LILLIPUTIAN ENCOUNTERS WITH GULLIVER - SINO-ICELANDIC RELATIONS FROM 1995 TO 2021
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LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995 TO 2021
Lilliputian encounters with Gulliver:
Sino-Icelandic Relations from 1995 to 2021
Baldur Thorhallsson
Snaefridur Grimsdottir
3 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
Authors
Baldur Thorhallsson (Baldur Þórhallsson) is Professor of Political Science and founder
of the Centre for Small State Studies at the University of Iceland. He has published
extensively on small European states, European integration and Icelandic politics. His
latest edited books are titled ‘Iceland’s Shelter-Seeking Behavior: From Settlement to
Republic’ (Cornell University Press, 2021), ‘Small States and the New Security Environment’
(co-editor; Springer, 2021) and ‘Small States and Shelter Theory: Iceland’s External Affairs’
(Routledge, 2019). He holds a PhD (1999) and an MA (1994) in Political Science from the
University of Essex in the UK.
Snaefridur Grimsdottir (Snæfríður Grímsdóttir) is an Adjunct in Chinese Studies at the
University of Iceland. Her research is mainly focused on security studies and China. She
holds a BA (2015) in Chinese Studies from the University of Iceland, an MA in Diplomatic
Studies (2016) from the University of Malta and an MA in Conflict, Security and
Development (2018) from King’s College London.
Publisher: Centre for Small State Studies, University of Iceland
Contents Abbreviations ......................................................................................................................................................................................................................................................... 5 Abstract ........................................................................................................................................................................................................................................................................ 6 Introduction . ............................................................................................................................................................................................................................................................ 7 Societal Shelter: Enhanced but Limited Contacts ............................................................................................................................................................... 10 Scientific Cooperation: Prospering? .................................................................................................................................................................................................. 10 Educational and Cultural Activities: Marginal Engagement...................................................................................................................................... 11 The Northern Lights Confucius Institute in Reykjavík: Mixed Signals............................................................................................................... 12 Political Shelter: Perceptible Diplomatic Support ............................................................................................................................................................... 14 Rubbing Shoulders ............................................................................................................................................................................................................................................. 14 Arctic Collaboration . ........................................................................................................................................................................................................................................ 15 Political Shelter Following an Economic Collapse ............................................................................................................................................................... 15 Economic Shelter: Off to a Good Start? ....................................................................................................................................................................................... 17 The Free Trade Agreement: A Triumph or a Let-down? ............................................................................................................................................. 17 Mutual Foreign Investments: Missed Opportunities? ...................................................................................................................................................... 18 The Belt and Road Initiative: An Icelandic or an American Holdback? .......................................................................................................... 19 A Reversal in Sino-Icelandic Relations ........................................................................................................................................................................................... 21 Conclusions ............................................................................................................................................................................................................................................................... 23 Bibliography ............................................................................................................................................................................................................................................................ 25
5 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021 Abbreviations AIIB Asian Infrastructure Investment Bank BFSU Beijing Foreign Studies University BRI Belt and Road Initiative CAFF Conservation of Arctic Flora and Fauna CCP Chinese Communist Party CIAO Kárhóll Observatory/China-Iceland Arctic Science Observatory CNARC China-Nordic Arctic Research Center CNOOC Chinese National Offshore Oil Corporation EEA European Economic Area EFTA European Free Trade Association EU European Union FTA Free Trade Agreement GDP Gross Domestic Product IMF International Monetary Fund IR International relations ISK Icelandic krónur MoU Memorandum of Understanding NATO North Atlantic Treaty Organization NEA National Energy Authority of Iceland NSR Northern Sea Route PRIC Polar Research Institute of China RANNIS Icelandic Centre for Research RÚV Icelandic National Broadcasting Service UK United Kingdom UNSC United Nations Security Council UNU-GTP United Nations University Geothermal Training Programme US United States USD United States Dollars
6 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021 Abstract This report examines whether Iceland has been seeking and is enjoying political, economic and societal shelter provided by China in the period between 1995-2021. It places the case of Iceland within an established small-state theory, shelter theory. In particular, it analyses Sino-Icelandic relations in the aftermath of the economic collapse in Iceland in 2008 and in the light of the growing strategic importance of Iceland in the North Atlantic and the Arctic. Our findings indicate that Sino-Icelandic relations went through four phases during the period: a phase of building closer relations from 1995 to 2007; a phase of active shelter-seeking by Iceland from 2008 to the mid- 2010s; a phase of gradual deviation from shelter-seeking in the mid-2010s; and, finally, after pressure from the US government from 2017 onward, a period of stasis and, most recently, some confrontational behaviour towards China. Iceland has turned its attention from Beijing to Washington in the hope of wider-reaching shelter provided by its close ally – the United States (US). Iceland, which tactically used its rediscovered strategic location as an Arctic state to strengthen its bilateral ties with China, is now taking advantage of the increased competition between the US and China in the Arctic to seek wider-reaching political and economic shelter provided by the US. Nevertheless, Iceland and China have set up institutional frameworks needed for the global power to provide the Lilliputian with political, economic and societal shelter. These only need to be activated by a return to a shelter-seeking policy by the Icelandic government.
