The canal will be built by the Hong Kong Nicaragua Canal Development Investment Company (HKND), headed by Chinese tycoon and lawyer Wang Jing.
The waterway will be 172 miles in length, making it more than three times longer than the Panama canal, which took the Americans 10 years to build between 1904 and 1914.
Here is a video (in Spanish) showing the proposed path for the hugely ambitious project.
According to Reuters, the canal would pass through Lake Nicaragua, the biggest lake in Central America, and be between 230 and 520 metres wide and 27.6 metres deep.
This means the canal would hold at least 1,76 trillion litres of water - enough for Thames Water to provide for its 15m customers every day for one year, 310 days and 17 hours.
China is a major investor in Latin America - last year Chinese oil companies bought a third of Ecador's rainforest.