A $50 Billion Chinese Canal in Nicaragua?

The Buzz

There is pride in Hong Kong that a local private company is pushing ahead with perhaps the world's largest-ever civil works project, the 280km long, 500m wide Nicaragua Canal. Construction began in December 2014.

The South China Morning Post dismisses outside suspicions while modestly describing the scheme as being “centered on the creation of a more just, reasonable and equitable world order.” That a private company should be undertaking such munificence is remarkable. One thing's for certain: it can't be doing it for the money. Financially the numbers don't add up.

At a cost of at least US$50 billion, the project will take many years and require tens of thousands of workers. Legal, social, corruption and environmental concerns aside (and all are daunting), the financial returns are violently challenged.

The century-old Panama Canal, which is struggling through its own US$5 billion upgrade to double its potential traffic, generates about US$2 billion in annual revenues, about half of which are retained as profits. Building parallel infrastructure in Nicaragua at huge sunk expense will provoke a knife-fight response from Panama, which has capacity to spare. Although the Nicaragua canal will allow larger-sized ships to pass, Panama should retain most of the transit share, and will slash pricing to make sure. In that case, the canals' combined annual profit pool might be much less than the US$1 billion today.

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Commercially speaking, this US$50 billion gambit is courageous, if not reckless.

There is of course another possible explanation: that the company is a front for Beijing, that it will rely heavily on cheap long-term financing from state institutions, and that the canal is to secure access for Chinese shipping.

There is plenty of scuttlebutt on the internet about the company's mysterious chairman (he says he is “just a businessman”) and China's strategic game plan. US$50 billion is serious money, way beyond the exposure limits of institutions like the World Bank but feasible for the Chinese agencies which long ago surpassed it. If this canal is built, it will mostly be with Chinese state contractors and funds. True, companies can raise US$10 billion or even US$20 billion in international public equity, but these are special cases (like Alibaba) for proven businesses.

This gargantuan engineering enterprise also has the audacious hallmarks of a Chinese Government design. But if it is, why would Beijing wish to hide behind a supposed Hong Kong-based entrepreneur?

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China enjoys excellent relations with Nicaragua's charismatic Daniel Ortega, who in turn is no friend of the US. Maybe Ortega is simply downplaying Beijing's role in order not to antagonize the yanqui. Perhaps Beijing is happy to maintain plausible deniability for now, and will later assume greater ownership over the enterprise once it has matured and the Americans have resigned themselves to its existence. Although the targeted financial payback is just 12 years, with operations underway by 2019, both these estimates seem fanciful. In reality, the project is likely to see overruns and delays, so the operating concession might be 50 or even 100 years.

Then a Chinese entity – perhaps the state itself – will have long-term control over a key “chokepoint” into the Atlantic.

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The Nicaragua canal would prioritize Chinese shipping: containers to the US eastern seaboard, tankers from Venezuela, iron-ore carriers from Brazil, perhaps even PLA Navy warships. That sounds pretty sensational. But what is really gained here? As noted above, the canal is broadly replicating what already exists in Panama. The shipping distance to the western Atlantic is not shortened; Hong Kong is equidistant via the Suez. And the Atlantic southern capes offer other entry points. If the specific objective is ensuring passage for Chinese naval vessels through the central American isthmus into the Caribbean, it must be obvious to Beijing that – with or without a second canal – it can only be at the forbearance of the US. And those PLA Navy ships will be a very long way from their home port.

There is a broader agenda here, obviously. With its diplomatic “whirlwind” China is seeking greater access to world markets and wants new trade routes opened, preferably under its own aegis.

The most significant is the One Belt One Road (OBOR) program, which envisages continental and maritime pathways west to Europe and Africa, away from the US-contested Pacific. There are good reasons why China should seek to build strategic 'keys' like OBOR, not least to secure its restive frontiers. But in reinforcing its periphery it will encounter powerful rivals. Nicaragua's canal is a clear challenge to the US. New Delhi strategists are already muttering that OBOR pincers India. Russia, distracted for now in Ukraine, may come to resent greater Chinese influence in Central Asia.