7 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
Introduction
Iceland’s strategic location in the European Union (EU) and the Organization (NATO) ally to sign
the middle of the North Atlantic European Economic Area (EEA), a free-trade agreement (FTA)
is once again of importance to and the Nordic states) were not with China in 2013; it became a
world powers. This is due to willing to provide the country with vocal supporter of greater Chinese
Iceland’s potential to serve as a sufficient assistance to deal with involvement in the Arctic. The
leading hub for container traffic the economic crisis. Moreover, countries have signed several
in a transarctic shipping route and they deliberately stood in the way agreements in connection with the
increased Chinese and Russian of the International Monetary Arctic, e.g. regarding cooperation
activities in the Arctic and the North Fund (IMF) providing Iceland with on oil exploration and marine
Atlantic. A new race for the Arctic a much-needed rescue package. and polar science; they have also
is already evident in the form of The United Kingdom (UK) and signed several other important
competition over shipping routes the Netherlands blocked the IMF cooperation agreements in fields
and hubs, natural resources, and rescue package, with the support of such as geothermal energy, and
political influence. The Arctic race Iceland’s other ‘allies’, in retaliation Chinese universities, research
is no longer confined to Western for Iceland’s refusal to compensate centres, cultural organizations
players: Asian powers, and China British and Dutch citizens who had and tourist bodies have shown
in particular, have joined the lost investments in savings schemes considerable interest in cooperating
competition over the vast economic operated by the failing Icelandic with their Icelandic counterparts;
and political influence associated banks, in the so-called ‘Icesave collaboration in these areas has
with the Arctic regions. Iceland’s dispute’. The Icelandic political grown substantially in the last
strategic importance has gone establishment regarded the actions few years. In the early 2010s, only
from being regarded as of minimal of its allies as a betrayal. Sino- one cloud cast a shadow on this
importance in 2006, at the time of Icelandic relations, on the other otherwise bright picture, when the
the closure of the US military base hand, gained momentum. Icelandic government prevented
in Keflavík, to high importance - as a Chinese investor from buying a
indicated by ruthless public pressure In 2010, the Icelandic Central Bank large tract of land in the country.
on the Icelandic government and the Central Bank of China Iceland’s policy towards China has
through a false statement made made a currency swap agreement. changed considerably since then.
by the Vice-President of the United This may not have been of much Though a few studies have been
States (US), Mike Pence, that Iceland financial importance, but it was made of specific aspects of Sino-
had decided not to take part in a statement of trust and gave Icelandic relations, such as the FTA
China’s Belt and Road Initiative Iceland’s credibility a much-needed and cooperation in the Arctic, no
(BRI), during his visit to Reykjavík in boost at the time. Furthermore, comprehensive analysis has yet been
September 2019. China supported Iceland’s attempt presented.1
to obtain a rescue package from
Iceland’s relations with China the IMF. According to the Chinese This report aims to present an
have caught the attention of prime minister, China took a extensive analysis of Iceland’s
governments on both sides of the conscious decision to help Iceland policy towards China and relations
Atlantic. They grew closer when the within the IMF at the time of the between the countries. We will
Icelandic government requested collapse. These events led to close identify whether Iceland has been
assistance from China in the wake cooperation between the countries. seeking, and has been enjoying,
of Iceland’s economic collapse in Sino-Icelandic relations flourished: political, economic, and societal
October 2008. Iceland’s traditional Iceland became the first European shelter provided by China in the
allies (the US, member states of country and North Atlantic Treaty period from 1995 to 2021. This is
8 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
a case study of a small state that and prosper.8 It claims that small by another state or states, or
places Iceland within a framework states are faced with inbuilt by international organizations.
of an established small-state structural weaknesses and vastly Political shelter can include
theoretical framework, the shelter different needs in comparison diplomatic or military backing and
theory.2 Iceland is typical in terms of to larger states.9 Small states other forms of strategic coverage
the traditional criteria for defining are vulnerable in terms of their provided by other states or
small states: the population population size (human capital), international organizations, and/
stood at a little over 360,000 at smaller geographical area (in terms or organizational rules and norms.
the end of 2020; gross domestic of potential natural resources), Societal shelter includes the transfer
product (GDP) amounted to USD smaller economy, more limited of messages, norms, lifestyles and
25.7 billion in 2018;3 the country military strength,10 and smaller ideologies, in line with Rokkan and
has no armed forces and a small public administration (including Urwin’s18 historical account of the
public administration (and foreign the foreign service)11 compared importance of cultural features
service). Moreover, a comparative with larger states. Small states’ in centre-periphery relations and
or a relational element is always weaknesses are also associated with the stagnation thesis which is
associated with the size of states4 subjective features, such as internal based on Cardwell’s Law, holding
and Iceland is considerably smaller and external actors’ perception of that a single economy cannot
than all its neighbours, i.e., the their size and capabilities.12 These sustain technological innovation
Nordic countries, the UK, Ireland, features lead to shelter-seeking and will eventually tend towards
Canada and the US. behaviour by small states in the technological stagnation.19 Shelter
international system, i.e., small theory holds that small states
International relations (IR) literature states seek shelter provided by need to compensate for profound
has largely neglected to take special larger states and international disadvantages that small population
characteristics of small states into organizations.13 Small states can size has for them ‘when it comes
account and has dealt with small buffer from within to compensate to technological, educational, and
and large states as similar entities.5 for their weaknesses, (e.g. by cultural ideas and practices’20 and
Shelter theory considers small states adopting democratic corporatism),14 seek societal shelter provided by
as unique actors due to weaknesses but they also need economic, larger states and/or international
associated with their small size. political and societal shelter organizations.
