant Chinese involvement in Central America. Any Chinese investment in significant infrastructure works, such as the proposed Nicaragua canal, could raise long-term political concerns in Washington. The entrenched U.S. influence in Central American political and economic systems makes such ambitious Chinese interaction with those states unlikely. Central America remains a valuable zone for U.S. strategic interests, which means Chinese influence there will likely remain focused on economic issues and modest political gains.
Read more: China's Growing Presence in Central America | Stratfor
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Gang truce looking fragile
Reply #101 on:
July 14, 2013, 11:23:38 PM »
El Salvador's Fragile Gang Truce and Threats to Regional Peace
July 12, 2013 | 0515 Print Text Size
An 18th Street gang member takes part in an event to surrender weapons March 9 in El Salvador. (JOSE CABEZAS/AFP/Getty Images)
A steadily increasing tempo of homicides throughout El Salvador in June and July could portend an end to a fragile truce between the country's two main criminal gangs, Mara Salvatrucha and Calle 18. In the year after the cease-fire took effect in March 2012, the country's murder rate -- which was then the second highest in the world after Honduras -- was reportedly cut in half. The apparent success of the truce, which was backed by the Roman Catholic Church and the Organization of American States, encouraged the Guatemalan and Honduran governments to consider striking armistice deals with gangs in their countries in hopes of similarly reducing murder rates. However, the recent surge in Salvadoran gang violence may weaken support for such crime reduction initiatives. If the tenuous peace in El Salvador indeed collapses, a rare opportunity to reduce violent criminal activity may be lost in Central America.
The recent increase in homicides in El Salvador was punctuated by a spike at the beginning of July, when 103 people were reportedly murdered in one week. There have also been indications that Salvadoran gangs may be preparing for a future conflict, with reports suggesting that some gang members have continued acquiring firearms during the truce for later use.
According to local media, the increased violence may stem from when, in late May, El Salvador's newly appointed security minister, Ricardo Perdomo, withdrew from imprisoned gang leaders certain privileges, such as the right to call news conferences, that were allegedly part of the peace deal. Raul Mijango, a former guerrilla and lawmaker who helped broker the truce, said the killings increased because the jailed leaders have lost control over lower-ranking members on the streets. Whatever caused the violence, it appears to have alarmed Salvadoran officials, with Salvadoran President Mauricio Funes summoning Mijango to an emergency meeting on July 4.
The Rise of Central America's Gangs
Though Mara Salvatrucha and Calle 18 are present throughout North and Central America, they do not operate as monolithic entities. The gangs are organized into regional cliques, each with control of their own territory, and only loosely connected at national and international levels through financial ties and cultural identifiers.
The two major gangs, along with several smaller criminal groups, have undermined security severely in Guatemala, El Salvador and Honduras since the early 1990s, when Salvadoran immigrants who had founded the gangs in Los Angeles were deported. Mara Salvatrucha and Calle 18 then swelled in size -- with combined membership reaching an estimated 27,000 members in El Salvador and 100,000 throughout Central America by 2011, according to Salvadoran police estimates -- and became involved in a range of criminal enterprises, including human trafficking, drug trafficking, arms smuggling and extortion. The subsequent rise in murders, and the gangs' control of entire urban neighborhoods, turned gang-related criminality into a major political challenge for Central American governments.
The Evolution of Mexico's Cartels
As small, resource-poor countries that historically have lacked strong institutions, El Salvador, Guatemala and Honduras were particularly affected, and the region's expanding role as a trafficking corridor for South American cocaine exacerbated their problems. The drug trade fueled dramatic rises in crime in each country, eroding the governments' control over large areas of territory and preventing them from providing even minimal levels of security to their citizens. Crime became a major domestic and foreign policy issue for regional leaders, and the alleged involvement of the gangs in international drug trafficking networks controlled by Mexican cartels has made Central American security a concern for the United States.
Negotiations and Challenges to Peace
In search of a viable way to stem the violence, El Salvador's ruling Farabundo Marti National Liberation Front became open to striking a deal with Mara Salvatrucha and Calle 18, despite misgivings from conservative political opponents. Mijango began negotiations with the alleged approval of former Security Minister David Munguia Payes in late 2011 or early 2012. In exchange for a promise to stop the killing, government representatives reportedly agreed to transfer high-ranking gang members out of a maximum-security prison and provide financial incentives, among other rumored concessions. While the exact details of agreements remain unclear, the government apparently made similar offers to both gangs.
