China's involvement would be a direct challenge to the Panama Canal, which was controlled by the United States until 1999. The canal would also give China a major foothold in Central America, a region long dominated by the United States. The U.S. embassy in Nicaragua declined comment when work began last month.

But in a statement released on Tuesday, the U.S. mission in Managua said all relevant documents pertaining to the project should be made public, and that the voices of all stakeholders should be heard in a peaceful manner.

"The embassy is worried by the lack of information and transparency that has existed, and continues to exist, over many of the important aspects of this project," it said. It urged disclosure of environment studies, tenders and other details of the project.

Eoin Treacy's view

Nicaragua is an impoverished country so the potential for massive investment by a Chinese led group in a globally significant infrastructure project must be very appealing. The environmental case for the canal would be controversial regardless of who builds it, but the economic case is interesting because a Nicaraguan canal would allow the world’s largest ships to traverse the isthmus. 

Such a route would also allow more such ships to be built and would reduce both shipping times and costs. Miami has already made the investments needed to deepen its ports ahead of the opening up of the expanded Panama canal next year and would therefore also be a beneficiary of an additional canal. 

Of course there is a still a significant risk that the Nicaraguan canal contract is a white elephant but it is easy to see why a mercantilist Chinese administration would favour a short cut of their own.