Accordingly, they act in a different provided by larger states in order
way from their larger counterparts. to prosper. In particular, small Iceland has enjoyed wide-reaching
Small-state studies have somewhat states need shelter during crises, political shelter (military and
filled the gap in the IR literature according to the shelter theory.15 diplomatic backing) provided by its
through extensive case studies They are more prone to economic bilateral defence treaty with the US
of small-state behaviour in the crises due to their small fluctuating and membership of NATO. During
international system.6 Nevertheless, domestic markets and limited the Cold War, the US also provided
research on small states is still defence capacity.16 Thus, they are Iceland with extensive economic
mostly conducted within the more in need of outside assistance shelter (e.g., grants, beneficial loans
traditional IR literature and there (shelter).17 and infrastructure) and considerable
is a lack of theoretical frameworks societal shelter (in terms of
that take into account the special Shelter theory distinguishes access to US higher educational
characteristics of small states.7 between three forms of shelter: institutions, cultural exchanges
economic, political and social. and modernization of its small
Shelter theory derives from small- Economic shelter takes the form technologically underdeveloped
state literature, in particular its of economic assistance, favourable economy).21 At present, membership
claims that small states need market access, beneficial loans, of the EEA provides Iceland with
to join alliances so as to survive currency unions, etc. provided extensive economic shelter (e.g.,
9 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021 beneficial market access) and large numbers to pursue education, cooperation and collaboration on societal shelter (e.g., in relation seek employment and settle down educational and cultural activities. to the free movement of people, in Scandinavia.22 The second section considers access to the EU’s research whether China has provided funds and its member states’ This report draws on close Iceland with political shelter in the higher educational institutions). examination of official reports, form of diplomatic assistance in Nevertheless, the Nordic countries, recent interviews with high- international organizations. The and particularly Denmark, continue ranking Icelandic and Chinese third section examines whether the to be the main providers of societal government officials and policy- relationship between Iceland and shelter to Iceland. For instance, in makers, discussions and speeches China indicates that the superpower the post-war period, Iceland began by politicians and media coverage. provides the Lilliputian with to imitate the Scandinavian welfare It is divided into four sections, economic shelter in terms of shelter model and also followed the lead in addition to an introduction theory. The final section analyses of the larger Nordic countries and conclusions. The first section the current setback in Sino-Icelandic in legislation, and engaged in analyses whether Iceland has relations. extensive Nordic cooperation in received societal shelter provided social affairs. Icelanders continue in by China with regard to research
10 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
Societal Shelter: Enhanced but Limited Contacts
Scientific Cooperation:
Prospering?
Iceland and China have launched
scientific cooperation projects in
the fields of geothermal energy and
oil exploration and engaged in the
exchange of expertise. According to
a high-ranking Chinese government
representative, Iceland’s smallness
is a hindrance to further scientific
cooperation and it needs to
increase its effort to meet China’s
contribution. Also, there is a lack
of willingness in the scientific
communities on both sides to share
information.23
One of the largest scientific
cooperation projects Iceland Above left: ©Kristinn Ingvarsson / Above right: ©Rannís
Below left: ©Gísli Hvanndal Ólafsson / Below right: © Arctic Portal
has engaged in with China is on
geothermal energy. Arctic Green
Energy Corporation, an Icelandic
area significantly in just under six of China and Iceland to establish a
private company that specializes
years by replacing the coal-powered Sino-Icelandic Geothermal Research
in renewable energy, has been in
heating systems with geothermal and Development Center.29 At
cooperation with Sinopec China, a
energy. This led one of the cities present, Arctic Green Energy
Chinese state-owned company since
within the province, Xiongxian, to Cooperation is the only Icelandic
2006. China holds 51% of the shares
gain the title of China’s First Smog company that has engaged in
in their joint venture, Sinopec
Free City in 2014.26 Three years later, geothermal cooperation with
Green Energy, against Arctic
President Xi Jinping announced a China, though two other Icelandic
Green Energy Corporation’s 49%.24
new plan for the establishment of a companies have worked in China
Sinopec Green Energy has become
smart city in ‘Xiong’an New Area’ in under the corporation.30 It employs
the largest geothermal district
Hebei Province.27 This has been seen about 700 people in China, of
heating company in the world.25
as a strategic move by President Xi which about 20 are Icelandic, and
Arctic Green Energy Corporation
also engages Icelandic specialists
has expanded its operations into to associate his term in office with
for various tasks depending on the
sixty different counties in China, a successful urban development
need.31 Since 2006, Arctic Green
replacing the local heating systems project.28 In 2015, Arctic Green
Energy Corporation has contributed
with new ones based on clean and Energy Corporation signed a
over ISK 1 billion to research in
sustainable energy. In 2009, Sinopec cooperation agreement with
Iceland, mostly in the field of
Green Energy started operations in Sinopec Star Petroleum and the
geothermal energy.32
Hebei Province, which was heavily National Energy Authority (NEA) of
polluted at the time, and managed Iceland on the implementation of China became involved in oil
to reduce the pollution levels of the an MoU between the governments exploration in the Arctic33 for11 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
the first time when an Icelandic properly and came to a complete states have the most Icelandic
company, Eykon Energy, applied halt due to the covid-19 pandemic residents, with Denmark hosting the
for a licence for oil exploration in 2020.41 Even so, the laboratories largest number (over 11,000), and
in 2014 in the Dreki region at the Kárhóll Observatory and close to 7,000 Icelandic nationals are
between Norway and Iceland.34 most of the technical equipment resident in the US.46
This provided Iceland with the are already being utilized and initial
Similarly, the number of Chinese
potential to become a fossil-fuel research has begun.
