Chinese Role in Major Turkish Canal Project May Be More Likely as Turkish Lenders Express Reluctance

On April 27, senior bank­ing sources in Turkey dis­closed to Reuters that Turk­ish lenders are reluc­tant to finance the $13 bil­lion Kanal Istan­bul water­way project, cit­ing the project’s envi­ron­men­tal risks and exor­bi­tant costs.  As Bei­jing has shown con­sis­tent inter­est in both the financ­ing and con­struc­tion of Kanal Istan­bul since its intro­duc­tion in 2011, the resis­tance of Turk­ish banks could push the Erdo­gan admin­is­tra­tion toward Chi­na.  Pres­i­dent Erdo­gan has been an avid pro­po­nent of the divi­sive canal project.

The envis­aged 45 kilo­me­ter water­way will con­nect the Black Sea and Mar­mara Sea and cre­ate an alter­na­tive east-west trade route through Turkey intend­ed to divert some of the freight tra­vers­ing the Bospho­rous Strait.  The Suez Canal cri­sis ear­li­er this year cre­at­ed renewed impe­tus for the project due to new­ly per­ceived risk in being over­ly depen­dent on exist­ing routes.  If com­plet­ed, the canal would han­dle an esti­mat­ed 160 ves­sel tran­sits per day, which is approx­i­mate­ly the cur­rent vol­ume of traf­fic along the Bospho­rous Strait.

Chi­nese lenders have expressed con­sis­tent inter­est in financ­ing the project. In 2018, Bei­jing report­ed­ly includ­ed financ­ing and con­struc­tion of the canal as part of a $65 bil­lion infra­struc­ture pro­pos­al. Bank of Chi­na and more recent­ly in 2020, the Indus­tri­al and Com­mer­cial Bank of Chi­na (ICBC), have also expressed inter­est. At the time, ICBC was report­ed­ly attempt­ing to form a con­sor­tium of lenders for this pur­pose.

In ear­ly April 2021, Turk­ish media report­ed that Kanal Istan­bul had already received four pro­pos­als for the upcom­ing project ten­der, and all four were from Chi­nese com­pa­nies.  Past reports sug­gest that these includ­ed big Chi­nese state con­struc­tion firms, includ­ing Chi­na Com­mu­ni­ca­tions Con­struc­tion (CCCC) and Chi­na Nation­al Machin­ery Indus­try Cor­po­ra­tion (Sino­mach).

The canal project has sig­nif­i­cant impli­ca­tions as it would cre­ate a new access point to the Black Sea and the Crimean penin­su­la that could poten­tial­ly serve NATO mil­i­tary inter­ests.  Moscow has thus far opposed the canal project.  For Ankara, how­ev­er, con­trol of a new geostrate­gic access point, such as the canal, would cre­ate anoth­er com­pelling source of lever­age to bal­ance Turkey’s West­ern and Eurasian inter­ests.  For Bei­jing’s part, Chi­nese par­tic­i­pa­tion in the project would ele­vate its role in this bal­anc­ing act, par­tic­u­lar­ly if Chi­nese lenders become crit­i­cal financiers and tech­ni­cal par­tic­i­pants of the project. 

Despite its pur­port­ed val­ue and its sup­port from the Turk­ish pres­i­dent, Kanal Istan­bul remains divi­sive in Turkey.  Crit­ics claim that con­struc­tion of the canal will severe­ly pol­lutethe water resources sur­round­ing the Mar­mara Sea and neg­a­tive­ly impact local com­mu­ni­ties.  Sci­en­tists also note that the loca­tion of the canal is prone to earth­quakes.  With approval already received from the Turk­ish Min­istry of Envi­ron­ment, how­ev­er, the Erdo­gan admin­is­tra­tion is report­ed­ly expect­ing to launch the project as ear­ly as June 2021.