The other risks in holding these access points should also be well known to Beijing's leaders: grassroots protests, wars, coups, external interventions, nationalisations, and – most unpredictable – democratic elections. It is already evident that Nicaragua, which is hardly a stable jurisdiction, will be divided by the canal in more ways than one.

Indeed, compared to the serious public effort China is making with its OBOR initiative, the whole Nicaragua canal adventure seems quirky and speculative. Perhaps that's why it's in the hands of a private Hong Kong developer.

This piece first appeared in the Lowy Interpreter here.

Image: Wikicommons. 

TopicsEconomics RegionsChina

Will Charlie Hebdo Change the NYPD?

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It was the deadliest attack in the French capital since the World War II era.  Two brothers, Said and Cherif Kouachi, dressed as commandos with automatic weapons and black facemasks, barged into the offices of the French satirical magazine Charlie Hebdo, shot up the staff who were in the middle of an editorial meeting, and turned the office into a brutal crime scene.  Across town, in a Kosher supermarket, a Frenchmen of African dissent named Amedy Coulibaly killed four people, held others as hostages, and threatened to kill each shopper in the market unless French police let the Kouachi brothers escape.

By the time the French police killed all three terrorists in near simultaneous raids, seventeen people were killed.  France, the European country with the largest Islamic community at roughly 5 million Muslim, was a nation virtually at war, as French Prime Minister Manuel Valls would say days later. 

The official claim by Al-Qaeda in the Arabian Peninsula that the Kouachi brothers were working for them, and that the Charlie Hebdo massacre was planned, orchestrated, and funded by the Al-Qaeda branch in Yemen, served as a confirmation that the terrorist network is far from defeated, as the Obama administration has consistently argued.

Equally disturbing to the death toll and brazenness of the raid, however, is the sheer simplicity of the Kouachi brother’s operation: two men, armed to the teeth, shooting up innocent people on a soft-target as innocuous as an office building, killing a dozen people inside.  We have all heard about how dangerous and random “lone-wolf” attacks can be, but the terrorist attacks in France last week will add a new topic to the conversation: a small group of two to three people striking a soft target and doing damage before any police or law enforcement can respond.

The frightening aspect about the attack in Paris (in addition to the fact that a pillar of democracy—free speech—was deliberately attacked by Islamic extremists taking direction from an Al-Qaeda affiliate) is that it could theoretically happen anywhere.  This is not fear mongering, but a reality: As NYPD Commissioner Bill Bratton acutely observed last week, there are simply too many potential soft targets to defend and not enough law enforcement and intelligence agents to defend them. 

If Paris is a microcosm of France, New York City is a microcosm of the United States: a city where Americans of all colors, ethnicities, religions, and beliefs congregate, live, work, play and study.  Along with London, New York is at the heart of world financial markets, the center of commerce, and truly one of the greatest cities in the world.  Like it or not, all of these qualities are incentives for terrorists—whether lone wolves or terrorist organizations—to pinpoint New York as a prime target.  NYPD Commissioner Bratton, Mayor Bill de Blasio, CIA Director John Brennan and President Barack Obama all know this is the case, and as the old adage says, it’s what keeps them up at night.

The New York Police Department may have gotten some bad press over the past month and a half over the death of Eric Gardner and its very public feud with Mayor de Blasio, but the department remains the best police force in the entire world.  It’s intelligence and counterterrorism division led by Deputy Commissioner John Miller (who, if you recall, was live on-the-air with the late Peter Jennings during the September 11, 2001 attacks) consists of 1,000 dedicated officers whose sole job it is to “connect the dots,” thwart possible plots, and take would-be terrorists into custody.  At the same time, the NYPD also has officers dispatched overseas, tasked with helping other police departments with terrorism-related investigations.