residents in Iceland is small and it
energy producer. Apart from Eykon
Exchange of scientific expertise cannot be seen that it has been
Energy, which held 15% of the
between Iceland and China takes growing. In 2008, there were 384
shares, two state-owned companies
place through various other Chinese nationals in the country;
jointly invested in the project: the
platforms, such as: the China-Nordic in 2019, the number had fallen
Chinese company Chinese National
Arctic Research Center (CNARC), to 312. There were 52 Japanese
Offshore Oil Corporation (CNOOC),
to which the Icelandic Center for citizens residing in Iceland in 2008
leading the project with 60% and
Research and the University of and 75 in 2019.47 For comparison,
the Norwegian company Petoro,
Akureyri contribute,42 and the Arctic nearly 20,000 Poles were resident in
with 25%.35 Two initial oil surveys
Council. One of the Arctic Council’s Iceland in 2019.48
in 2015 gave quite good results,36
but by 2018 both CNOOC and working groups, the Conservation
On the other hand, the number of
Petoro announced that they would of Arctic Flora and Fauna (CAFF),
Chinese tourists in Iceland has risen
not continue with the project due is located in Akureyri.43 There is
significantly, from under 10,000 in
to a lack of evidence of sufficient also considerable participation
2007 to nearly 100,000 tourists in
levels of fossil fuels in the area to by China in Iceland’s best known
2019.49 Nonetheless, it is important
outweigh exploration costs.37 The Arctic-related event, the Arctic Circle
to bear in mind that Iceland has
NEA of Iceland subsequently revoked Assembly, which was launched by
become an increasingly popular
the oil exploration permits.38 the president of Iceland in 2013. The
tourist destination and compared
assembly has become the largest
to tourists from other countries
In 2014, the Polar Research annual international gathering on
the number of Chinese visitors
Institute of China (PRIC) entered the Arctic, with more than 2,000
is modest. For instance, in 2018,
into a collaborative project with participants (governmental officials,
Iceland received nearly 700,000
the Icelandic Centre for Research academics and others) from over
tourists from the US and nearly
(RANNIS), focussing on natural 60 countries, and has strengthened
300,000 from the UK.50
science research in the Arctic. This Iceland’s image as an important
resulted in the launching of the venue for discussing Arctic affairs.44 The low numbers of Iceland-
Kárhóll Observatory/China-Iceland China residents in each others’
Arctic Science Observatory (CIAO) countries resonate with the
in 2018.39 Research at the CIAO number of students graduating
is focused on a range of topics
Educational and Cultural
with a bachelor’s degree in Chinese
in the natural sciences, including
Activities: Marginal
Studies. In 2007, the University of
the aurora borealis, climatology,
Engagement
Iceland started teaching Chinese
volcanology, biology and more. The flow of residents between Studies as a BA subject, with the
One of the functions of the Iceland and China is minimal. main focus on Chinese language,
Kárhóll Observatory is to facilitate China and Japan are the two Asian culture and history. Soon after that,
exchanges of scientists between countries in which the largest courses in the Icelandic language
Iceland, China and other countries.40 numbers of Icelandic citizens became available at Beijing Foreign
The initial exchanges were supposed reside, 39 in China and 46 in Japan Studies University (BFSU). The
to take place after the opening as of January 2019.45 By way of number of students in Chinese
of the facilities but never took off comparison, the three Scandinavian Studies at the University of Iceland12 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
peaked in the period 2015-2017.51 In the Iceland School of Energy of Gong and Wu Shu in cooperation
2018, the BFSU expressed its plans Reykjavík University signed a with the Confucius Institute in
of establishing a Research Centre in dual degree contract with Tianjin Iceland,64 and Icelanders have
Icelandic Studies in the University, University and the China University studied Chinese martial arts in
but this has not yet materialized.52 of Geoscience in 2014.57 During the China;65 famous Chinese literary
In 2019, 5 students graduated in contract period, Iceland received works have been translated into
Chinese Studies at the University three students from China via Icelandic66 and the Chinese Embassy
of Iceland, bringing the total since Erasmus, but no Icelandic students in Reykjavík, with the Confucius
the start of the programme to 50. went on exchanges to China. Institute, has organized cultural
In comparison, in 2019, 13 students Reykjavík University currently has events, such as the Spring Festival
graduated in Japanese Language a cooperation agreement with the Gala at the embassy and the Spring
and Culture from the University of China University of Political Science Festival at the University of Iceland.
Iceland, the total since the inception and Law and has welcomed a few Similarly, Icelandic books for both
of the programme reaching 121.53 students and staff from China, adults and children have been
but only one Icelandic student has translated into Chinese and, in 2018,
Similarly, the number of exchange gone on an exchange under the a translation of the Icelandic novel
students between the University of programme.58 Furthermore, the Hundadagar received an award in
Iceland and Chinese universities is University of Iceland is a member China for the best foreign language
low, though it has been gradually of the Nordic Centre at Fudan novel of the 21st century.67
rising over the years. Since 2008, University in Shanghai, which is an
90 Icelandic exchange students active platform of collaboration
have studied in China and 106 between researchers and students
exchange students from China have
The Northern Lights
from the Nordic countries and
studied at the University of Iceland.