The initial success of the cease-fire attracted attention from gangs and religious leaders in neighboring Honduras, where jailed gang leaders indicated their willingness to reach a similar deal with the government. The Organization of American States suggested recently that a peace agreement could be reached with Guatemalan gangs by the end of 2013. But the collapse of Salvadoran truce would endanger these initiatives and possibly deny regional governments a similar means of reducing violence, regardless of what has caused the recent wave of killings.
Government leaders in all three countries -- particularly those from conservative or opposition parties that typically oppose bargaining with criminal groups -- would likely undermine future peacemaking attempts, since such leaders would consider more truces politically risky and potentially expensive. The United States, which Central American governments rely on heavily for security funding, also does not support negotiations with the gangs.
Still, there is some hope that the decentralized leadership structures of the gangs will make them willing to negotiate even if the current truce fails. Since individual cliques often operate in isolation from one another, the end of the Salvadoran cease-fire would not necessarily impact the decisions of gang leaders in Honduras or Guatemala. The concessions that could be gained in the deal may prove tempting enough to keep such groups at the negotiating table.
Read more: El Salvador's Fragile Gang Truce and Threats to Regional Peace | Stratfor
Follow us: @stratfor on Twitter | Stratfor on Facebook
Chinese canal through Nicaragua?
Reply #102 on:
July 16, 2013, 12:45:36 PM »
Reply #103 on:
November 25, 2013, 11:05:42 AM »
Kerry kills Monroe Doctrine
Reply #104 on:
November 27, 2013, 07:08:40 PM »
Stratfor: Panama Canal
Reply #105 on:
January 27, 2014, 09:08:47 AM »
Panama Canal Expansion: The Dangers of Long-Term Delays
January 27, 2014 | 0518 Print Text Size
Significant delays to the Panama Canal expansion project are increasingly likely as negotiations between the multinational construction consortium, Spanish financiers and Panamanian authorities drag out. The Grupo Unidos Por el Canal consortium is threatening to stop work at the end of January after already extending the previous deadline past Jan. 20. According to the Panamanian Dispute Adjudication Board, which is arbitrating the negotiations over who will cover cost overruns, a work stoppage could mean that the canal will not be completed until as late as 2020.
Because the project has been delayed once already, from an estimated completion date of 2014 to mid-2015, a postponement of a year or so would be well within the bounds of previous setbacks. How long it is delayed now will be determined by several factors, including whether the project will need a new consortium of builders and financial backers; such decisions will be shaped by ongoing negotiations between the principal stakeholders. The duration of any holdup itself will be critical in determining whether the ongoing dispute is geopolitically significant. A delay of a year or less is unlikely to have major consequences. On the other hand, a five-year delay could strain regional ports and transportation infrastructure, particularly as the United States continues to emerge from its economic downturn.
The expansion project will enable significantly larger bulk and container ships to pass through the canal. In essence, it will improve connectivity between Asia and the eastern coasts of North America and South America by making an all-water route accessible to a wider range of ships. The U.S. Gulf Coast and trade ports in the Caribbean stand to benefit the most from the increased shipping volumes of larger ships. East coast ports that have the capacity to handle new, larger Panamax ships will be in direct competition with west coast ports and interior transportation lines for trade traffic.
These effects will be seen regardless of the timeline of the project's completion, but depending on the length of the delay, different elements of infrastructure -- particularly port and railway industries -- and their associated companies will be affected in different ways.
Ports in the Western Hemisphere are watching the ongoing negotiations with much anticipation. Ship designs are always changing to maximize efficiency, but at this point it appears that the canal improvements will permit ships that can carry up to three times as much containerized cargo as the current Panamax ships. The maximum bulk cargo weight of standard vessels is expected to increase by roughly 50 percent, to around 120,000 metric tons. This increased capacity will give ports the opportunity to handle greater cargo volumes and generate additional revenue.
But to be ready to do that, ports will have to be modified to receive the larger post-Panamax ships, requiring hundreds of millions of dollars worth of upgrades. New Panamax ships -- with significantly larger hulls and displacement -- draw much more water than current Panamax ships. This means that ports will need to have channels and berths at least 15 meters deep. For many locations, this will require significant dredging. This is particularly true of Gulf coast ports such as Houston, which tend to be relatively shallow, but even east coast ports will have to deepen their channels and berths. For example, the Port of New York and New Jersey began dredging key channels to depths of 15 meters in 2005. The New York and New Jersey Port Authority is also raising the Bayonne Bridge by 19.5 meters to allow enough air clearance for larger tankers entering the port. The project is taking place without disrupting traffic and is expected to cost $1.29 billion.
