China and Greenland: digging for trouble

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Greenland is starting to look forward to a bright future in resource-extraction, based on underground riches that include large deposits of iron ore, uranium and the coveted rare earths. This is already bringing great international interest - in particular Chinese investors and droves of Chinese workers for the mines.

In a dream scenario, such extraction could turn Greenlanders into Polar mineral sheiks providing cash inflows to the benefit of Greenlandic society and prosperity (each proposed extraction project is larger than Greenland’s current yearly gross national income). In a worst case, it could lead to uneven distribution of riches, environmental degradation and in the exploitation of foreign workers - all suggesting that Greenland could fall prey to the ‘resource curse’ of countries such as Nigeria and DR Congo. 

In Denmark, the potential Chinese move into the Greenlandic underground is the hot topic making newspaper headlines and stirring up debate in the Danish parliament, where Prime minister, Helle Thorning-Schmidt was called to the stand by parliament this Tuesday.  

Beyond parochial Danish internal debates, the Greenland discussion also serves as a microcosm around the issues framing Chinese investments in Europe (we want their money but not their influence or business methods, to put it bluntly). 

Relations between Denmark and Greenland might not be at the top of the many readers' minds, so here are some basic facts. Greenland is part of the Danish Kingdom but of the EU (it left the EU after a consultative referendum in 1985). It has a huge territory larger than Mexico yet with a small population of around 56,000 inhabitants. In 2009, the island achieved extended home rule including the rights over its own underground resources. Conversely, foreign and defence policy is still arbitrated in Copenhagen.

Greenland has for years been looking at options for developing resource extraction and attracting international investors without great success. In reality there are only two projects that look set to take off anytime soon. The American company Alcoa is examining an aluminium project estimated at more than €3 billion, although the proposal is still on the drawing board.

More controversially, there is a project by London Mining to exploit iron ore near Issua. The project is estimated at DKK 13 billion (close to €2 billion) which roughly equals Greenland’s current gross national income. On that project, London Mining is collaborating with several Chinese investors such as China Commmunication Construction Company, Sinosteel and China Development  Bank, and has calculated into the deal a legion of Chinese workers (around 3000) working at low wages in the mine. As London Mining’s Chinese project leader, Xiaogang Hu explains to Danish daily Berlingske, the project isn’t feasible without workers from anywhere else than China.    

That where we get back to the political debate in Copenhagen. The Greenlandic parliament has just adopted a new ‘super-size’ law (storskalaloven) that authorises large numbers of foreign workers to enter Greenland under specific work contracts with lower coverage and rights. Some experts have questioned the International Labour Organization computability of the new provisions. Some Greenlandic and Danish unions have been up in arms about "social dumping." The Danish opposition has suddenly united in criticism, from the far right (being worried about Chinese immigration passing on from Greenland to the rest of Denmark) to the far left (being worried about environmental and social standards). Some opposition politicians have also questioned why the Danish government doesn’t field a Danish alternative to Chinese financing with Danish pension funds providing capital for sustainable resource exploitation on Greenland. 

The government led by Helle Thorning-Schmidt has tried to occupy the centre ground. She argues that Denmark must show the necessary respect for Greenland’s home rule, and that Danes can’t suddenly act like a "big brother", which will just lead to the further detachment of Greenland from Denmark. Greenland has the right to negotiate over its own mineral resources thanks to home rule provisions from 2009, and Greenland is simply enacting that competence now. Thorning-Schmidt has also ruled out a governmental initiative on putting up capital, calling it "risky" and potentially diversifying tax payer’s money prioritised for "welfare priorities in Denmark."

Greenland is definitely an emerging resource market of the North. Both Denmark and the EU should have targeted those opportunities earlier and tried to establish consortia of European businesses and capital that were able and willing to invest in Greenland on a sustainable basis. Nobody should blame the Greenlanders for moving on to Asian investors and the Chinese workforce when its closer neighbours have nothing to offer. 

At the same time, Greenland is destined to become a test case of how the Chinese package with cheap labour and China Development Bank financing will unfold on the European continent. Can we get the Chinese to play by established rules or will this new gold rush in the frozen North unleash a race to the bottom on social and environmental standards? I will keep my eyes on the story and see if I can provide any answers to these crucial questions!

 

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