Confucius Institute in
China.59
Reykjavík: Mixed Signals
In comparison, since 2008, the
University of Iceland has sent 168 High-ranking Icelandic officials In 2008, the Northern Lights
students to Japan, and the University describe cultural interactions with Confucius Institute was opened
has received 94 Japanese students.54 China as marginal, mostly limited in Reykjavík in partnership with
to the translation of literature and the University of Iceland.68 Critics
Moreover, the United Nations neither more nor less than the have argued that the Confucius
University Geothermal Training normal diplomatic and cultural Institutes are an important part
Programme (UNU-GTP) in Iceland engagements that states have of the Chinese Communist Party’s
has been receiving Chinese with one another on a regular (CCP) ‘overseas propaganda set-
students since its establishment basis.60 Since 1953, the Icelandic- up’69 and that they threaten
in 1978. In 2019, 90 graduates Chinese Cultural Society has been academic freedom,70 their aim being
from the programme, out of 629, active and various Chinese cultural ‘to increase China’s soft power
were Chinese.55 Following the activities have taken place in and advance Beijing’s version of
establishment of Arctic Green Iceland throughout the years. Some history’.71 US Universities have
Energy Corporation’s Research and examples are:61 the National Theatre been urged to drop all affiliation
Development Center, the NEA of of Iceland hosted a Chinese Opera with the Confucius Institute to
Iceland and Arctic Green Energy in 1955;62 various Chinese musicians avoid Beijing’s interference in
signed an agreement with the have held performances, introducing academic work, following claims
Chinese government at the Arctic Chinese instruments;63 the Icelandic that US universities that have
Circle Forum in 2019 in Shanghai to company Heilsudrekinn, a Chinese signed a contract with Hanban (the
help launch a programme, based on spa and fitness centre located in Confucius Institute’s headquarters
the UNU-GTP’s example, in Xiong’an Reykjavík, has offered Chinese at the time) were unlikely to
New Area in China.56 Additionally, fitness courses such as Tai Chi, Qi criticise Chinese policies for13 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
financial reasons and that students People’s Republic of China in 2019. Institute provides guest lecturers
of Confucius Institutes graduated Some students and academics for the language courses taught in
with a selective knowledge of dismissed the posters as Chinese the Chinese Studies courses at the
Chinese history, excluding mention propaganda and an attempt by the University of Iceland. Their role is
of China’s human rights abuses.72 CCP to promote China’s image while strictly limited to language teaching
At least ten Confucius Institutes ignoring parts of its history and and has remained so since the
have been closed in the US due to human-rights abuses.79 In response, establishment of the programme.
various reasons.73 Nonetheless, the Chinese students at the university This is contradictive to foreign
remaining Confucius Institutes in expressed their dissatisfaction with criticism alleging that students
US universities are popular amongst these remarks about the Chinese graduate with only a selective
their students.74 Sweden has government. The Rector of the knowledge of Chinese history and
officially become the first European University of Iceland ordered the current affairs.83
country to close all Confucius removal of the exhibition.80
Institutes on its territory.75 In June 2020, the Confucius Institute
According to a person who is closely was rebranded; consequently, it no
In Iceland, the Northern Lights familiar with the inner workings of longer comes under the Ministry
Confucius Institute has faced little the Confucius Institute in Reykjavík, of Education. It is currently a non-
direct criticism, though the Icelandic a certain amount of pressure is, in
governmental foundation, operating
National Broadcasting Service (RÚV) all likelihood, placed on Chinese
within the Ministry of Education’s
has reported on the criticism its sister staff members to portray China in
Centre of Chinese Language,
organizations have faced in other a positive light and promote the
Education and Cooperation, funded
countries76 and a former Icelandic country’s image. There are two
by Chinese universities and private
minister of justice has recently voiced directors, representing Iceland and
companies.84 The rebranding came
his concern over the institute, stating China, respectively, and normally
as a response to Western criticism
that Iceland should take notice of about four Chinese teachers working
about the Confucius Institute
international politics.77 at the institute, as well as one
being an instrument of the Chinese
half-time permanent staff member
The role of the Reykjavík-based government and promoting a false
and two to three other part-time
institute is to raise awareness of image of the country. Confucius
workers. The director serving as
Chinese language, culture and Institutes will now be placing greater
the representative for China is
society, which it does through emphasis on language teaching
undoubtedly under pressure from
various educational programmes the Chinese government to promote than on cultural promotion, and
(e.g., in elementary and high China’s image. The same pressure is the Reykjavík-based institute is
schools), cultural celebrations (e.g., not put on Icelandic staff members accordingly following this policy.85
the Spring Festival; it also used to and this pressure does not affect Since about 2017, keeping pace
host free screenings of Chinese the running of the Institute.81 There with more negative media coverage
films), offering study-grants for are examples of outright criticism about China, interest among
Icelandic students studying in China, of China being voiced at seminars Icelanders towards the Reykjavík-
etc.78 However, China does attempt organized by the institute. A case based institute has declined.86 While
to promote the CCP’s image and in point was a lecture given by an the Confucius Institute has been
policies in Iceland through the outspoken professor of political lowering its profile, the Chinese
Confucius Institute. A case in point science, and a well-known critic Embassy has become increasingly
was an exhibition at the University of communism, in 2012. During active in the capital, particularly