Other ports in the Western Hemisphere have already invested or are preparing to invest in the improvements necessary to receive increasingly large ships. These include Norfolk, Va., and Savannah, Ga.; Kingston, Jamaica; Cartagena and Buenaventura in Colombia; and Suape and Santos in Brazil. These are long-term investments designed to keep the ports relevant and competitive in a global climate in which ships are becoming larger each year, regardless of the status of the Panama Canal.
For the ports that are set to complete their expansions by the mid-2015 Panama Canal benchmark, the delay could mean a longer timeframe for recouping upgrade costs. But these are large infrastructure projects requiring enormous efforts and financing. As such, they are subject to their own delays, and a hold in the completion of the canal expansion may give some of these ports more breathing room and time to complete their own improvements before the canal upgrade affects regional trade dynamics. Longer delays to increased trade volume would likely create serious financial implications for a great number of ports.
A shorter delay, however, will provide a reprieve for west coast ports in North America that are likely to become slightly less competitive once high-volume all-water routes to the east coast become viable. This is a potential boon for inland railways that transport goods from west coast ports to east coast consumers, which could see higher-than-expected demand if the expansion is delayed. The prospect of the eventual completion of the canal would reduce incentives for substantial additional infrastructure investment, meaning that a long delay of five or more years would leave North America reliant upon existing infrastructure. As the U.S. continues to recover economically, additional imports could begin to seriously strain existing infrastructure at west coast ports and railways if the Panama route does not open. South American ports, for the most part, serve localized markets and are unlikely to see these kinds of distributed risks.
A longer delay to the canal becoming fully operational would also substantially impact liquefied natural gas exports from the Gulf Coast to Asian consumer markets. Whereas the current canal is too small for most liquefied natural gas tankers, the new canal dimensions are big enough to fit the majority of the tankers currently in operation. As a result of the boom in natural gas production in the United States, the first liquefied natural gas export facility at Sabine Pass, La., is expect to come online in 2016. The majority of the export contracts being signed by prospective liquefied natural gas exporters are with Asian countries. Therefore, being able to go through the Panama Canal would be substantially more efficient than having to go around the capes of South America or Africa. Expanded capacity at the Panama Canal will also be a boon for exporters of oil derivatives on the U.S. Gulf coast.
The investment boom in Western Hemispheric ports -- as a result of the planned expansion as well as the gradual enlargement of ships in the global fleet -- has introduced a multitude of variables that will affect the eventual outcomes of the canal. Every port in North America hopes to improve its competitiveness to secure a larger share of the anticipated uplift in maritime trade. The individual financial profiles of seaports will determine their resilience in the face of a delayed Panama Canal upgrade. Looking at the maritime distribution system as a whole, however, it becomes clear that while a short delay will have a limited impact globally, a long delay could put serious stress on existing North American infrastructure.
Read more: Panama Canal Expansion: The Dangers of Long-Term Delays | Stratfor
Re: Stratfor: Panama Canal
Reply #106 on:
January 27, 2014, 10:54:28 AM »
IIRC, we used to own and manage a canal there.
Re: Latin America
Reply #107 on:
January 27, 2014, 02:06:51 PM »
Colonialism is over. The French and the Brits used own Suez. For that matter England used to own a big chunk of North America as did the Russians, the French, the Spanish, and the Dutch,. If you want to go back to biblical times just look at present day Middle East. There needs to be a statute of limitation on absentee ownership.
Russia begins to expand into Latin America
Reply #108 on:
March 21, 2014, 11:07:04 PM »
Re: Latin America
Reply #109 on:
July 26, 2014, 01:35:23 PM »
Hat tip to CCS:
American "intrusion" is both welcome and not welcome, depending on what it is and depending on who minds and who does not mind. In any case, The US is losing LatAm with Obama's extreme "flexibility."
