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The tortuous path of China's win-win strategy in Greenland

By | Article
March 24, 2020
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A ship docked in Nuuk located at the mouth of the fjord

A view of Nuup Kangerlua long fjord in Sermersooq municipality, Greenland. An area extremely relevant for local people’s livelihood. Photo: Thomas Leth-Olsen

China’s Arctic engagement has increased considerably during the past decade, which has not only offered plentiful economic opportunities but also created new risks and concerns among the eight Arctic states, non-state actors, and peoples. To increase understanding of dimensions of Beijing’s Arctic activities, The Arctic Institute’s China Series 2020 probes into China’s evolving Arctic interests, policies, and strategies, and analyses their ramifications for the region (and beyond).

The Arctic Institute China Series 2020

Through China’s Arctic Strategy published in January 2018, China’s leadership has officially declared which role it will play in the “race to the North”. However, China is also engaging in a new maneuver in order to improve its role in Arctic governance: the win-win strategy, which involves the improvement of bilateral relationships with Arctic States, bolstering China’s involvement in Arctic matters.1)

Greenland plays a key role in this strategy: extremely rich in natural resources, it is the hypothetical arrival point of the Polar Silk Road through the Transpolar Route, the only one that does not foresee the passage through territorial waters, and in need of international investors for new infrastructure. By looking at two main mining projects (Isua and Kvanefjeld projects), the article will shed light on why these projects are extremely relevant to China’s strategy, and the main social and political issues related to them.

Why the win-win strategy?

In January 2018, China’s leadership officially released its strategy for the Arctic through the publication of a white paper. The document presents a snapshot of the current status of the Arctic region, and it also illustrates collaboration opportunities that the region offers to the international community and clarifies why the polar region is extremely relevant for China’s leadership. The whole strategy is based on the main principle of China as a “Near Arctic State”. Giorgio Cuscito, referring to an interview with the Polar Research Institute’s vice president Yang Huigen, additionally proposes the concept of China as a “Future Polar Power”.2) Four main reasons may be considered in the light of this two statements:

  1. Geographical proximity justified by the map created by the geophysicist Hao Xiaoguang.3) Since 2004 China’s State Oceanic Administration has been using it to carry out Arctic research expeditions. Looking at the map, China emerges as a central maritime and terrestrial power, the Asian block seems to be close to the North Pole, and the United States occupies a marginalized position.
  2. Strategic relevance and neutrality of the Central Arctic Ocean: part of the Arctic Ocean is shared among global powers, and China demands to have full access and rights to its development and governance as common heritage of mankind. In order to enhance international collaboration for environmental protection and for sustainable development in the area, China has joined the European Union (EU), Canada, Denmark, Iceland, Japan, Korea, Russian Federation, Norway and the United States in signing an agreement to ban illegal fishing in the Central Arctic Ocean for the next 16 years.4)
  3. Right to conduct exploration and exploitation activity: as the UN Convention on the Law of the Sea (Unclos) establishes, in the central part of the Arctic Ocean that is not covered by the EEZ (Economic Exclusive Zone) and by the continental shelf, China can exert the rights to exploration and exploitation. 
  4. Right to conduct scientific research: it aims to map Arctic geography and, in particular, to study climate change’s impact on China’s territory.

Through the white paper, China shows its commitment to respecting the existing legal framework regulated by the United Nations Convention on the Law of the Sea (UNCLOS), the Polar Code, the Ilulissat Declaration, and the sovereignty of Arctic states.

This declaration of respect towards the various legal frameworks actually enables China to apply its win-win strategy and “to pursue an economic development strategy for the region that requires the Arctic be open to Chinese development and that China is given equal standing to other Arctic nations”.5) China is enhancing bilateral relations with a non-intrusive political approach by sustaining infrastructural investments in Russia’s liquefied natural gas (LNG) project and the Sabetta Port,6) signing a joint agreement with Finland for future cooperation on polar research, environmental protection technology and shipping and maritime safety;7) injecting a large amount of money in Icelandic economy after the collapse of 2008;8) making a nickel-shipping investment in Canada,9) and signing a five-party Joint Development Agreement with Alaskan Governor Walker for an estimated $43 billion investment in Alaska’s LNG development.10) These collaborations testify an improved diplomatic and political strategy aimed at building win-win cooperation and a well-planned public diplomacy attitude that have both facilitated improvement of China’s relations with the Arctic states. The “win-win” concept has two key components: China’s growing investments in the Arctic states may directly bolster China’s influence in the area and the realization of shared goals may reinforce the idea of China as a cooperating and peace-seeking country.

