China’s Arctic Strategy

Xue Long

China has recently become an observer member of the Arctic Council, sparking a flurry of speculation about their intentions in this often overlooked part of the world. The potential for shipping to traverse the north west passage thanks to the shrinking of the Arctic ice-pack has attracted Chinese interest as many of their ships could be using this route, thus avoiding the Strait of Malacca and Suez Canal, saving both time and fuel. The region’s mineral riches have also attracted interest and although China has already invested in many of the countries of the Arctic Circle some of its purchases have been greeted with suspicion. In Iceland a resort planned by Zhongkun Investment Group was blocked due to national security concerns and instead the company is looking at Norway, although China still has a simmering dispute with that country thanks to the 2010 Nobel peace prize going to the Chinese activist Liu Xiaobo who remains in a Chinese prison cell.

However there is also a strong case to say that Chinese interest in the region has been overplayed and the countries around the Arctic will continue to steer events and activity in the region, the north west shipping route is untested commercially and Chinese investment overall is still relatively small (but growing quickly). China is not the only rising power interested in the Arctic, India and South Korea also joined the council as observer members at the same time, above all these moves demonstrate that thanks to its increasingly accessibility and natural resource wealth the region will only continue to attract greater international and commercial attention. Unfortunately this new found popularity will only be to the detriment of the region’s pristine environment and natural beauty.

Below I give a brief synopsis of China’s ties with countries in the Arctic Circle:

Greenland

Thanks to climate change this vast northern Danish dependency is becoming more accessible and Sichan Xinue Mining has agreed to finance an iron ore project in the Isua field. If this is a success over time other firms could follow suit. Others such as Jiangxi Union have prospected for gold and copper but have not yet started production. This flurry of Chinese interest prompted a reaction by the European Union which allegedly promised millions in development aid in exchange for a promise not to give China exclusive rights to its mineral wealth.

Iceland

Iceland was the scene for one of the more unusual stories of Chinese investment overseas, as tycoon Huang Nubo attempted to buy a large chunk of land in the island before being thwarted by the government. The millionaire wanted to build a large resort in order to attract Chinese tourists to the clean air and beautiful landscapes of the country. Despite this setback the Icelandic government are reportedly looking at reviewing the legislation that prevented the development going ahead, but doubts remain as to China’s intentions.

USA

Chinese firms have been highly active in buying up US assets, everything from Californian real estate to government bonds to technology companies. There has been some political friction as some companies are deemed to be of strategic or political importance. Recently the Obama administration blocked Chinese investment in a wind farm in Oregon as off limits citing its position near a US naval base and therefore contrary to national security.
However thousands of other deals have gone through and Chinese investment is accelerating, with research group Rhodium putting the cumulative value of Chinese FDI at $27.9 billion since 2000.

The USA will view any Chinese moves in the Arctic with wary eyes, it already has a potential opponent in the form of Russia in this arena and will be eager for Beijing’s activity to be kept to a minimum.

Canada

Canada’s powerful natural resource companies have made a major impact in emerging markets, extracting copper, precious metals, coal and a whole host of other resources from across the world. At the same time Chinese investment in Canada has taken off, estimated at $25 billion in 2012. One notable project has been the purchase of Nexen Energy by Chinese state owned CNOOC, a deal which was heavily scrutinised by the media and government in the country, many who felt unease at allowing important companies into foreign and particularly Chinese hands. Canada can expect to see more Chinese investment as companies search for western technology, brands and market share.

Russia

Economic ties between Russia and China are dominated by hydrocarbons; China is the world’s biggest consumer of energy and Russia the biggest producer. The recent completion of an oil pipeline has helped to cement that relationship. Russia has felt threatened by increasing Chinese dominance in Central Asia, a region it views as its own backyard. A wave of Chinese finance and investment in the region is threatening to displace Russian influence which has remained strong since the collapse of the Soviet Union. In the Arctic region Rosneft and Gazprom have been bolstered by Chinese financing which will allow them to develop gas and oil production in the Far East and Arctic region, but the fact that the Russian hydrocarbon giants have taken the money creates greater dependence on China, something many Russians are wary about.

Norway

Sino-Norwegian relations suffered a nosedive following the 2010 decision to award the Nobel Peace Prize to Chinese activist Liu Xiaobo. The Chinese authorities acted with anger, refusing visas to Norwegians and buying UK salmon instead, ending Norway’s virtual monopoly on exports of the fish to China. Relations between Norway and China have since improved and a free trade agreement is in the works.

Sweden

One of the highest profile Chinese deals in Europe came with Geely Motors purchase of Volvo from Ford for $1.5 billion in 2010. Despite being under foreign ownership Volvo retains its Swedish brand and Gothenburg headquarters. Geely planned to use the cutting edge technology from Volvo and gain market share in Europe. However the deal turned sour as profits fell dramatically, partly as production remained in Europe rather than being moved to China. If production had been moved to China the political fallout would have been immense and there would have been a perceived fall in quality, which is one of the brands’ main selling points. It remains to be seen if Geely can turn around the iconic company.

Finland

Sino-Finnish relations are particularly warm as Finnish technology companies have been particularly active in setting up plants and offices in China. Trade between the two countries has been strong, China is now Finland’s 5th biggest trading partner is it also likely that Chinese firms will continue to invest in the Scandinavian country.



Categories: China Goes Global, Geo-Economics

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