China’s Nicaragua Canal Could Spark a New Central America Revolution

Many critics thought construction of a canal across Nicaragua never would begin. Now that it’s about to, they ask how it will end—and some are asking for guns to stop it.

Emil Lendof/The Daily Beast

TOLESMAIDA, Nicaragua—A hundred or so people have gathered under the intense midday sun at the main crossroads in this village on the south-westerly edge of majestic Lake Nicaragua.

Many of those who’ve come together here to protest have been loyal supporters of President Daniel Ortega since he was part of the Sandinista National Liberation Front (FSLN) junta that overthrew the Somoza dynasty in 1979. They backed him when the Sandinistas tried to establish their own Cuban-inspired dictatorship. They backed him in his war against the CIA-trained Contra rebels in the 1980s. And when the country started holding legitimate elections in the 1990s, they backed him in his bid to build the FSLN into a powerful political party that eventually returned him to the presidency—a position he does not look like he’ll give up any time soon. But right now these Sandinistas are absolutely enraged by plans to evict them from their lands to make way for his latest and by far most grandiose project: the Interoceanic Canal.

“It’s all over between us and Daniel,” yelled María Duarte, a 72-year-old former Sandinista combatant who fought in the revolution and then against the US-backed Contra counterinsurgents. “He was like a son to us but he’s betrayed us, sold us out to the Chinese! Que barbaridad!” It’s outrageous!

Duarte owns a small plot of land where she grazes cattle and grows beans, maize, bananas, and oranges. She leads the same simple but secure subsistence lifestyle that sustains most of the 700 families in and around Tolesmaida, and it was made possible by the Sandinistas’ post-revolution land redistribution programmes. So to hear such fervent anti-Ortega sentiment from previously devoted campesinos and compañeros is unprecedented. But the issue for them is, precisely, the matter of their land.

Plans to construct a $50 billion shipping canal and channel 175 miles long and more than 500 yards wide have incited a mix of fury, fear and defiance not witnessed since the Contra War ended in 1988. What had seemed to be a theoretical and almost mythical project is just about to take concrete form.

Construction is due to begin before the end of December, which means that lands will be taken, villages relocated. The canal project will bisect Lake Nicaragua—Central America’s largest lake—and forcibly displace almost 300 communities, including Rama and Creole settlements from protected indigenous territories on the Caribbean coast.

Ortega, 69, is accused of surrendering Nicaraguan sovereignty, since the 100-year canal concession gives Chinese telecommunications magnate Wang Jing and his Hong Kong Nicaragua Canal Development Investment Co. (HKND) control over large swathes of the country.

Thousands of people, from both sides of the political divide, have taken to the streets in recent weeks to demand Ortega’s resignation and the expulsion of the Chinese. Many have vowed to take up arms.

“We know how to fight, but we need weapons,” said Duarte, whose combative spirit remains undiminished by age. “We are true Sandinistas not Ortegistas, and we are prepared to die to protect our land.”

On the opposite side of the lake the mood is similarly fervent in the picturesque cattle ranching community of Quebrada Seca, which used to be a Contra stronghold. People there remember rather fondly the clandestine airdrops by the CIA during the 1980s. (According to local lore a neighboring village called Pajaro Negro—Black Bird—supposedly was named after the planes.) Families there, like those in many communities along the canal route, claim they were intimidated and misled by the Chinese census teams that were escorted house to house by armed Nicaraguan police and soldiers as they valued properties. HKND denies there was coercion or deception.

“We don’t want to fight our Nicaraguan brothers, but if Ortega uses the army against us, we will fight them until the end to protect our land,” said José Jesús Ramírez, a 33-year-old a farmer and church leader.

“This is a crisis, and we beg the international community to send us arms to defend ourselves, like before,” he added, alluding to the support for the Contras.

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Nicaragua is the largest country in Central America, and one of the most bio-diverse and beautiful. Its 40 volcanoes rise from the shores of lakes, from plains reminiscent of African veldt, and from the mists of tropical and cloud forests abundant with life. On each coast, the Caribbean and the Pacific, there are stunning beaches.

Nicaragua also is one of the safest countries in the region. But its 6 million people are among the poorest, with as many as a quarter living on less than two dollars a day, which makes subsistence farming all the more important.

Ortega has described the canal, which would dwarf the old Panama Canal and the new one under construction as well, as “phase two” of the Nicaraguan revolution. He vows that it will create 250,000 jobs, lift Nicaragua out of poverty and make it the maritime capital of the world. He has dismissed canal critics as anti-revolutionary and anti-development.

If Ortega pulls it off, it would secure his legacy and could pave the way for his favourite son Laureano, who negotiated the Chinese deal, to take over the dynasty. But the locals have every reason to be cynical.

Nicaraguans have dreamed of a canal for centuries, and the current proposal is the 72nd in 450 years. The Spanish conquistadores were the first to investigate the possibility of a canal through Nicaragua in the 1500s. The US first considered the idea in the 1820s, but interest was revived in earnest after the California Gold Rush began in 1849. There were no transcontinental railroads in the United States, so thousands left New York for San Francisco by steamboat, a voyage which involved landing on the Caribbean side of the Central American isthmus, then following an overland route to the Pacific and boarding another boat there. The narrowest piece of land was at Panama, but it was covered in dense, mountainous jungle.