of Iceland (a number of impressive the presentation, the professor due to the work of the Chinese
posters) to celebrate Chinese history compared Chairman Mao to Adolf ambassador, who frequently writes
and culture on the occasion of the Hitler and described Mao as a long articles about China’s policies in
70th anniversary of the foundation ‘vicious serial killer’.82 The Confucius Icelandic newspapers.8714 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
Political Shelter: Perceptible Diplomatic Support
Rubbing Shoulders
Political relations between Iceland
and China were limited until the
mid-1990s. In 1995, Iceland opened
an embassy in Beijing and China
resumed the practice of sending
resident ambassadors to Reykjavík,
having opened its embassy in
Iceland in the early 1970s. From the
mid-1990s, and increasingly after
the turn of the century, Icelandic
ministers frequently visited China
– as did the president of Iceland in
1995 and 2005. Visits by Chinese
dignitaries to Reykjavík also became
more common; these included one
by Jiang Zemin, the President of
China, in 2002.88
When the Icelandic government
put forward its candidacy for
membership of the United Nations Above left: ©Rannís / Above right: ©Kristinn Ingvarsson
Below: ©Árni Sigurjónsson
Security Council (UNSC) for the
years 2009-2010, President Hu
Jintao declared China’s support for president met Chinese Premier FTA, as other European states had
it. This was highly unusual, as the Wen Jiabao and invited him to similar aims and Iceland wanted to
great powers do not generally voice visit Iceland, which the premier be the first.94 However, Iceland’s
their support for states running for accepted.92 In 2011, the countries prime minister was uneasy about
the UNSC.89 However, Iceland’s bid agreed to expand cooperation in the timing of the visit,95 which came
for election was unsuccessful. In the various areas on the occasion of the during a time when the intention
aftermath of the economic collapse 40th anniversary of the adoption of of a Chinese investor, Huang Nubo,
in 2008, Iceland was desperate diplomatic relations between the to purchase land in Iceland was
for an economic and political states. 93 causing much negative media
shelter provider and applied for
membership of the EU in July 2009. There was, however, a divide within coverage in the country, as will
This temporarily halted the FTA the Icelandic government at the be discussed below. The Chinese
negotiations with China which time regarding the premier’s visit. embassy in Iceland explained that
began in 2007, as discussed below The Icelandic foreign minister was Premier Wen Jiabao was due to visit
(Iceland was to seek resumption of keen to sign several cooperation Iceland in July, but that date did not
the FTA negotiations repeatedly).90 agreements during Wen Jiabao’s suit the Icelandic prime minister’s
For instance, in 2010, Iceland visit, including an FTA. There was schedule.96 The prime minister later
reiterated its support of the ‘One a sense of urgency in the foreign stated in an interview that the visit,
China Policy’91 and the Icelandic ministry about concluding the which was allegedly supposed to15 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
take place in July 2011, had never Arctic Collaboration claim that the Northern Sea Route
actually been accepted by China.97 will open earlier.116 However,
Building on their bilateral relations,
the report also states that China
Chinese Premier Wen Jiabao Iceland supported China in gaining
has already made a considerable
finally arrived on an official visit permanent observer status on
investment in the Northern Sea
to Iceland in 2012.98 Prior to the the Arctic Council,105 which China Route, including several agreements
visit, China had repeatedly asked started pressing for in 2007. 106 with Russia, and that a shipping
Iceland what the goal of the visit During the consultation period, hub in Norway, serving the
would be.99 The foreign minister Norway had considered contesting Northern Sea Route, would present
wanted to sign an FTA during the China’s admission107 but Iceland, strong competition to the one in
visit, but this was not to be done Denmark108 and other states Finnafjörður.117 Another recent
advocated for China. Iceland took study by the Institute of Economic
until the following year.100 Instead,
its support to a new level when the Studies at the University of Iceland
the two signed an MoU covering
Icelandic foreign minister launched concluded that, at present, a
cooperation in a wide range of
a dialogue with China and Norway shipping hub in Finnafjörður in
fields such as geothermal energy,
to heal relations between the two Iceland, serving the Northern Sea
geoscience, silicon production
and ease the way for China to Route, would not be an economical
and enhanced cooperation in the
be granted permanent observer option, but might become valuable
Arctic.101 Also, Iceland and China
status.109 Although China did not when the Transpolar Sea Route
signed a cooperation agreement
directly ask Iceland for support, opens following melting of
on geothermal energy projects
Iceland considered this move to the Arctic ice-cap. The institute
in developing countries,102 and be in its interest in the middle of anticipates that the Transpolar Sea
Promote Iceland (a public-private its FTA negotiations with China.110 Route will not be available until
partnership to promote Iceland In 2013, China gained permanent 2050 or only slightly earlier and
abroad, mainly commercially) observer status in the Arctic Council. that until then, a shipping hub in
signed an MoU with China 111
Relations between Iceland and Svalbard, Norway or Russia would
Development Bank to define sectors China within the Arctic Council be a better option.118 Nevertheless,
that would offer mutually beneficial are minimal;112 on the other hand, the foreign minister’s report claims
investment opportunities in Iceland ‘China’s limited presence in Iceland that given the disagreements
and China for Icelandic and Chinese may have long-term strategic between Russia and China in the
companies.103 In 2018, Iceland and effects that should not be ignored’, Arctic, it is not unlikely that China
China signed an MoU on electronic as will be discussed below.113 would be interested in investing
commerce cooperation and an in multiple shipping hubs.119 If so,
Iceland is identified in a recent Iceland might be a viable option.
