China’s Multifaceted Arctic Strategy

May 24, 2019

At the recent Arctic Council ministerial meeting in Finland, U.S. Secretary of State Mike Pompeo proclaimed that the Arctic “has become an arena for power and for competition.” He singled out China, saying, “China’s words and actions raise doubts about its intentions” in the region.

Pompeo is right: China is seeking to become an Arctic power, which bodes ill for North Atlantic security and Sino-U.S. competition. Based on policy documents, official speeches, and over 100 interviews with senior Arctic officials, I argue that China has put forward a multifaceted strategy that is difficult to classify. On the one hand, China is taking pains to be a cooperative participant in Arctic Council working groups and Arctic scientific research. On the other hand, it appears to be engaged in predatory behavior for unilateral advantage. China is directing economic investment to cash-strapped Greenland and Iceland while advancing a unique narrative of multilateral governance that could eventually weaken Arctic states’ control of the region and boost China’s effort to become a major player in the region through its Polar Silk Road.

China’s Arctic Strategy

In January 2018, China introduced its Arctic Policy, which sets forth a series of goals that largely rely on greater Chinese influence in the region. The document reiterates an often-used assertion that China is a “Near Arctic” state (an assertion that Pompeo rejected strongly in his speech in Finland). The Arctic Policy prioritizes Chinese use of Arctic shipping routes as part of a so-called Polar Silk Road (sometimes referred to as the Arctic Belt and Road), “resource exploration and exploitation” in the region, enhancements of Chinese security, and better Arctic governance.

Each goal makes sense from a Chinese perspective. Shipping goods to or from Europe through the Northern Sea Route north of Siberia or via a transpolar route would be approximately 30 percent shorter than routes through the Malacca Straits and Suez Canal, according to the U.S. Coast Guard. This could save hundreds of thousands of dollars per voyage and avoid East African piracy and Western-dominated maritime choke points. Exploiting Arctic resources would help feed China’s appetite for hydrocarbons and rare earth minerals, both of which are found in quantity in the Arctic. Finally, China can enhance its security by controlling infrastructure along Arctic routes that could host Chinese naval vessels when necessary. As the Arctic Policy notes, “The utilization of sea routes and exploration and development of the resources in the Arctic may have a huge impact on the energy strategy and economic development of China.”

The Chinese are implementing a threefold strategy to meet these goals. One part has used investment and trade to gain economic leverage over vulnerable Arctic states and sub-state actors, at least when those projects bear some hope of economic returns. Second, the Chinese have advanced an Arctic governance narrative that includes China, playing on the multilateralism prominent in many of the Arctic nations’ regional strategies and targeted at economically vulnerable actors who are beholden to Chinese funding. A third component is to invest in Arctic oil and gas, as a Stimson Center report documents China has done with Russia’s Yamal natural gas fields. This article focuses on the first two initiatives.

Economic Leverage in Greenland and Iceland

The Chinese government, as well as government-linked firms and individuals, have invested significant money in the Arctic. Table 1, adapted from a 2017 CNA report, summarizes overall patterns of Chinese investment in select Arctic countries. Chinese investments in Greenland ($2 billion) and Iceland ($1.2 billion) represent a significant percentage of each country’s annual gross domestic product. Though comparisons across datasets should be taken with a grain of salt, the American Enterprise Institute’s Chinese Investment Tracker shows the Chinese invested $1.7 billion in the Maldives and $8.9 billion in Sri Lanka, two important countries in the Belt and Road initiative, during the same period.

Table 1: Chinese Investment 2012-17

Target Country Chinese Investment as percentage of target gross domestic product Total Value of Chinese Investment (billions of dollars) Average Size of Chinese Investment per project (millions of dollars)
Greenland 11.6 2.0 33.4
Iceland 5.7 1.2 30.8
Russia 2.8 194.4 691.7
Canada 2.4 47.3 442.1
United States 1.2 189.7 340.6
Norway 0.9 2.5 147.9

Source: CNA

Chinese investment constituted almost six percent of Iceland’s average gross domestic product for the five years covered by the CNA study. That investment has created economic dependence on the Chinese while giving China access to Iceland’s politicians, scientific facilities, geothermal energy expertise, and telecommunications infrastructure. Chinese investment accelerated following the 2008 global financial crisis, when Iceland was particularly vulnerable economically.