One day's Yahoo Latin-America headlines:
Japanese PM opens LatAm tour with Mexico energy deals
Chinese president ends regional tour in cradle of Cuban Revolution
Chinese leader signs accords, wraps up Cuba visit
Chinese president backs Cuba's economic reforms
China, Venezuela deepen economic ties during visit
Cuba hopes for more investment as Chinese president arrives
China, Russia leaders seek South American inroads
Chinese leader woos Latin America with deals
Brazil, China sign several trade, business deals
Russia set to reopen Soviet-era spy post on Cuba: source
China seeks to build railways in Brazil to ship out commodities
BRICS meet South American leaders after bank deal
Putin, Kirchner seek 'multipolarity' in Argentina visit
China's leader Xi departs for South America tour
Putin signs nuclear energy deal with Argentina
Putin in Argentina, building Russian ties
Putin in Cuba, Nicaragua to rekindle Latin America ties
BRICS to launch bank, tighten Latin America ties
Putin kicks off Latin America tour with Cuba stop
Putin pledges to help Cuba explore for offshore oil
Putin in Cuba to rekindle Latin America ties
VP Joe Biden: A plan for Central America
Reply #110 on:
January 30, 2015, 10:55:10 AM »
AS we were reminded last summer when thousands of unaccompanied children showed up on our southwestern border, the security and prosperity of Central America are inextricably linked with our own.
The economies of El Salvador, Guatemala and Honduras remain bogged down as the rest of the Americas surge forward. Inadequate education, institutional corruption, rampant crime and a lack of investment are holding these countries back. Six million young Central Americans are to enter the labor force in the next decade. If opportunity isn’t there for them, the entire Western Hemisphere will feel the consequences.
Confronting these challenges requires nothing less than systemic change, which we in the United States have a direct interest in helping to bring about. Toward that end, on Monday, President Obama will request from Congress $1 billion to help Central America’s leaders make the difficult reforms and investments required to address the region’s interlocking security, governance and economic challenges. That is almost three times what we generally have provided to Central America.
Last summer, as our countries worked together to stem the dangerous surge in migration, the leaders of El Salvador, Guatemala and Honduras asked for additional assistance to change the climate of endemic violence and poverty that has held them back. In June, I made it clear to these leaders that the United States was ready to support them — provided they took ownership of the problem. Mr. Obama drove home this point when the leaders visited Washington in July.
And they responded. Honduras signed an agreement with Transparency International to combat corruption. Guatemala has removed senior officials suspected of corruption and aiding human trafficking. El Salvador passed a law providing new protections for investors. Working with the Inter-American Development Bank, these three countries forged a joint plan for economic and political reforms, an alliance for prosperity.
These leaders acknowledge that an enormous effort is required. We have agreed to intensify our work together in three areas.
First, security makes everything else possible. We can help stabilize neighborhoods through community-based policing, and eradicate transnational criminal networks that have turned Central America into a hotbed for drug smuggling, human trafficking and financial crime. Some communities in Guatemala and El Salvador are already seeing the benefit of United States-sponsored programs on community policing, specialized police training and youth centers similar to Boys and Girls Clubs in the United States. As I learned in crafting the 1994 United States crime bill, these programs can reduce crime.
Second, good governance begets the jobs and investment that Central America needs. Today, court systems, government contracting and tax collection are not widely perceived as transparent and fair. These countries have among the lowest effective tax rates in the hemisphere. To attract the investments required for real and lasting progress, they must collect and manage revenues effectively and transparently.
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Third, there is not enough government money, even with assistance from the United States and the international community, to address the scale of the economic need. Central American economies can grow only by attracting international investment and making a more compelling case to their citizens to invest at home. That requires clear rules and regulations; protections for investors; courts that can be trusted to adjudicate disputes fairly; serious efforts to root out corruption; protections for intellectual property; and transparency to ensure that international assistance is spent accountably and effectively.
We are ready to work with international financial institutions and the private sector to help these countries train their young people, make it easier to start a business, and ensure that local enterprises get the most out of existing free trade agreements with the United States.
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Roy M. Barbee
1 minute ago
These are noble intentions and necessary changes....but the cultures of corruption in government and military in these countries will take...
1 minute ago
About time - and this Jewish family encourages the billion dollars come from the aid to Israel. Obviously the Israelis don't need it or...
1 minute ago
We should link any and all aid to the region's progress equilizing wealth -- the wealth gap, according to an article in International...
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The challenges ahead are formidable. But if the political will exists, there is no reason Central America cannot become the next great success story of the Western Hemisphere.