MoU to establish a geothermal
report on Iceland-Greenland
working group. The first meeting
cooperation by the Icelandic
of the working group of electronic
ministry for foreign affairs as a
commerce was held in October 2018 Political Shelter Following
valuable location for China to use
in Iceland.104 an Economic Collapse
as a shipping hub in the Arctic.114
Iceland and China had established The report claims that recent In the lead-up to the international
the foundation needed for any studies on Arctic shipping routes financial crisis in the autumn of
further cooperation between the reveal that the one closest to 2008, the Icelandic government
states to blossom. Sino-Icelandic Iceland, the Transpolar Sea Route, was not able to secure sufficient
relations now had every potential will be the first one to open; this external assistance to prevent the
to expand. would support the idea of creating collapse of the economy in early
a shipping hub in Finnafjörður, October, and the country’s long-
northern Iceland.115 Other studies term allies were not willing to16 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
help it in the immediate aftermath and Southern European countries, The Sino-Icelandic currency
of the collapse.120 Therefore, including former British and Dutch swap agreement was, however,
Iceland turned to the IMF for colonies, supported the UK and the very different from traditional
assistance. However, the UK and the Netherlands. On the other hand, arrangements of this type. The
Netherlands blocked a negotiated in closed meetings with national terms were that Iceland could buy
rescue package between Iceland representatives, various countries, goods and services from China
and the IMF due to the Icesave such as China, Egypt, India, Poland in Icelandic krónur; there was no
dispute. and others were sympathetic direct swap of Icelandic krónur
towards Iceland and considered the and Chinese yuan. Though it was
In a desperate move, Iceland
treatment it stood to receive from very generous, the agreement
turned to China in an attempt to
Europe to be unethical. The US was not much of help when it
obtain shelter. The President of
remained neutral.125 China had been came to making payments in
Iceland, Ólafur Ragnar Grímsson,
prepared to contribute to the IMF western currencies.129 Therefore,
wrote to the President of China,
bailout package and preliminary the agreement may not have been
Hu Jintao, to explore the possibility
talks took place between Iceland of much financial importance and
of financial assistance from China,
and China on the possibility of has never been activated, but it
after consulting Prime Minister, Geir
bilateral economic assistance, boosted Iceland’s much-needed
H. Haarde. Consultations between
but this did not materialize.126 credibility at the time and was a
the prime minister of Iceland and
Nevertheless, the British-Dutch statement of trust. The economic
the Chinese premier, Wen Jiabao,
blockage of the IMF rescue package collapse had severely damaged
ensued.121 According to the Icelandic
president, both the president and prevailed until the Icesave dispute Iceland’s trustworthiness abroad
the premier of China instructed had been resolved, but China had and the Icelandic government saw
their officials to take Iceland’s not said its last word in an effort to the signing of the currency swap
side before the IMF.122 Iceland’s assist Iceland and the Sino-Icelandic agreement as an important step in
relationship with China was on relations began to flourish. gaining confidence.130 Accordingly,
everyone’s lips in Brussels and the the currency swap agreement
Iceland’s request for shelter
first question Icelandic officials can be seen as more of a political
also resulted in a currency swap
received at meetings was ‘what is it move (political shelter) offered by
agreement between the Central
that Iceland is doing with China?’123 China to support Iceland during
Bank of Iceland and the People’s
As stated by a high-ranking official a crisis rather than an economic
Bank of China, which was signed in
in the Icelandic government at the manoeuvre, or economic shelter.
2010. This was the first time China
time: ‘since the era of Chairman
signed a currency swap agreement This development was not popular
Mao, China’s policy has always
with a Western nation. The with Iceland’s allies. Officials from
been not to discriminate between
agreement has since been renewed the US very clearly expressed their
large and small states. This policy
three times: in 2013, 2016 and again dissatisfaction with it and alleged
was made quite apparent to the
in 2020, and is due to expire in that China was attempting to gain
government of Iceland’.124
2025.127 Originally, in 2008, Iceland political influence.131 According to
According to high-ranking Icelandic had requested a currency swap a high-ranking Icelandic official,
government officials, opinions agreement with the US, but the ‘perhaps the only influence the
were divided within the IMF as to request was rejected, even though currency swap agreement had
whether or not to make the IMF the US approved requests from was to agitate the US, NATO and
rescue package contingent on a other states, including the Nordic Western Europe’ when Iceland
solution to the Icesave dispute. On states, the UK, Japan and Germany; found itself cornered and in need
the one hand, the vast majority of this caused resentment amongst of assistance that it did not receive
Western European, African, Asian Icelandic officials.128 from its long-standing allies.13217 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
Economic Shelter: Off to a Good Start?
The Free Trade Agreement:
A Triumph or a Let-down?
Iceland became the first European
country and NATO member to sign
an FTA with China. Discussions
on an FTA between Iceland and
China date back to an official
visit by the president of Iceland
to China, accompanied by a large
business delegation, in 2005,133
when the countries signed an
MoU to strengthen economic
trade and cooperation. Iceland
thereby recognized China as a
market economy and initiated
exploration of the feasibility of an
FTA between Iceland and China.134
Above left: ©Rannís / Above right: ©Ármann Gunnarsson
The negotiations officially started Below left: ©Shutterstock / Below right: ©Ministry for Foreign Affairs of Iceland
in 2007.135 The signing of the FTA
in 2013 were aimed mainly at
strengthening bilateral relations rights, competition and investment. China had grown by 358% since
between the countries and China’s It also stipulates that the two states the FTA came into force in 2014.139
support to Iceland after the should enhance their cooperation This was by far the highest increase
economic collapse. in several areas, including research, in Icelandic exports to any state
labour and the environment. outside the EEA. For comparison,
Domestically, the FTA was The agreement introduced tariff- the growth in exports of goods
considered to have great economic free access for Icelandic seafood to India was 155% and to North
benefits for Iceland. China found exports to China, which was of high America 93% during the same
it of benefit in different ways. importance for the Icelandic fishing period.140 The vast majority of
Iceland was a small nation with a industry. Iceland also lowered tariffs Iceland’s exports to China (80-
small market, a convenient state for on Chinese goods (agricultural 90%) have consisted of marine
a practice-run of drafting a free- goods excluded), which benefits products.141 Nevertheless, in 2018,
trade agreement with a European Icelandic consumers.137 The Icelandic Icelandic goods exports to China
country. In that way, China could foreign minister at the time later amounted to only 2.6% of the
begin on a small scale and create a described the document as the most total.142 Chinese imports to Iceland
reference model before attempting important agreement since Iceland had risen and the trade deficit had
grander and more complicated acceded to the EEA.138 grown by 39% since 2014.143 In
deals with larger states.136 2014, imports from China amounted
Trade in goods and services with to just over 7.4% of the total; in
The FTA came into force in 2014, China has gradually increased, 2020 the proportion was 8.4%.144
covering trade in goods and as the Icelandic authorities had
services, rules of origin, trade anticipated prior to signing the Several challenges remain when
facilitation, intellectual property FTA. By 2018, exports of goods to it comes to trade in goods with18 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
China; the fact that the Chinese producer qualifies for meat Sweden, to invest in Iceland.159
market is much greater in size exports to China; its first export The reasons for limited investment
than the Icelandic one means that consignment was sent in 2020, from China in Iceland are twofold:
Icelandic companies are often two years after the signing of the Firstly, the Icelandic market is very
unable to satisfy the minimum protocol.153 small and labour costs and cost of
order volumes set by larger Chinese production are high. Accordingly,
companies to export products Chinese investors believe that
to Iceland,145 and the Icelandic investing capital in the market
Mutual Foreign Investments:
Food and Veterinary Authority’s is not worth it. Secondly, Iceland
Missed Opportunities?