Greenland’s relevance for China’s strategy

As a huge and isolated island located at the extreme North of the world, Greenland has historically occupied a strategic position. During the Second World War, Greenland’s position was especially significant for the United States, which took advantage of icy relations between Denmark and its colony, and established thirteen army bases and four naval bases there.. Greenland was exceptionally relevant to American foreign policy because having control of the region meant blocking enemy access to North America. It also served as a key transit point to Europe, a strategic location to obtain forecast information, and had many valuable minerals which could be exploited.11) After the end of the Cold War, most of the US bases were dismantled, and currently only the Thule Air base is still operational, regulated by the Igaliku Agreement. The closure of its many military bases on Greenland meant a reduction in the American influence on the island. However, Greenland’s strategic position is still very attractive for many other states, not only for its geographical position, but also because of the presence of onshore and offshore hydrocarbon deposits and mineral basins. By mapping the undiscovered oil and gas basins in the Arctic territory not yet exploited, Donald L. Gautier et al.12) have revealed the proximity of many of them to Greenland’s coasts. According to the U.S. Geological Survey’s, the region consists of the “25% of the world’s undiscovered hydrocarbon resources along with 9% of the world’s coal and other economically critical minerals”.13) According to another report, the U.S. Geological Survey (2008) estimates as follows: “a mean of 7.3 billion barrels of oil and a mean of 52 trillion cubic feet of undiscovered natural gas in the West Greenland–East Canada Province north of the Arctic Circle”. Greenland is also interested in expanding its rights beyond the 200 nautical miles: following the process regulated by UNCLOS Annex II, art. 4, the Danish government and the Greenlandic self-government have submitted the necessary information concerning the areas both North and South of Greenland to the UN Commission on the Limits of the Continental Shelf in an effort to extend their territory.14)

Even though China strives for establishing what Chinese President Xi Jinping has defined as the “New normal”,15) a domestic-driven economic model and a mid-to-high-speed growth with higher efficiency and lower cost,16) from the tenth China’s Five Year plan (2001-2005), it has turned its attention to nations and regions that possess significant natural resources in order to enhance its energy and mineral sector.17) From this point of view, Greenland may be considered an extremely relevant partner for China due to its rich deposits of iron, zinc, rare earth elements, and uranium. Rare earth elements consist of 17 different minerals, including uranium, that are mainly used in the automotive industry, and for manufacturing magnets and weapons. They occur together and the separation process consists of an extremely polluting process that takes place in the first instance at the mine and later in the processing plants that may be a different place.

Although China has very large reserves, its iron ore has always been classified as low grade. From 2010-2011, many low grade deposits have been exploited, reaching a domestic production of iron ore of 1.32 billion tons. While China’s economic growth started to slow down after 2012, supplies from overseas deposits continue to increase.18) Even though China has 30% of the global reserves of the rare earth elements, it produces more than 80% of the global output.19)

Isua Project

The iron ore deposit of Isua is located in the Qeqqata area of south-western Greenland and was discovered in 1965. The UK-based company London Mining obtained an exploration license for the area in 2005 and started looking for investors. It was the first large-scale mining project to be submitted to regulators in Greenland and provoked a debate in both Greenland and Denmark about the potential impact of a large number of foreign workers going to the island. In 2012, the Naalakkersuisut (Greenland’s government), headed at the time by Premier Kuupik Kleist and the Inuit Ataqatigiit (IA) party, passed the Storskalalov or Large Scale Projects Act, which helped create a framework that allows companies to bring foreign workforce in Greenland for the construction of large-scale mining projects.20) The Act was discussed extensively and met with opposition from Greenland’s and Denmark’s labor unions. In June 2014, an amendment to Denmark’s immigration laws was passed in the Danish Parliament in order to implement the Large Scale Project Act.21)

Chinese and Indian investments were discussed until London Mining had to declare bankruptcy in October 2014, partly caused by the outbreak of the Ebola virus and the fall of the price of the iron-ore.22) The license was transferred to the private Hong Kong-based company General Nice Development, owned by the General Nice Group, that took over the operations, and the Isua project became the first project that was fully-owned by a Chinese company in the Arctic.23) At the moment, the Naalakkersuisut has established that the Chinese company “must submit an exploitation and closure-plan as well as document the mine’s financial capacity by the end of 2021 and start mining operations by the end of 2025”.24)