In 2011, Chinese businessman Huang Nubo tried to buy land in northeast Iceland for a golf resort, a dubious venture given Iceland’s climate. Indeed, my interviews with Icelandic officials revealed a worry that the real intent was to build a Chinese-controlled airfield or port. Iceland’s Interior Minister, Ogmundur Jonasson, was subject to tremendous political pressure to allow the deal, according to my interviews. The Icelandic economy needed an injection of capital, and everyone from the prime minister on down saw the real-estate deal as an easy win. Jonasson ultimately rejected the deal because it did not comply with Icelandic law, and he worried about the purchase’s geopolitical implications. (Click here for a more detailed account of his thinking.) Despite this setback, Chinese entities have persisted in their attempts to buy into Iceland’s economy.

Iceland was open to Chinese investment to the point that one of the rationales for Iceland’s 2011 Arctic strategy was to increase cooperation with China, according to my discussion in 2015 with Ossur Skarphedinsson, the foreign minister at the time the strategy was published. According to Skarphedinsson, Chinese investment would help the economy and could be used as geopolitical leverage with the European Union and the United States.

China and Iceland signed a bilateral energy accord in 2012 and a free trade agreement the following year. In 2015, Chinese automaker Geely invested in an Icelandic methane company, and the Chinese government funded a northern lights research facility in 2016. The two countries inked a $250 million deal in 2018 to provide China with geothermal expertise. Huawei, the Chinese telecom giant, reached a deal with Icelandic mobile phone companies to test 5G technology in February 2019. Because of these investments, Iceland cannot blatantly disregard Chinese preferences without significant economic risk.

China has engaged in similar activities in Greenland. Greenland falls under Danish sovereign control. Its 57,000 residents are spread across a vast territory with poor infrastructure. Poverty and unemployment are much higher than in Denmark proper. Residents have few prospects to improve their living standards other than by selling rights to extract Greenland’s abundant rare earth minerals.

Chinese firms have invested heavily in Greenland, constituting almost 12 percent of Greenland’s average gross domestic product from 2012-17. Investments focused on mineral extraction, including rare earth minerals, iron, copper, and uranium. The persistent worry in Copenhagen, as Lene Espersen, Danish foreign minister in 2010-11, told me, is that Chinese investment could overwhelm Greenland’s economy and thousands of Chinese workers could change the local culture. Copenhagen could afford to be worried, in a manner of speaking, because it was not as desperate for foreign investment as those in Greenland itself (or, for that matter, in Iceland). Copenhagen was also worried that Chinese investment would widen the rift between Denmark and Greenland, as I discuss below.

Perhaps most troubling from a security perspective was a Chinese effort to buy a defunct U.S. naval base, complete with a port suitable for surface ships or even submarines, and a Chinese attempt to build anew or refurbish the airport outside Nuuk, Greenland’s capital, and two other airfields for over $550 million. Denmark flat-out rejected the naval base acquisition, but was slow to react to the airfield proposal until then-U.S. Secretary of Defense James Mattis strongly urged Copenhagen to halt the Chinese initiative. The airfield project was ultimately shelved after Denmark (and allegedly the United States) agreed to help finance the construction and Denmark signaled new, more stringent controls of foreign investment. That said, given that it apparently took Mattis’ personal intervention to get Denmark moving, there is no guarantee that Copenhagen or Washington will counter the next Chinese attempt to build dual-use facilities on the island.