In Nicaragua even in the 1850s it was possible for shallow-draft boats with steam engines to travel upriver from the Caribbean coast to Lake Nicaragua, then though it to the tiny sliver of land, only about 12 miles wide, the separated the lake from the Pacific.

Cornelius Vanderbilt, the ambitious shipping and railroad tycoon, travelled to Nicaragua three times to scout canal routes, conduct surveys, and negotiate with the government. In 1849, he was granted exclusive rights to construct the canal within 12 years and permission, meanwhile, to shuttle passengers and cargo from coast to coast.

Commodore Vanderbilt, as he styled himself, offered cheaper, quicker and safer voyages (using boats, trains and stage coaches) than the Panama route, but efforts to secure capital from British bankers to build the canal ultimately were unsuccessful. Then the American soldier of fortune William Walker, with a band of mercenaries, complicated the picture by taking over the country in the mid-1850s. Vanderbilt sent an agent to organize a counter-invasion by Nicaragua’s neighbors. Walker eventually was captured and shot. Then the American Civil War broke out, and by the end of the 1860s the opening of the transcontinental railroad had diminished the urgent need for the vast Nicaragua project.

In the early 1900s, the US was veering towards Nicaragua for its new canal project until intense lobbying by French landowners in Panama helped convince American senators that Nicaragua’s volcanoes were too risky.

The Panama Canal opened in 1914, and the same year the Bryan-Chamorro treaty was signed, guaranteeing that the American-built “Path Between the Seas” further south would not be undercut by trans-Nicaragua traffic unless, that is, the Americans built and controlled the new canal, too. It was regarded as so deeply onerous that the dictator Anastasio “Tachito” Somoza abolished it in 1970.

In the past two decades, successive governments have proposed a canal, each promising to deliver jobs and prosperity, each failing to get it off the ground due to lack of financing.

The current proposal came to light in June 2012 in Law 800 when Ortega, less than a year into his second term, announced a public-private partnership with the state retaining majority control. It barely raised an eyebrow, perhaps because many assumed it was yet another iteration of the same old pipedream.

The eventual deal, approved by Law 840 in June 2013, bore little resemblance to the original.

The FSLN-controlled legislative assembly approved the mega-project under a cloud of secrecy in a record seven days. There was no public consultation, no feasibility or environmental studies were presented, and there was no parliamentary debate—a surprising approach given this would be the world’s biggest civil engineering and construction project, traverse the country’s most important fresh water source and destroy protected natural reserves where 22 endangered species live.

The 100-year concession agreement, published only in English, gives Jing carte blanche to build and manage the giant waterway, as well as numerous sub-projects including two deep sea ports, a free trade zone, an airport, cement and explosive factories, an electricity plant and upmarket hotels. Or not. The company is indemnified against any delays caused by protests or legal challenges, but Nicaragua would not be compensated if the canal is abandoned.

The concession exempts HKND, its subsidiaries and subcontractors from taxes, and allows them to operate outside the Nicaraguan legal system. The constitution was rewritten retrospectively in an attempt to put the concession beyond legal challenge.

Perhaps most controversially, HKND is authorized to expropriate land wherever it wants. Displaced households are only entitled to be compensated the tax-assessed or “cadastral” value of their property— usually a fraction of the market value—with no right to appeal.

It is this very sensitive issue that has galvanized widespread resistance from previously loyal campesinos. The Sandinista revolution, like most in Latin America, was motivated by centuries of virtually feudal land ownership which was concentrated in the hands of the military, economic and religious elites.

Opposition politician Victor Tinoco, an FSLN reformist expelled from the party by Ortega, said: “The revolution was all about agrarian reform, about redistributing land to the poor majority. The canal law is contra-agrarian reform, it will re-concentrate land in the hands of a few.”

The government insists that any objections are simply a matter of misunderstanding, and everyone will be paid a fair price for their land.

“For most Nicaraguans the canal is a dream that is finally going to be realized,” says Telemaco Talavera, Canal Commission spokesman. “It will create jobs, reduce poverty, improve living conditions, and be good for business. It will benefit the world, and transform Nicaragua. Some people have doubts, but once they understand how everyone will benefit, they will get behind it.”

The government and HKND say that work will begin in December, but some still doubt whether the canal, if begun, ever will be finished.

“A year ago I bet 99:1 that it wouldn’t be built, now I am at 50:50," says Juan Sebastian Chamorro, director of an economic think tank and nephew of former President Violeta Chamorro. “The company is spending lots of money on equipment, subsidiary companies, studies, so something is definitely happening, but with so much secrecy no-one knows what.”

Former left-wing revolutionary Ortega has moved swiftly and cynically to the right in recent years, courting the Catholic Church and Big Business in order to secure his election victory in 2006 after three failed attempts. His family’s expanding business empire includes TV stations, newspapers, farms, and hotels.

