China cozies up to Iceland in race for Arctic resources

China has been paying a lot of attention to Iceland, a country with a population 1/5000th the size of its own, as an effort to stretch its influence into the Arctic Sea.

By Peter Ford, Staff writer / April 15, 2013

It is clear why Iceland is interested in China: the Arctic nation’s prime minister is currently in Beijing to sign a free-trade agreement that will boost Icelandic fish exports more than somewhat. But why is China so interested in Iceland?

Perhaps because the Arctic is shaping up to be one of the world’s future hot spots, as the melting icecap reveals a potential treasure-trove of natural resources and clears new shipping routes.

“China has an interest in the region and it wants to be part of the Arctic game,” says Geir Flikke, an expert in Arctic security issues at the University of Oslo.

Chinese officials, though, are more evasive. Asked about Beijing’s Embassy in Reykjavik – a hulking granite block that can house more staff members than the number of people who work in Iceland’s entire Foreign Ministry – the Chinese Foreign Ministry would say only that it had dispatched “the necessary and proper number of diplomats” to foster bilateral ties.

In fact, say Chinese Arctic experts and foreign observers, the attention that Beijing is paying to a minnow state with a population 1/5000th the size of its own is all part of China’s bid to stretch its influence into the Arctic as part of a global vision.

“China sees itself as a 21st-century power and it wants a seat at the table,” says Malte Humpert, founder of the Arctic Institute, a think tank in Washington. “They are seeing where there is potential … and developing their geostrategic position.”

China: a ‘near arctic nation?’

The Chinese government has no declared Arctic policy, but it has taken to calling China a “near-Arctic nation” despite being about 1,000 miles away from the Arctic Circle at its nearest point. Beijing sent its only icebreaker, the Snow Dragon, on its first transpolar voyage last year, and China is hoping to be accepted as a permanent observer at the eight-nation Arctic Council next month.

Behind all this is climate change. As global warming shrinks the polar ice, resources such as rare earth minerals, iron ore, oil, and gas are becoming more accessible. At the same time, a northern sea route is opening up that is ice-free during the summer months, which could cut 30 percent off China’s shipping costs to Europe.

Just 46 vessels, including the Snow Dragon, made the trans-Arctic passage last year, mostly LNG (liquefied natural gas) tankers and iron-ore transports accompanied by Russian icebreakers. But by the middle of this century, some experts predict, ordinary ships with ice-strengthened hulls will be able to pass directly over the North Pole for several months a year.

That route would cut a third off the current sea journey between Shanghai and Hamburg, Germany, points out Zhang Yao, director of the Ocean and Polar Research Center at the Shanghai Institutes for International Studies. Europe is now China’s biggest trade partner and “we believe the Arctic route could play a very important role in China’s trade, taking a significant proportion of it,” Dr. Zhang says.

If that were to happen, says Professor Flikke, Iceland would be attractive as a transport hub, though Icelanders themselves seem a little nervous about that prospect. When a Chinese billionaire tried to buy a swath of gale-swept coastline in 2011, claiming he planned to build a resort and golf course there, the government rebuffed him amid public fears he was a stalking horse in Beijing’s search for deep water ports.

The Arctic route would serve another Chinese strategic purpose, though. Currently, 80 percent of Beijing’s oil imports are shipped through the narrow and pirate-ridden Malacca Straits (see map) – which lie between Malaysia and Indonesia – a security nightmare in time of crisis. As China seeks to diversify its energy sources, and buy more from Russia, shipping such fuel around the top of the world would be an attractive prospect.

Resources as the world warms up

But shipping is not all there is to it, says Mei Xinyu, a researcher at a think tank linked to the Chinese Ministry of Commerce. China “cannot afford to ignore the potential resources that it will become possible to exploit as the world warms up,” he argues.

Thirty percent of the world’s untapped gas and 13 percent of its undiscovered oil lie within the Arctic, according to US Geological Survey estimates. Greenland, a dependency of Denmark, is thought to have the largest deposits of rare earths outside China, along with major iron ore reserves.

A British company is hoping to win Greenland’s approval this year for an iron-ore mine that would supply 15 million tons a year of ore to China, and employ up to 3,000 Chinese miners. But the government that took office earlier this month in Nuuk is wary of such an influx into a territory whose population is only 57,000. “The coalition emphasizes that foreign labor should be minimized,” the new ruling parties declared.

China appears to have been quite successful in calming local reservations about its regional intentions; most of the smaller Arctic nations say they support Beijing’s bid for permanent observer status at the Arctic Council although Canada or the United States might veto the attempt at a summit next month in Tromso, Norway.

That would be a blow to Chinese ambitions, says Mr. Mei. “China would like to take part in making the rules that will govern sea routes, resource exploitation, and scientific polar research,” he explains. “If China is not a permanent observer” at the Arctic Council, which has made itself the forum for such policy decisions, “we will have to accept policies set by others that may not take China’s interests into account.”

Greenland passes mining projects bill, opens for cheap labor

(Reuters) – Greenland on Friday passed a bill setting the framework for foreign mining and exploration companies to take advantage of the natural resources of the Arctic island and opening up for cheaper labor, including staff from China.

The legislation defines the size of what is determined a large scale project and regulates minimum salary levels for foreign workers.

The law has been criticized for paving the way for companies to employ foreign workers at a lower salary than what the companies would be paying Greenlandic workers.

With global warming thawing its Arctic sea lanes and global industry eyeing its minerals, Greenland, population 57,000, is wrestling with opportunities that offer rich rewards but risk harming a pristine environment and a traditional society that is trying to make its own way in the world after centuries of European rule.

Greenland, semi-autonomous from Denmark, wants to encourage foreign companies to come in with workers to set up exploration while unions fear the move will undercut the Greelandic workers.

Whether in iron, zinc or rare earth minerals vital for 21st-century technology like smartphones, China has been eyeing investments in Greenland, whose increasingly autonomous national government is looking further afield for investors.

All parties except the biggest opposition party, which abstained and said the bill needed more work, voted in favor of the legislation.

Kaj Kleist, spokesman at British company London Mining Plc, which plans a large iron ore mine near the capital of Nuuk, said the company was pleased with the bill.

“Several issues around the big scale projects, such as salaries, are quite heavy politically. With the legislation in place that we can follow, we will be able to have less debate,” he said.

“Greenland never had a big work force from abroad before, that’s why we need to regulate this,” Kleist said.

He said the new legislation sets the minimum hourly wage for foreign workers in large scale projects at 80.40 Danish crowns, less than what most Greenlandic workers earned.

London Mining’s $2.3 billion project stands to increase Greenland’s population by 4 percent by hiring Chinese workers and would supply China with iron.

Greenland has awarded overall some 150 licenses for mineral exploration compared with only a handful in existence a decade ago, with around $100 million spent by companies last year alone. Oil companies have spent more than $1 billion in exploring offshore.

(Reporting by Anna Ringstrom, Katja Vahl and Mette Fraende; Editing by Kenneth Barry)