According to the social impact assessment (SIA) conducted from 2009 to 2012, the project’s main contributions may include an increase in public revenue, local employment, and training and education opportunities.25) However, concerns have been raised concerning the division of labor between local and international workers and impacts on hunting and fishing practices in the area of Isukasia and in the Nuuk Fjord, which are extremely relevant for the environmental, social and cultural life of locals. In order to extract more of the ore, the mountain in which it sits has to be gradually cut away, and London Mining had estimated that 3.5 tons of ice would need to be removed annually with it. The project received opposition due to the valuable environmental aspects of the surrounding region. Isukasia is a relevant area for reindeer, which are hunted during the summer and autumn, and many locals use the area’s rocks, which are rich in soapstone, to make jewelry. With its 15,500 people, Nuuk’s population is one of the largest in Greenland and, in the outer fjord near Nuuk, Atlantic cod, salmon, and Greenland halibut and other fish represent an important source of income. Berries and edible plants represent an important source of livelihood for locals as well.26) Greenland’s economy is extremely limited and dependant on fishing industry which consists in the 90% of the commodity exports.27) Food exports and food security in remote areas such as Greenland are deeply connected to high transportation costs, high pressure on traditional food sources, harder access to traditional food sources due to climate change, lack of nourishing supplies, and even with some contaminants, such as mercury, in the fish stocks. For these regions, protests were organized by local organizations such as ‘Nuup Kangerluata Ikinngutai’ in March 2012 in Nuuk, where around 60 people attended.28) In the same year, other protests against the Storskalalov and the Isua mine project were scheduled in Nuuk by the president of the organization ‘Foreningen 16. August’. It is extremely important to underline that the organizer of the protest emphasized that the demonstrations were not against development in Greenland, but advocating that the development be undertaken through proper and informed terms.

The need for diversified income opportunities means that developing the mining sector could be a chance to increase Greenland’s economy and offer a solution to the unemployment rate, which reached 9.4% in 2015.29) Mortensen (2015) has also underlined the low qualification level (70% of the population has only school education) of the Greenland’s population, and Pall Tomas Finnsson states that: “Greenland is projected to see the largest decline of its working-age population, 16%, compared to 6.6% in the Faroe Islands, 3% in Finland and 2% in Denmark. Moreover, many rural communities have seen a decline in their youth population, with Avannaata municipality losing a staggering 85% of its young people, aged 20-29, in the last two decades” and “since 2000, the country’s fertility rates have diminished from 2.5 births per woman to 2.0”.30) Within the SIA, London Mining declared that, in order to realize the Isua project, 1,500 to 3,000 skilled and experienced workers were needed, and the approval of the Storskalalov increased local discontent, as it was argued that there would be fewer opportunities for locals to benefit from the project. Boersma and Foley (2014) have underlined that even though Chinese investments in Greenland remain limited, Chinese mining and energy companies have already made a series of high-profile overseas investments around the world which have met public opposition. Speaking about the possibility for Chinese investments in Greenland, the labor issue comes up as one of the main concerns for the employment of Chinese workers and Chinese labor standards, as well as the potential threat to block long-term access to strategic raw materials.31) However, Paragraph 18 of Greenland’s Mineral Resource Act establishes that: “[…] to the extent necessary for the activities, the licensee may use foreign labor if labor with similar qualifications does not exist or is not available in Greenland”.32)

The Isua project’s feasibility still needs to be verified and, due to the high cost, the deal seems to be unprofitable according to Wei Zengming, an industrial analyst at Mysteel.33) However if the project will be launched in the near future, it may represent a good test case for Chinese mining companies working in high-technology projects in the Polar region.

Kvanefjeld/Kuannersuit project

In recent years, rare earth element deposits have been well documented in Kvanefjeld/Kuannersuit, an area at the southern tip of Greenland, which are believed to be some of the richest estimated deposits of uranium and zinc. The constantly-increasing demand of new technologies in the 21st century, such as smartphones and renewable energy technologies, contributed to the rising interest in the Kvanefjeld/Kuannersuit deposit. This influenced the Naalakkersuisut to lift the zero-tolerance policy imposed by the Danish government against the exploration and extraction of radioactive minerals by a narrow vote of 15 to 14 in the Greenlandic parliament in 2013. However it still was not clear how the exploitation of uranium would be undertaken. An agreement was reached in 2016, which clarified the division of responsibilities between Denmark and Greenland, and created special foreign policy conditions related to the extraction and export of uranium. When selling uranium, Denmark, in collaboration with Greenland, must enter into an intergovernmental agreement with the recipients in the buying country, which ensures that uranium is managed safely and that the recipient country respects its non-proliferation needs.34)