Ortega is seldom seen in public these days, and is rumored to receive medical treatment in Cuba for lupus. His wife, Rosario Murillo, usually speaks on his behalf in public, and increasingly acts as official government spokesperson. Laureano, an Italian-trained opera singer, trade envoy and Canal Commission member, is publicity shy.

“The Ortega dynasty has absolute control over all the organs of the state, their independence exists only on paper,” says Gonzalo Carrion, director of the National Human Rights Commission (CENIDH).

Ortega has dismissed the allegations of autocracy and fraud that have afflicted his presidency as politically motivated. He is still popular, partly because the opposition is so weak, and polls suggest around half the population support the canal.

“We’re a poor country and the canal will bring development and thousands of jobs,” says Lucio Ruiz, 49, a taxi driver in Managua. “I have faith Daniel will do his best for us, and make sure the jobs go to Nicaraguans and not just the Chinese.”

Jing, 42, first made contact with the Ortegas three years ago in China during a meeting between Nicaraguan and Communist Party officials, when he asked to speak with Laureano privately about the canal. The two have since become friends.

The canal is not Jing’s only business interest in Nicaragua. Since 2013, his telecoms company Beijing Xinwei has been awarded several telephone and internet licenses.

He ranks 12th on the 2014 Forbes China Rich List with an estimated fortune of $6.4 billion—a fivefold increase from last year, following a recent merger with a Shanghai-listed telecoms company. But it’s unclear whether Jing is an ambitious entrepreneur, or a front man for Beijing, or both.

Geopolitically, the canal would further strengthen China’s foothold in Latin America. China’s trade with the continent increased from $12 billion in 2000 to $250 billion in 2012. It is a major buyer of Venezuelan oil and gas and Brazilian iron ore. The Nicaraguan canal would transport super-tankers capable of carrying 2.3 million barrels of oil each, too big for Panama.

Confusion about who is financially backing the project is mounting.

A recent investigation by Nicaraguan online newspaper Confidencial revealed a “web” of 15 companies linked to the canal project—one in Nicaragua, five in the Cayman Islands, seven in the Netherlands, one in Hong Kong and one in China, Beijing Dayang New River, also linked to a port in the Crimea where Jing has business interests.

“There is a tangled web of companies which goes all the way to Beijing, but which the government and Jing never mention. What are they trying to hide?” said lawyer Monica Lopez Baltodano.

A HKND spokesman said they were negotiating with investors from China, Europe, Asia, Latin and North America, but declined to give any names, or comment on the alleged Chinese state role.

Talavera, the Canal Commission spokesman, says there is nothing unusual about such corporate structures, and that Nicaragua welcomed all foreign investors.

In a belated attempt to win over opposing communities, the government recently dispatched canal spokespeople to five protest “hot spots” to “deal with concerns and better inform people about the project’s progress.”

But with still no news about where, when and how 100,000 people and their livestock are going to be relocated, further protests are planned. Lawyers and civil society groups recently asked the Legislative Assembly to consider repealing Law 840, which they says violates the constitution. It has allowed the project to bypass normal due diligence and environmental impact assessments. Instead, the government is relying on risk assessments and baseline studies by the British company ERM, commissioned by HKND, due to be completed in December. The environmental group Centro Humboldt conducted an independent study using the methodology which the Environment Ministry would have used had it been given the task and concluded the canal poses “extraordinary environmental risks”, especially to Lake Nicaragua, and is fundamentally “unviable” as there will be insufficient water to maintain it by 2039.

Fishing and farming communities live around the fertile banks of Lake Nicaragua, known locally by its indigenous name Cocibolca, meaning sweet water. Turtles, fish, ospreys and rare freshwater sharks and sawfish thrive there. The canal includes a 65-mile passage across the lake, skirting round Omotepe Island —a UNESCO biosphere reserve which also is home to the active volcanoes Concepcion and Maderas.

It will take millions of tons of dynamite to dredge the lake to triple its depth to 30 metres, which is needed to accommodate super-tankers. Once operational, the canal risks contaminating the lake with salty sea water, and any oil spill could inflict irreparable damage.

The government says Lake Nicaragua is already contaminated, and the canal will benefit the environment through reforestation and regeneration projects. But concern about the lake is fuelling hostilities that could prove problematic for the government and investors.

Juigalpa, a prosperous city 85 miles east of Managua, is one of five urban centers wholly reliant on the lake for water.

Until 2006, Juigalpa’s 90,000 people only had running water for two hours every fortnight due to chronic shortages caused by contaminated wells. Then, a water treatment plant constructed with Japanese aid money brought money from the lake 18 miles away and transformed the city’s fortunes.

“We are not against a canal per se, we are against a canal that will destroy our lake and water supply, and serve only the economic interests of the Ortega oligarchy and the Chinese,” says Lombardo Fonseca, 48, a local radio presenter and member of the Save Lake Cocibolca campaign.

“People are rearming across the country,” says Fonseca. “The land issue is making people along the canal route rise up to join the New Contras, who are already armed and embedded in the mountains. Together we will do everything humanly possible to stop this canal.”