Unconstrained Chinese Investment in the Arctic Questioned

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Published Aug 16, 2017 7:28 PM by The Maritime Executive

Chinese investment in the Arctic and near-Arctic above 60 degrees latitude has reached roughly $90 billion, and the opening of the Arctic to resource exploration has created the need for a unified response to such investments from the six Arctic nations. This is the conclusion of research analysts at CNA, a nonprofit research and analysis organization located in Arlington, Virginia.

Senior Vice President and General Counsel Mark Rosen and Research Specialist Cara Thuringer have published "Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security" which draws on a wide range of sources to compile a list of 21 Arctic investments of more than $1 billion by Chinese companies and banks as well many other smaller investments. 

The report takes stock of the current foreign direct investment patterns — at the transactional level — with a particular focus on Chinese activity as a case study. This case study explores China’s natural resource strategy and its past activities in South America and Africa.

The national legal frameworks for foreign direct investment in the six Arctic nations, Canada, Iceland, Greenland, Norway, Russia and the United States,  are not sufficient to protect the sensitive region from harm to the marine environment that would spread well beyond national boundaries. "The current legal structure is too diverse to monitor and regulate inbound foreign investments in large projects such as mines and oil and gas facilities," Rosen and Thuringer write.

“Unregulated foreign direct investment is a significant, multifaceted security issue. It must be addressed before the influx of unregulated investments, and the soft power politics that come from those investments, makes it impossible for the U.S. and other states to adopt complementary policies that favor responsible Arctic development.”

Rosen and Thuringer propose that the Arctic nations work together toward the creation of three cooperative mechanisms for the safe development of the Arctic:

An Arctic Development Bank that would fund responsible development, with lending conditions to reinforce environmental and financial standards. This would act as a counterbalance to the overwhelming availability of inexpensive Chinese capital for Arctic resource extraction projects.

An Arctic Development Code that would improve compliance with environmental and development standards chiefly through transparency. Arctic nations would independently approve and monitor foreign direct investment on their own territories, but would meet certain requirements for environmental assessments that would be made publicly available in a common repository.

A set of multilateral Arctic foreign direct investment review criteria administered by each nation.

Low commodity prices and the remaining difficulties of operating in the harsh Arctic climate probably preclude an Arctic "gold rush" in the near term, say the authors, but the aggressive pace of climate change in the Arctic virtually assures that "one of the few remaining final frontiers" will become accessible at an accelerating rate. 

It will be far easier to make agreements on Arctic development before too many outside investments in drilling and mining have already been established. "There is a way forward where the Arctic environment can be sufficiently protected while its resources are extracted," says Rosen, an expert in maritime law and policy. "But taking that path will require cooperation and coordination between the Arctic nations in advance of resource development."

The report is available here.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.