But, even with all of that talent and experience, the NYPD has a decision to make: after the attacks in Paris, can they do their jobs effectively without the kinds of controversial surveillance policies that got the department into trouble with civil liberties groups in the past?  Before Commissioner Bratton and Mayor de Blasio entered office, the NYPD had a special unit assigned to map out Muslim communities across the entire New York metro area—a unit that, according to an extensive investigation by the Associated Press, included monitoring mosques, placing plain cloths agents into neighborhoods where Muslims lived and worked, and keeping a database of New York’s Muslim residents.  The purpose was to determine which neighborhoods terrorist sleeper cells or lone wolfs would congregate and hide in before or after a terrorist attack in the city, and it was a divisive program that was shut down by Commissioner Bratton in early 2014 (the previous Commissioner, Raymond Kelly, heralded the program as critical to keeping New Yorkers safe).

It’s an awkward question, given the ethics and legal issues involved, but it’s worth asking: will the terrorist assault in France change the way the NYPD operates?  Given the horrible massacre that took place in one of America’s oldest allies, will New York’s finest find the need to resurrect a program that could cause consternation with the city’s Muslims, even as it helps police assemble a stockpile of information that could be useful in the future?  And finally, is the threat of lone wolf or small cell terrorism on soft targets heightened to such an extent that NYPD officers choose to devote more resources, manpower, money, and attention to intelligence work instead of ordinary crime?

All of these questions will have to be discussed among the NYPD’s top brass, if they aren’t already discussing it.  Because if the Charlie Hebdo attack tells us anything, it’s that even people in an office can be prime targets for terrorists. 

Image: Flickr/Diana Robinson

TopicsSecurity RegionsUnited States

Russia's Nuclear Forces Conduct Surprise Drill

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Russia’s Nuclear Forces performed a surprise readiness drill on Tuesday, according to state-run Russian media outlets.

The Strategic Missile Forces (RVSN), which control Russia’s Intercontinental Ballistic Missiles (ICBMs), began a snap drill on January 20, the reports said, citing a press release from the RVSN. The drills, which are taking place in Western Siberia, will include 1,200 RVSN troops who will perform over 20 different tasks. Emergencies Ministry's troops, as well as Internal Ministry and Federal Security Service forces, were expected to participate in aspects of the drills.

“During the unannounced exercises of the missile forces, a committee will study the current condition in organizing activities by the commanders in completing drills of fighting terrorism as a command unit, missile force regiments and a number of other subdivision units," Russian Defense Ministry spokesman Col. Igor Egorov was quoted as saying of the drills.

RVSN said that “no less” than four such drills will be held in 2015. Earlier this month, Egorov had announced that in 2015, the Strategic Missile Forces “will conduct over 100 command and staff, tactical and specialized drills. The drills will be conducted in complex and tense conditions.” In December, RVSN Commander Colonel General Sergei Karakayev had told reporters that “A total of 14 launches are planned for 2015 - for the flight tests of advanced weapons samples and controlling technical readiness of missile systems adopted for service.” As of last summer, Russia had planned on conducting 16 ICBM test launches in 2014.

This focus on strengthening Russia’s strategic deterrent seems to still to continue unabated. Last month, Russia’s Chief of the General Staff, Valery Gerasimov, said that Russia’s nuclear forces would be the Defense Ministry’s top priority this year. Part of this will include becoming better equipped at using new and modernized platforms, including the 38 new ICBMs that Russia acquired in 2014. It will also include incorporating new personnel into the RVSN. In August of last year, the RVSN announced that it will add an additional 8,500 troops to its force through 2020. According to Newsweek, the RVSN currently boasts about 18,000 troops.

Russia’s modernization efforts come at a time when its nuclear relationship with the U.S. is fraying. The Boston Globe reported earlier this week that Russia severed nuclear security ties with the United States last month.

“The Russians informed the Americans that they were refusing any more U.S.” help protecting their largest stockpiles of weapons-grade uranium and plutonium from being stolen or sold on the black market,” the report said, citing three unnamed American officials. The U.S. and Russia have previously cooperated on protecting Russian nukes as part of the Cooperative Threat Reduction (CTR) Program, which began in the 1990s shortly after the fall of the Soviet Union.

Zachary Keck is managing editor of the National Interest. You can find him on Twitter: @ZacharyKeck.

