China’s New Strategic Target: Arctic Minerals

By Andrew Erickson and Gabe Collins

As policymakers in Washington focus on China’s expanding presence in Africa and growing assertiveness in the South China Sea and Indian Ocean region, Danish diplomatic assistance is opening the gate for China to establish a strategic foothold in the Arctic.

Denmark has made a strategic decision to prioritize its economic relationship with China and is now becoming the key gateway for Beijing’s commercial and strategic entrée into the Arctic. Denmark advocates giving China a seat at the Arctic policy table. Friis Arne Peterson, the Danish ambassador to China, stated in October that China has “natural and legitimate economic and scientific interests in the Arctic.” Copenhagen likewise supports giving China permanent membership on the Arctic Council, the eight-nation forum that includes the five Arctic Ocean coastal states (the U.S., Canada, Denmark, Norway and Russia) as well as Sweden, Iceland and Finland.

Greenland’s substantial deposits of minerals including rare earths, uranium, iron ore, lead, zinc, petroleum, and gemstones make the Arctic island a key bargaining chip as Denmark cultivates Beijing. Copenhagen administers Greenland’s foreign policy and will likely dangle the island’s rich geological potential in front of Beijing as it works to bolster the China-Denmark trade relationship. Indeed, Greenland’s minister for minerals, industry, and labor traveled to China for a trade mission in November that included participation in a major mining and minerals trade show in Tianjin.

Danish exports to China rose 17% and Chinese exports to Denmark rose 25% in 2010, according to figures provided by the Danish embassy in Beijing. Yet Danish exports to China were worth just US$2.6 billion and Chinese exports to Denmark amounted to US$6.9 billion, a small fraction of the volumes traded between China and its primary trade partners. The minerals that lie under Greenland’s snow are the real prize, worth far more in both monetary and strategic terms to China than the imported goods or export market Denmark itself can provide.

Danish diplomacy is literally following the money as some of the country’s policy elites turn away from the U.S. Copenhagen’s largest embassy is in Beijing, and is twice the size of its embassy in Washington. Denmark’s ploy to pull China closer is likely to work: From Beijing’s perspective, having Chinese companies buy several billion dollars per year worth of pharmaceuticals and machinery and doing container shipping business with Maersk is well worth it to gain access to Arctic negotiating tables and Greenland’s minerals.

Greenland is the best geographic entry point for Chinese entities interested in Arctic mineral resources because its government lacks the ability to develop mineral resources independently and because its Danish overseer will likely actively support Chinese investment in the island’s resources. Companies from Russia, the U.S., Canada and Norway already dominate the development of oil, gas and other natural resources within their home countries’ respective territorial zones.

With this politically and geologically favorable backdrop, Greenland’s high mineral production potential will likely attract Chinese interest despite the risk and uncertainty inherent in developing a new mineral source. London Mining aims to produce 15 million tonnes per year of high grade iron ore pellets by 2015 at its Isua project, which includes investment from Sinosteel and China Communications Construction Corp. Greenland Minerals and Energy claims its Kvanefjeld deposit could produce 20% of the global rare earth supply and large amounts of uranium with first production in 2016 (pdf). Kvanefjeld’s potential to influence global prices would make it a project of strategic interest to Chinese companies like Inner Mongolia Baotou Steel Rare Earth, the world’s largest rare earth metals producer.

Chinese firms will not have first-mover advantages in Greenland, as small miners from Australia and the UK dominate the local investment scene. That said, they stand to enjoy active support from the Danish government should they choose to invest on the island. We anticipate that larger companies, including buyers from China, will seek strategic stakes in mining projects initiated by enterprising smaller firms like those mentioned above. It is also very likely that given Greenland’s small population, Chinese firms will import substantial numbers of workers from China to build the power plants, transmission lines, ore processing facilities and other supporting infrastructure for Chinese-invested mines in Greenland.

As in so many other areas, China is entering a new global arena. It remains to be seen whether it will follow existing norms, or attempt to change the system over time. “China has a legitimate right to be interested in and participate in what happens in the Arctic, but it requires that the rules are observed,” Greenland premier Kuupik Kleist said in November. Countries like China “must not believe that they can come and decide about the residents and just take care of the resources in the Arctic, which are regulated by laws, treaties and binding agreements. Those cannot be tampered with.”

It will be interesting to watch how Danish and other regional experts’ perceptions evolve on this issue as China’s Arctic presence increases. According to SIPRI researcher Linda Jakobson, “There is some irony in the statements by Chinese officials calling on the Arctic states to consider the interests of mankind so that all states can share the Arctic. These statements appear to be contrary to China’s long-standing principles of respect for sovereignty and the internal affairs of other states.” (pdf)

In the three Near Seas (Yellow, East China and South China), Beijing promotes an extreme minority perspective on international law at odds with the UN Convention on the Law of the Sea that holds that coastal states have the right to regulate and restrict non-resource-related activities between the 12 nautical mile limit of their territorial waters and the 200 nautical mile limit of their claimed exclusive economic zone, or EEZ. Beyond its own region, by this logic, Beijing must honor similar claims by Arctic states. Canada, for instance, maintains that foreign vessels must obtain permission before transiting its vast northern archipelago.

Transit permission may become important if China continues building its icebreaker fleet and summer passage through the Canadian and Russian Arctic routes becomes increasingly viable. China currently has only one operational icebreaker, the Xuelong, but a new 8,000 tonne vessel is due to enter the fleet in 2014. The likely westbound route from Nuuk in Western Greenland to Qingdao via the Canadian Arctic is around one-half the distance to Qingdao through the Panama Canal, while the likely eastbound route via the Russian Arctic is less than two-thirds the distance to Qingdao via the Cape of Good Hope.

The Great Game for Arctic resources is heating up and China is likely to play an expanding role as Denmark opens the door for Beijing to enter the Arctic on the diplomatic front and on the investment front via mining projects in Greenland.

Andrew Erickson is a professor at the U.S. Naval War College and a research associate at Harvard’s Fairbank Center. Co-founder of China SignPost (察中国), he blogs at Gabe Collins is a Co-founder of China SignPost and is a J.D. candidate at the University of Michigan Law School.

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