Fireworks exploded as a huge container ship made an inaugural passage through the newly expanded Panama Canal on Sunday, formally launching the Central American nation's multibillion-dollar bet on a bright economic future despite tough times for global shipping.

The Chinese-owned Cosco Shipping Panama passed through the Atlantic locks in the early morning and by afternoon had completed the 80-kilometre journey to the Pacific, stewarded by tugboats and cheered by dignitaries and exuberant crowds of thousands.

The $5.25-billion US project went online nearly two years late after construction delays, labour strife and apparent cost overruns. But officials were still bullish and in a celebratory mood as they declared the expanded canal open for business.

"This is an achievement that all of us Panamanians should be proud of," President Juan Carlos Varela said at a ceremony on the outskirts of Panama City. "Today marks a historic moment for Panama, for our hemisphere and the world."

Spectators cheered as the Chinese cargo ship Cosco Shipping Panama began to cross the new Agua Clara locks on Sunday. (Moises Castillo/Associated Press)

"This new transit route is the tip of the iceberg in making Panama once again the logistics centre of the Americas," canal administrator Jorge Luis Quijano said. "And it represents a significant opportunity for the countries of the region to improve their infrastructure, increase their exports."

Crowds that began gathering before dawn lined both sides of the canal waving flags, partying to salsa music and watching videos on giant screens. Authorities said about 30,000 people and eight foreign heads of state were attending.

"It's a one-time experience, a great achievement," said Felicia Penuela, a homemaker from Colon province. "Panama is showing the world that even though it is a small country it can do great things."

Expansion a 'winning bet'

The Cosco Shipping Panama is a 48.2-metre-wide, 300-metre-long behemoth that is one of the modern New Panamax class of mega-vessels that are seen as the future of global shipping and will now be able to use the canal. It carried some 9,000 cargo containers during the inaugural voyage.

The waterway's capacity doubles with the new locks, and canal authorities are hoping to better compete with the Suez Canal in Egypt and tap new markets, such as natural gas shipments between the U.S. and Asia.

"The Panama Canal, with this expansion, is an important player not only for regional maritime commerce but worldwide," said Oscar Bazan, the Panama Canal Authority's executive vice-president for planning and commercial development. "The canal is a winning bet."

Authorities said Sunday said that 85 per cent of the 166 reserved crossings scheduled for the next three months are for container ships. Container cargo accounts for nearly 50 per cent of the canal's overall income.

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Panamanians at the ceremony expressed hope that the expansion will help the economy in a country where about 25 per cent of the people live in poverty.

"I think the inauguration of the locks is excellent for the current generations and those to come," said Moises Gonzalez, a 40-year-old mechanic who worked on the construction of the locks for six years. "Opportunities for us. We have to find a way for it to reach the people."

However, the party comes amid a lull in global shipping due to the drop in oil prices, an economic slowdown in China, which is the canal's second-largest customer, and other factors that have hit the waterway's traffic and income.

Since the 80-kilometre canal was handed over from U.S. control at the end of 1999, it has generated about $10 billion in direct income for the Central American nation and is responsible for about 40 per cent of its GDP, factoring in related economic activity. Some 35 to 40 vessels transit the waterway each day, and the canal is estimated to handle about six per cent of world maritime commerce.

Panama began the expansion nearly a decade ago. Originally planned to open in late 2014 around the waterway's centennial, the new locks can accommodate ships that carry up to three times the cargo of those previously able to use the canal.