 

 

Alternative Governance Narratives

China’s Arctic Policy puts forward an alternative governance narrative that plays to many Arctic countries’ focus on multilateralism in regional politics. In 2013, China agreed to abide by the jurisdictional rights of the Arctic states as a condition of being granted Arctic Council permanent observer status. That gave China a voice in Arctic Council working groups discussing issues like climate research, search and rescue coordination, and fisheries management. (Arctic Council representatives have told me that China has played a largely constructive role in Council working group meetings.) The 2018 Arctic Policy is consistent with this 2013 pledge. The document acknowledges that the “Arctic 8” — Russia, Canada, the United States, Finland, Denmark, Norway, Sweden, and Iceland — have unquestioned control over their territory and territorial waters: “All states…should respect the sovereignty, sovereign rights, and jurisdiction enjoyed by the Arctic States in this region.”

That said, the policy makes clear that China wants a greater and more direct role now that it has a foot in the door. It goes on to argue that, “The Arctic situation now goes beyond its original inter-arctic states or regional nature, having a vital bearing on the interests of states outside the region.” According to the Arctic Policy, all Arctic stakeholders should “ensure that the benefits are shared by both Arctic and non-Arctic States as well as by non-state entities, and should accommodate the interests of local residents including the indigenous peoples.”

In theory, these sentiments are consistent with the general tenor of Arctic states’ strategy documents. Table 2 lists the main priorities of each strategy (with the references to multilateral cooperation in bold). With the exception of Canada and, to a lesser extent, the United States, the Arctic states emphasize some form of multilateral cooperation in their strategy documents (Russia has not published a strategy). Yet China’s appeals for inclusive governance have largely fallen on deaf ears, particularly with Russian officials who, according to my interviews with officials across the Arctic, have been leery of China’s Arctic ambitions since the early 2000s. China’s appeals have found more sympathy among two groups, the first of which is officials with responsibility for Arctic scientific research, fisheries management, and shipping standards. The second is politicians in Greenland and Iceland.

Table 2: Arctic Strategies

Canada

(2015)

Denmark

(2011)

Finland

(2016)

Iceland

(2011)

Norway

(2017)

Sweden

(2011)

United States

(2013/16)

Exercising Sovereignty Peaceful Arctic Sustainable Development Arctic Status Cooperation with Neighbors Climate Research Advance Security Interests
Environmental Protection Sustainable Development Environmental Protection Strengthen Arctic Council Sustainable Development Environmental Protection Environmental Protection
Economic and Social Development Environmental Protection Multilateral Solutions Multilateral Solutions Environmental Protection Sustainable Development International Cooperation
Empowering Local Peoples Multilateral Solutions Cooperation with States & Stakeholders Human Dimension
Sustainable Development Multilateral Solutions

Iceland has always wanted to be considered an Arctic coastal state, despite lying just outside the Arctic Circle. Icelandic officials mention this frequently in speeches and policy documents. Iceland went so far as to register a formal diplomatic protest when it was not invited to a 2010 meeting of Arctic coastal states held in Canada.

Fast-forward three years to the signing of the 2013 Iceland-China free trade agreement. That same day, Ólafur Ragnar Grímsson, Iceland’s largely ceremonial president, announced the creation of the Arctic Circle conference, an annual meeting in Reykjavik on Arctic governance open to all interested states and non-state actors, regardless of their country of origin or their coastal status. It has grown from 1,200 participants in 2013 to more than 2,000 people from over 60 countries in 2018.

China’s use of the Arctic Circle meeting to expand its influence has accelerated since the January 2018 release of the Chinese Arctic Policy. For example, one of the themes of the October 2018 Arctic Circle meeting was “China and the future of the Arctic Belt and Road.” China also hosted a subsidiary Arctic Circle forum this May in Shanghai.

