Doubts deepen over Chinese-backed Nicaragua canal as work starts

By Gabriel Stargardter

MANAGUA (Reuters) - When one of the poorest countries in the Americas and a little-known Chinese businessman said they planned to undertake one of the biggest engineering projects in history, few people took them seriously.

A year and a half after the $50 billion project to build a canal across Nicaragua was launched by President Daniel Ortega, a former Marxist guerrilla, the doubts have only grown.

Work officially began this week. But reporters hoping to see any evidence of how it would be done in a fraction of the time it took to build the much-shorter Panama Canal, or discover who would pay for it, were left with more questions than answers.

At events marking the start of what is meant to be a five- year job, Nicaraguan officials and the Hong Kong-based company behind the canal dodged questions about its financial backers, mounting delays and whether Washington had been consulted.

So far the company, the HK Nicaragua Canal Development Investment Co Ltd, or HKND Group, of telecoms entrepreneur Wang Jing, has identified only $200 million in funding.

Such is the skepticism that even those with most to gain from the project, whose estimated cost is four times Nicaragua's gross domestic product, acknowledge it looks far-fetched.

"The canal has one enemy and that's the lack of information," said Benjamin Lanzas, head of Nicaragua's construction industry group, who met Wang in China. "That lack of information has created a great deal of speculation, and that speculation, those expectations, have created a lot of doubt."

the plan is on schedule. But key feasibility studies on the canal have been pushed back to next April, and excavation work is not due to begin until the second half of next year.

At 172 miles (278 km), the waterway is over three times the length of the 100-year-old Panama Canal, which was completed by the United States 34 years after French engineers began it.

The five-year timetable in Nicaragua has led many to surmise the Chinese government is secretly bankrolling the plan, which both China and Wang have repeatedly denied.

Yet Wang's reluctance to reveal his backers or much of his business background has failed to dispel suspicions.

"If the canal goes ahead ... it will be because the Chinese government wants it to, and the financing will come from China's various state firms," said Arturo Cruz of the INCAE business school, an ex-Nicaraguan ambassador to the United States.

Ortega has sought to allay fears that China is gaining a strategic foothold in Central America.

"The Chinese haven't arrived in Nicaragua with occupying troops," he said during a speech this week.

For now, China's government can stay aloof and claim no part in the project in case it founders, experts say.

"If the Chinese government is behind this project, it has to be responsible for everything," said an official from Taiwan's embassy in Nicaragua, speaking on condition of anonymity. "If it fails, that's a bad image. They have to maintain their distance."

China's involvement would be a direct challenge to the United States, which controlled the Panama Canal until 1999.

The U.S. Embassy declined to comment, even though Nicaragua says the United States has welcomed the project.

Regardless of whether the canal is built, China's presence in Central America looks likely to be strengthened.

"The aim is the canal," said Cruz, the ex-ambassador. "But even if they only build a Caribbean port, this country will have achieved something it hasn't managed in 500 years."

(Additional reporting by Ben Blanchard in Beijing and Ivan Castro in Managua; Editing by Dave Graham and Dan Grebler)