Image: Wikimedia/Vitaly V. Kuzmin

TopicsSecurity RegionsRussia

An Important Anniversary: Remembering the Twenty-One Demands

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Compared with the high-profile national Memorial Day for the Nanjing Massacre last month, the date January 18 passed uneventfully. Chinese media appeared to have forgotten that one hundred years ago, on exactly that day, Japan presented Chinese President Yuan Shikai (Yuan Shih-Kai) with requests that would have turned China into a de facto Japanese protectorate.

The Japanese requests included five groups of secret demands that became known as the Twenty-One Demands. Groups One and Two were designed to confirm Japan’s dominant position in Shandong, southern Manchuria, and eastern Inner Mongolia. Group Three would acknowledge Japan’s special interests in an industrial complex in central China. Group Four forbade China from giving any further coastal or island concessions to foreign powers except for Japan. The most outrageous was Group Five. Group Five required China to install Japanese advisors who could take effective control of Chinese government, economy, and military. These demands would have had a similar impact to that of what the Japan-Korea Annexation Treaty had on Korea in 1910.

These notorious demands were issued at a time of shifting balance of power in East Asia. With the Qing dynasty’s humiliating defeat in the first Sino-Japanese War (1894-95), regional dominance for the first time had moved from China to Japan. Japan’s ambitions in China were further emboldened by its decisive victory in the Russo-Japanese War (1904-05), which affirmed the Japanese presence in south Manchuria and Korea. The 1911 Revolution brought an end to the Qing dynasty and ushered in the Republican era in China, but China remained a pushover in the face of pressure from Western powers. Furthermore, Yuan’s ruling status itself was shaky due to threats from competing local warlords. World War I granted Japan a perfect opportunity to push the envelope even more with China. As the war was underway in Europe, the Japanese hoped that other major powers would show little interest in countering Japanese expansion in China. For these reasons, Japanese Foreign Minister Kato Takaaki was convinced that the filing of an ultimatum buttressed by the war threat would cause China to accept all the demands.

Fully aware of the negative reaction the demands would cause, Japan asked China to keep them confidential and threatened to take “drastic actions” if they were leaked. Contrary to the popular Chinese image of Yuan being a traitor, archived history suggests that Yuan and his top associates worked hard to minimize the harms caused to China’s sovereignty by the Twenty-One Demands. Soon after studying the Japanese request, Yuan instructed top Chinese diplomats that by no means should China submit to the demands of Group Five. Headed by then Foreign Minister Lou Tseng-Tsiang, the Chinese negotiators sought to stall the negotiation process for as long as possible. Between February 2 and April 17, twenty-five rounds of negotiations were held. Disregarding the Japanese threat, Yuan had his political advisor leak the full contents of the Twenty-One Demands to a correspondent for the Timesin Beijing, who then reported them on February 12. In seeking international support, Yuan also relied on the traditional Chinese strategy of playing one power against another (yi yi zhi yi). He hoped that a perceived threat to European and U.S. political and economic interests in China would lead them to constrain Japan’s aggressiveness. Although the United States continued with a low-risk strategy in China, Secretary of State William Jennings Bryan warned that the United States would not recognize infringements on Chinese sovereignty and the Open Door policy. As author Bertram Lenox Putnam Weale documented in the book An Indiscreet Chronicle from the Pacific, the possible intervention of Great Britain and the United States was indeed a concern for Japan in deliberating what final steps to take on May 6. In addition, Yuan also sought to affect Japanese domestic politics by mobilizing the support of Genro, who were angered by the government’s failure to consult them before drawing up the demands. As the negotiations evolved into an inevitable crisis at the end of April, the open opposition of elder statesmen like Matsukata played a decisive role in forcing the Japanese government to drop the demands of Group Five in the ultimatum delivered to China on May 7.

