Monday, 12 September 2011

WEST TERRIFIED OF THE POSSIBILITY OF CHINA BUYING LAND IN ICELAND

Suspicion greets China's Europe expansion


For cash-strapped Europe, China is an appealing source of financing.
But the response to an attempt by a Chinese businessman to open a
leisure resort in Iceland suggests growing suspicion and a potential
backlash that could stifle the relationship.

Just as China's first forays into investment in small African
countries went largely unremarked on, so has its recent European
expansion with infrastructure projects, company takeovers and
sovereign debt purchases.

Poetry-writing former government official turned millionaire
businessman Huang Nobu is the latest to follow, agreeing a
$85.8-million deal to buy a 300-sq-km remote Icelandic farm.

Whilst he maintains it is a purely commercial venture for a hotel,
golf course and other leisure services, others suspect part of a
broader Chinese strategy to build influence in the resource-rich
Arctic.

Whatever the truth, experts say it fits with a larger pattern as
China's growing wealth and desire for diversification pulls it deeper
into Europe.

"It has almost been a case of sleepwalking into it," says Alice
Richard, China programme coordinator at the European Council on
Foreign Relations (ECFR), which this year published a report on China
in Europe that explicitly compares its approach there to that in
Africa.

"By and large, Europe has been looking at China almost exclusively
from an economic standpoint, although that might be changing."

Estimating the true scale of Chinese investment in Europe is
difficult, the ECFR says. Many firms operate through financial
centres lacking in transparency, such as Hong Kong and Grand Cayman,
making tracking them all but impossible. But there seems little doubt
that the numbers are rising fast.

The ECFR says Chinese firms and banks committed some $64 billion to
European contracts in the six months to March. Much recent Chinese
finance went to the troubled euro zone periphery -- 30 percent to
Portugal, Greece, Italy and Spain -- and another 10 percent to
central and eastern Europe.

Europe's major powers too have largely followed suit.

Last week, Britain and China voiced support for plans for London to
become a major offshore trading center for the yuan currency, a move
that would further cement the city's position as a global financial
center. Despite occasional rows over human rights and other issues,
Berlin and Paris have also been keen to court Beijing.

"SHORT-TERM VIEW"

But several of China's projects, some strategists say, may in the
long run prove to be more than just business. Vast port projects in
Piraeus, Greece and Naples, Italy -- the latter also the site of a
major NATO base -- worry some in European defense and foreign
ministries.

Occasional deals -- purchases of sensitive technology firms, for
example -- have been turned down on national security grounds. But in
general, Chinese investors have found Europe much easier territory
than the United States, where rejection and suspicion have been
somewhat more common -- although not enough to stop mutual dependence
rising swiftly.

"The problem is that Western nations have taken a very short-term
view when it comes to China. They view it as a good source of
investment and ignore any longer term issues," said Alan Mendoza,
executive director of the Henry Jackson Society, a London think-tank
looking at national security issues.

"It's going to be very difficult to stop this, but it is worrying.
We've already effectively ceded large chunks of Africa to the
Chinese. There needs to be much more focus on what this means."

China has also emerged as a major buyer of European sovereign debt,
crucial to keeping euro zone borrowers afloat. Whilst precise numbers
are hard to come by, the ECFR says it estimates up to 25 percent of
China's reserves may now be euro denominated.

In non-EU member Iceland, entrepreneur Huang may be feeling the
effect of the heightened concern.

Iceland's interior minister said the leisure resort deal would be
looked at closely because of strategic concerns.

Huang says he may yet pull out altogether.

"It is part of the West's misinterpretation of China," Huang told
Reuters in an interview last week. "Everything China does, no matter
whether it's done by the country or any individual, they would think
of it as part of a 'China threat'."

RISING PARANOIA?

But with Western powers apparently increasingly nervous of Beijing's
rise -- and with disputes over alleged intellectual property theft,
computer hacking, currency strength and other issues simmering -- it
could become a growing issue.

Chinese firms faced something of a popular and political backlash in
Africa, and some warn a similar dynamic may be rising in Europe.

Earlier this year, Britain turned down an offer from a Chinese
businessman to buy aging aircraft carrier HMS Invincible for scrap or
leisure use and is seen likely to reject a similar bid to purchase
her sister ship Ark Royal.

A Ukrainian carrier purchased ostensibly as a casino ended up in the
service of China's navy, and there have long been suspicions that any
military kit bought by its firms is stripped for intelligence.

"This is an area in which the Chinese are particularly vulnerable and
also frustrated," says Nigel Inkster, a former deputy chief of
Britain's Secret Intelligence Service (MI6) and now head of
transnational threats and political risk at London's International
Institute for Strategic Studies.

"There are often reasonable grounds for suspecting that what appears
to be an ordinary commercial venture may be something altogether
different, and it is very difficult for a Chinese corporate to prove
that negative."

Some worry an element of paranoia is entering the debate.

"The value of this deal is actually very modest," said Steve Tsang,
professor of contemporary Chinese studies at Nottingham University,
referring to the proposed Icelandic deal.

"It is easy to read too much into the capacity of the Chinese to plan
strategically over the very long term and see Chinese businessmen as
all agents of the Communist Party. I think it is proper for the
Icelandic authorities to check carefully and do their due diligence
but not for the rest of the world to get worried for a real
estate/tourism deal."

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