The Kvanefjeld/Kuannersuit project has become symbolic in the debate and mobilization against uranium in Greenland. The project was met with opposition by many environmental organizations both in Greenland and Denmark including Urani Naamik (No to Uranium, Greenland), NOAH (Friends of the Earth Denmark), Avataq, The Ecological Council (‘Det Økologiske Råd’), Sustainable Energy (‘Vedvarende Energy’) and Nuup Kangerluata Ikinngutai.

The Australian company Greenland Minerals & Energy, now Energy Transition Minerals, acquired the project in 2007. In late 2016, Greenland Minerals announced a partnership with the Chinese mining enterprise Shenghe Resources, that bought 12.5% of the shares in Greenland Minerals, and the two companies agreed that Shenghe Resources could buy up to 60%.35) As China is the world’s main producer of rare earth elements, and more than 80% of the world’s production is managed by China, it is quite difficult to find rare earth elements outside the Chinese market, and their involvement in the Kvanefjeld/Kuannersuit project further solidifies that monopoly.36) 

Environmental issues surrounding the Kvanefjeld/Kuannersuit project seem to be the biggest problems. Greenland already experienced a nuclear disaster in 1968, when a US Air Force B-52 carrying four hydrogen bombs crashed, resulting in nuclear contamination around Thule Base.37) This has raised the the possibility of a referendum on uranium mining has been widely debated . Based on a survey conducted by WWF Denmark, “the Greenlandic population is fairly evenly split over the question of whether to allow the mining of uranium, however with a slight majority in favour”.38) Naalakkersuisut agrees in considering the opportunities that may derive from uranium mining by making the exploitation of rare earth elements a government priority:

The Government of Greenland wishes to promote the prosperity and welfare of Greenland’s society. One way of doing so is to create new income and employment opportunities in the area of mineral resources activities. The Government of Greenland’s goal is to further the chances of making a commercially viable oil find. In addition, Greenland should always have five to ten active mines in the long term.39)

The future of the project remains unclear as the Greenland Minerals’ fourth version of the Environmental Impact Assessment is currently being evaluated.40) The rare earth element deposits are potentially extremely polluting since the separating process will first take place at the mining site, but Greenland Minerals has continued to push for their exploitation license for the Kvanefjeld/Kuannersuit project, and it remains to be seen what Naalakkersuisut will decide in this case.

Conclusion

As a permanent observer to the Arctic Council, China has found that the key to access Arctic governance is through cooperation. The strategy defined in China’s Arctic Strategy is principally based on cooperation, including joint participation in scientific projects and the respect of the institutional and legal framework. However, what is improving China’s status in Arctic governance is the win-win strategy based on bilateral relationships established with Arctic States. In the case of Greenland, the island’s strategic location and abundant natural resources make it an attractive partner for China’s Arctic strategy. Zinc, iron, uranium, and rare-earth elements arouse particular interest. From its side, Greenland is interested in foreign investors able to finance huge mining and infrastructural projects in order to diversify its economy, which currently relies greatly on the fishing industry. Despite a deep interest from both sides, the path for China’s start to mining in Greenland has met impediments. Concerns related to the huge experienced and skilled foreign workforce needed, the environmental impact of extremely polluting exploitation processes, and the threats posed to traditional subsistence livelihoods that are important to locals, have been raised by Greenlandic communities that argue that a larger and more diversified economy should serve the locals first

The urgent need for Greenland to exploit its natural resources, China’s interest in enlarging necessary natural resources supplies to sustain its development and to enhance its role in the Arctic region, its huge financial capacity, coupled with the Greenlandic local communities’ will to develop, make the involvement of Chinese companies in Greenland’s mining sector likely in the next future, and make the island a perfect example of China’s exertion of its win-win strategy. 

Marco Volpe holds a Master’s degree from the Italian Society for International Organization (SIOI) in Sustainable Development, Resources Geopolitics and Arctic Studies and a Master of Research from the University of Leeds in East Asian Studies with a deep interest in China’s role in Arctic geopolitics.

References[+]

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