Not surprisingly, Yuan, who had no intention of risking war with Japan, accepted the ultimatum on May 9. The final form of the treaty was signed on May 25, 1915. With the removal of the most odious provision, however, the new treaty gave Japan no more than what it already had in China. Yuan, whose credibility and popularity as a leader was further weakened as a result of his appeasement policy, viewed accepting the treaty as a “terrible shame” (qichi daru) and made May 9 China’s National Humiliation Day. The Twenty-One Demands nurtured a considerable amount of public ill-will towards Japan, and the upsurge in nationalism is still deeply felt today in China’s handling of Sino-Japanese relations.

To be sure, times have changed. This time, the pendulum of power is swinging in China’s favor. Given the ongoing territorial disputes in East Asia, the episode that occurred exactly one century ago can still provide critical insights into how a rising regional hegemon like China should behave, and how less powerful states could play the power game to better protect their national interests.

This piece comes courtesy of CFR’s blog Asia Unbound.

TopicsHistory RegionsAsia-Pacific

Explained: The Real Point of the State of the Union

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America’s constitution is more than just seven articles and twenty-seven amendments. Although they are often overlooked, a number of unwritten conventions also form part of the de facto U.S. constitution. The rule that the Supreme Court gets the final say over interpreting all aspects of the constitution, for example, is nowhere to be found in the written constitution itself—and, indeed, was vigorously disputed by past presidents such as Andrew Jackson—but is now held to be sacrosanct, part of a deeply entrenched unwritten constitution that oils the machinery and eases the working of the written components.

The State of the Union address has become part of that unwritten constitution. Formally, Article II is vague about how presidents should keep Congress informed (“He shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient”). From Jefferson through to Taft, in fact, each successive president opted to send a written address to Congress rather than appear in person. But in the twentieth century, a recognizable tradition emerged regarding how the State of the Union should be delivered. Today, that tradition constitutes a powerful constitutional norm that few can imagine deviating from.

What is the point of the State of the Union address? The nineteenth-century constitutional scholar Walter Bagehot distinguished between “dignified” and “efficient” elements of a constitutional system. Dignified elements are mostly symbolic, designed for public consumption and to maintain the outward appearance of competent and legitimate government. Efficient elements, by contrast, are those aspects of a constitution that truly are responsible for the day-to-day business of governing a country. People prefer the majesty of monarchy or the pomp and ceremony of well-oiled traditions than they do the reality of government, which can vacillate between the grotesque and the utterly mundane, Bagehot reasoned.

Without doubt, the State of the Union address is part of the dignified constitution. The tradition puts on show almost the entire U.S. political establishment, a political haut monde portrayed as congenial public servants intent on deliberating the issues of the day. The president takes care to craft remarks that emphasize the unity and strength of the republic and so will reassure ordinary members of the public. And the ritual of announcing a raft of new policies can be thought of as symbolizing the efficient workings of Washington: the supposed first stage in an orderly legislative process.

In truth, American government does not function in the way that the State of the Union portrays it. Indeed, a cynic might joke that there are precious few “efficient” elements of the American constitution left standing. With the Republicans in control of Congress and many in Washington already looking to 2016, President Obama is not the primary originator of new legislation; Congress will not follow his lead. Instead, President Obama will vie with Congressional leaders for the remaining part of his presidency. Each branch of government will push the limits of its constitutional authority to implement its own vision of what America should look like. When the two sides do pause to talk to each other, it will be to sling mud as often as to find agreement. As a result, the next two years will be decidedly undignified and likely inefficient, marked by pitched battles fought over “middle class economics” at home and “smart diplomacy” abroad.

President Obama’s penultimate State of the Union address thus told us little about how the business of government actually will be conducted over the next two years. But it was not supposed to. After all, any event that accurately portrayed the filthy business of sausage-making in Washington would be repulsive to behold. Instead, the State of the Union fulfils a different role in the American political system: it is a focal point of the political calendar; a rallying opportunity for both parties; and a chance for politicians, pundits and citizens alike to take stock. For all the pomp and ceremony—because of it, in fact—the State of the Union has a serious role to play in the overall order of things. If nothing else, last night’s event was enjoyable to watch—and that was the point.

Image: White House facebook

TopicsDomestic PoliticsThe Presidency RegionsUnited States