It would appear that China’s push for Arctic governance changes is reaching sympathetic ears in Iceland. As Iceland’s Foreign Minister, Guðlaugur Þór Þórðarson, announced this month when taking the rotating chairmanship of the Arctic Council, “Working closely with all partners, inside as well as outside the region, is of utmost importance for both prosperity and security in the Arctic region.” By contrast, officials in the United States, Canada, and Norway have all told me privately that their governments, as well as Russia’s, reject sharing control of the Arctic with non-Arctic states.

China’s message that indigenous peoples should have an equal stake in Arctic governance is well-received in Greenland, where residents have engaged in an episodic drive toward independence from Denmark. Denmark allowed a Greenland referendum on independence, which passed in 2008, but only under the condition that Greenland had to become economically self-sufficient before Denmark would cede all authority. In the interim, Denmark gave the government in Nuuk control over local issues, including mining and fisheries management, though the Danes kept control over foreign and security policy and the extraction of rare earth materials like uranium.

Denmark’s repeated veto of Chinese investment proposals has led to discontent across political factions within the Nuuk government, with a parliamentary leader in Greenland saying, “The Danish government must respect that these are decisions for Greenland to make. Many of us think that Denmark applies double standards when it comes to Chinese investments.”

That discontent is pushing Greenland away from Denmark and toward China. In 2017, for example, Kim Kielsen, then Greenland’s prime minister, made a trip to China to appeal for investment, resulting in China’s airport construction bid. More recently, Greenland’s representative to Denmark’s parliament, Aaja Chemnitz Larsen, was quoted as saying, “In Greenland, we don’t suffer from China anxiety, like they obviously do in the government in Copenhagen.”

Implications

At face value and viewed in isolation, none of this is particularly controversial. China engages in Arctic research and wants to extract resources like other industrial economies. The security implications are profound, however, as many of my interviewees acknowledged.

China wants to become a major power in an increasingly accessible Arctic. The combination of China’s money and its governance narrative has met with sympathetic ears in Greenland and Iceland. As the Danish Intelligence Service noted, “China has demonstrated both the capability and willingness to use investments and other kinds of economic instruments as a lever to obtain political objectives.” Moreover, China is attempting to elevate the role of indigenous groups relative to nation-states in governance and resource decisions, both rhetorically and as through its behavior in Greenland.

In the long run, China seems poised to acquire control or a major ownership stake in infrastructure projects across the region. If Chinese investments could help Greenland’s pursuit of independence, that could have implications for the U.S. military base in Thule and for NATO — for instance, Greenland’s Chinese benefactors could pressure Nuuk to kick out the Americans or to refrain from joining NATO. Moreover, a Chinese-controlled deep-water port in southern Greenland could give China new opportunities for intelligence collection along the U.S. Eastern Seaboard, or be used for Chinese nuclear submarines. In Iceland, there is already worry that China could use the northern lights research facility to track western satellites and NATO airspace, including American P-8 flights out of Keflavik, Iceland. China’s strategy could also divide the Arctic states as well as create divisions inside Arctic nations between security officials and those focused on regional environmental and search-and-rescue coordination. Finally, as the U.S. Coast Guard noted in its 2019 Arctic Strategic Outlook, “China’s attempts to expand its influence could impede U.S. access and freedom of navigation in the Arctic as similar attempts have been made to impede U.S. access to the South China Sea.”

As Pompeo noted, the Arctic is becoming an arena for great power competition. China is using the tools it has at its disposal, investing in resource extraction, attempting to buy and/or build transportation infrastructure, and trying to change regional governance to increase Chinese influence. In the short run, China will attempt to curry favor with economically vulnerable or disaffected populations, and it will make prudent investments. In the long run, China could become a major player in the Arctic if its Polar Silk Road and all its associated political, military, and diplomatic efforts come to fruition.

 

 

Dr. David Auerswald is a professor of security studies at the U.S. National War College in Washington, DC. He has published books on International Security Assistance Force operations, Congress and national security, Congress and civil-military relations, the politics of coercive diplomacy, and the Kosovo conflict. The views in this article are his own and not those of the U.S. government.

 

Image: Xinhua photo by Liu Shiping