The region has seen this sort of transformation before. In 1999, we initiated Plan Colombia to combat drug trafficking, grinding poverty and institutional corruption — combined with a vicious insurgency — that threatened to turn Colombia into a failed state. Fifteen years later, Colombia is a nation transformed. As one of the architects of Plan Colombia in the United States Senate, I saw that the key ingredient was political will on the ground. Colombia benefited from leaders who had the courage to make significant changes regarding security, governance and human rights. Elites agreed to pay higher taxes. The Colombian government cleaned up its courts, vetted its police force and reformed its rules of commerce to open up its economy. The United States invested $9 billion over the course of Plan Colombia, with $700 million the first year. But our figures show that Colombia outspent us four to one.
The cost of investing now in a secure and prosperous Central America is modest compared with the costs of letting violence and poverty fester.
Mr. Obama has asked me to lead this new effort. For the first time, we can envision and work toward having the Americas be overwhelmingly middle class, democratic and secure.
That is why we are asking Congress to work with us. Together, we can help Central America become an embodiment of the Western Hemisphere’s remarkable rise — not an exception to it.
Joseph R. Biden Jr. is the vice president of the United States.
Chinese Businessman, Nicaragua, and a new canal?
Reply #111 on:
March 05, 2015, 09:44:12 AM »
The idea of a canal across Nicaragua, easing transit flows between the Pacific and the Atlantic, is as old as the country itself. But despite numerous surveys and plans across the centuries, no Nicaraguan canal has ever been shown to be economically viable for the investors. The United States, European and numerous Asian countries and companies have explored both "wet" and "dry" canals — the latter utilize rail between ports on both sides of the isthmus.
Lately a Chinese businessman has been exploring the idea. His efforts have raised similar questions to previous attempts: Is a canal in Nicaragua economically sound, environmentally responsible or even necessary, particularly given the near completion of the widening of the Panama Canal? The answers are mixed and often depend who is doing the assessment and from what perspective. The man behind the attempt, Wang Jing, may no longer be sure of the answers himself.
Questions aside, the Nicaraguan government has approved the plans and is promoting the construction and affiliated investment. As the man at the forefront of the operation, Wang is preparing not only to have the canal dug (and managed) but also to build the affiliated infrastructure — port expansion and telecommunications projects as well as tourism and real estate deals along the canal route. Money is already flowing, environmental studies are underway, Western public relations and accounting firms have been hired, and early assessments and visits are being made to determine the cost and difficulty of buying up land along the route, often meeting opposition from locals. All the while, the cost estimates for the canal construction continue to rise; they are currently at upward of $50 billion and by some estimates are likely to reach $100 billion.
Money spent upfront on surveys and even early moves to purchase land do not mean the canal will be completed, just as the economic and environmental obstacles do not necessarily mean the canal will stall out before completion. The world is littered with hero projects that, in retrospect, perhaps would have been better left unbuilt or at least proved more costly for their investors than anticipated. But the construction and plans have raised numerous questions about who is really behind the canal project.
Wang Jing, chairman and CEO of the Hong Kong Nicaraguan Canal Development Group (HKND), which has the contract to build, develop and manage the Nicaraguan canal, is one of China's richest men, worth some $6.6 billion according to Forbes. He has been involved in telecommunications and mineral operations, though by most accounts he owes his fortune more to good luck and timing than through connections with Beijing.
Wang established HKND in August 2012, one month after the Nicaraguan government established its Grand Interoceanic Canal Authority, which paved the way for realistic investment into a canal project. A month after it was established, HKND had a memorandum of understanding with the Nicaraguan government to conduct the feasibility study for the canal project. In June 2013, the Nicaraguan legislature formally voted to approve the construction of the canal, and within days the contract was awarded to HKND.
Wang's involvement in the canal appears to stem from a meeting with the son of Nicaraguan President Daniel Ortega, whom he met with either in Nicaragua or Beijing. Wang was looking to expand his telecom business into Nicaragua as part of broader global expansion, and his company, Xinwei, acquired contracts in 2013, though there has been little work reported toward fulfillment of those contracts. Rather, amid discussions with Ortega's son, Wang became enamored with the opportunity for a Nicaraguan canal that, he hoped, would carry massive bulk cargo ships from Brazil to China — ships that were too big for the Panama Canal and, incidentally, were in some cases blocked from Chinese ports because of their size and Chinese concerns for maritime shipping competitiveness.
A Nicaraguan canal may make more sense for international traders than it does for its potential investors. Though most studies argue that investors are guaranteed to lose in the canal construction, if the canal is built and managed efficiently, it does offer complementary routes for trade between Asia and the East Coast of North America, something that could interest shipping companies given the perception of unreliability of United States' West Coast ports. It also could provide speedier passage of bulk cargoes from Latin America, particularly Brazil, to Asia (read China), and as a redundant route, may ease congestion in the Panama Canal.
But the canal itself is not the only prize. Wang's vision includes the expansion of Nicaraguan ports, the establishment of new tourism venues to rival nearby Costa Rica, and the creation of new free trade zones in Nicaragua to take advantage of its location for manufacturing and distribution. With China slowly losing its place as the primary source of international low-end manufacturing, a Chinese-backed free trade zone in Nicaragua could take advantage of regional low labor costs and the nearness to larger Mexican, South American and U.S. markets. Stratfor counts Nicaragua among our so-called Post-China 16 countries, those positioned to take advantage of the changes in global manufacturing supply chains. The canal fits with the desires of Nicaragua's president, but the add-ons are potentially the more significant prize for Wang and his fellow investors.
Wang has not had an easy time drawing in the financial backing that a project of this magnitude needs. Already he has spent by some estimates more than $5 billion of his own money as well as that of his family and friends, whom he solicited early to capitalize the project. Some major state-owned enterprises have steered clear of the project, including major Chinese shipping companies (COSCO for example already has a stake in the Panama Canal). But others, particularly construction companies looking for large projects overseas, have expressed interest or engaged in a partnership with HKND, and HKND is urging those companies to become partners, bringing with them their own financing. In this way, HKND can spread the cost and potentially still profit from a canal project that others before had determined would not turn a profit.
Interestingly, despite the obvious questions about Wang and Chinese involvement, the Chinese government does not seem to be involved directly. Wang has worked somewhat outside the normal channels of Chinese political networks, and Beijing has been cautious about the project from the start. Beijing has no formal diplomatic relations with Nicaragua; rather, Nicaragua is one of the few nations left that maintains formal recognition of Taiwan. In 2012, as news of the canal construction heated up, the Chinese Ministry of Commerce cautioned Chinese companies, noting the lack of diplomatic ties in addition to border issues between Nicaragua and Costa Rica. Beijing is not interested at this time in drawing Nicaragua to alter diplomatic relations to the mainland, since that would undermine Beijing's management of the Taiwan issue.
Furthermore, though Beijing has backed many economic projects in Latin America and has special economic and political relations with countries such as Venezuela, Chinese leaders are cautious about engaging in a project that clearly appears to challenge U.S. interests in the region — particularly given the high cost and minimal rewards of the Nicaraguan canal. Wang himself purportedly tried to gain U.S. backing and investment through contact with former U.S. officials, but found little support. Publicly serving U.S. officials have actually raised concerns about the project, though primarily for environmental reasons.
One of the reasons the Chinese government was cautious was the belief that the canal project would not be viable without U.S. support, or at least without avoiding U.S. opposition. With Beijing facing difficulties at home regarding its overall economy and the parallel anti-corruption campaign and consolidation of power under President Xi Jinping, there is little appetite among China's leaders to pick a fight with the United States in its own backyard over a project that appears to bring little gain while being fraught with political risk.
According to some people familiar with the situation, Wang is now having second thoughts about the entire project as well. Having already thrown in some $5 billion, however, it would be difficult for Wang and HKND to back out. Without the more active backing of the Chinese government, or at least a surge in interest by potential partners, HKND is likely to find it increasingly difficult to raise the money for the canal project. Environmental opposition will probably grow and may draw in international organizations to support the local population. And this does not even consider some of the physical obstacles of such a massive undertaking.
The Nicaraguan government has based a lot of its future economic projections on the projects related to the canal construction and affiliated investments, and that is riding on Wang's company and his ability to raise the funds and support necessary to bring the project to completion. But by most accounts, Wang does not have the political or economic backing of Beijing, certainly not formally and perhaps not at all. Perhaps the attention will shift to the affiliated development — the ports, the free trade zones and the tourism facilities. But whether the entirety of the project itself is ultimately completed, the renewed attention to a Nicaraguan canal, and to Nicaragua itself, emphasizes the changes in international attention to areas of the world picking up as the next manufacturing hubs.
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