standards have on occasions failed has strict restrictions on foreign
to satisfy those of the Chinese Economic relations between Iceland investment by parties outside the
government for agricultural product and China are limited when it EEA in, e.g., real estate or land
imports.146 Since the signing of the comes to foreign direct investment, purchases that keep the investment
FTA, Iceland Post has had to pay which was not negotiated as part flow to the country limited.160
subsidies on packages arriving from of the FTA. The total volume of
developing countries, and as China Icelandic investment in China In 2012, the Chinese investor
classifies as such, parcels arriving amounted to USD 43 million and Huang Nubo made an offer to
from that country are subject Chinese investments in Iceland buy a tract of land in northeast
to an additional charge.147 The came to USD 28 million by the Iceland, called Grímsstaðir á
Icelandic Consumer’s Association end of 2019.154 Therefore, Iceland Fjöllum, measuring 306.39 square
expressed disappointment is a larger contributor than China kilometres, which is about 0.3% of
towards local businesses that the when it comes to foreign direct Iceland’s landmass.161 The property
expected decrease in prices due investments between the countries. is not far from Finnafjörður, a
to the abolition of VAT under the According to the Icelandic Central location that is currently being
agreement, which should have been Bank, no Chinese citizen owns a considered as a potential shipping
7.8%, did not find its way to the direct investment155 in Iceland, hub for the Arctic and a security
consumer: instead, the reduction though reference was made to area by the government (see
was only 4%, implying that business Elkem, which is owned by China discussion below). At Grímsstaðir,
owners were pocketing the National Blue Star and operates a Huang Nubo intended to build a
difference.148 smelting company at Grundartangi state-of-the-art hotel.162 He said
in Iceland.156 However, Egill Níelsson this was a strategic investment
Iceland and China have continued and Guðbjörg Ríkey Hauksdóttir and that the value of the property
to build upon the FTA and have claim that there is one currently would increase significantly in the
signed several protocols to it. One active Chinese direct investment near future due to the melting
on health certification of Icelandic in Iceland, in Carbon Recycling of the Arctic and the opening of
lamb was signed in Beijing in International, an Icelandic limited new shipping routes.163 This led to
2018,149 and three were signed liability company that specializes in much discussion in Iceland about
in 2019 on health standards for sustainable methanol production the investor’s possible motivations,
aquacultural products, fish oil, from carbon dioxide.157 The Chinese and intensive debate developed
fishmeal, wool and sheepskin.150 embassy in Iceland regards this in the Icelandic media about the
China is a large importer of investment, of USD 14.5 million, opportunities and constraints
lamb,151 so the protocol on health as a ‘breakthrough in China’s involved in selling such a large
certification was a breakthrough direct investment in Iceland’.158 part of the country to a Chinese
for Icelandic farmers in view of Additionally, there have been some investor. In the end, the Icelandic
the health restrictions that China instances where Chinese investors ministry of the interior rejected
placed on all imported meat in operate through subsidiaries based the bid on the basis that it did not
2013.152 However, only one Icelandic in other EEA countries, such as comply with Icelandic law on land19 LILLIPUTIAN ENCOUNTERS WITH GULLIVER SINO-ICELANDIC RELATIONS FROM 1995–2021
ownership by foreign nationals.164 Icelandic state.167 This was the first interest in the initiative since
According to a high-ranking official time an Icelandic private company President Xi Jinping announced it
in the Icelandic government at held power equivalent to that five years earlier.174 For instance,
the time, the Chinese embassy of the Icelandic government in a Iceland’s status as a founding
approached the Icelandic ministry foreign country.168 Also, a former member of the Asian Infrastructure
for foreign affairs twice to inform Icelandic minister for foreign affairs Investment Bank (AIIB), seen by
Icelandic authorities that Huang is currently serving as the president some as the supporting institution
was not a representative of the of Yutong Eurobus Scandinavia,169 of the BRI, has been regarded
People’s Republic of China and that a Chinese bus manufacturing as a demonstration of Iceland’s
whatever decision the Icelandic company which specializes in positive attitude towards the BRI.175
authorities took regarding his electric buses. Even though these The AIIB was founded in 2015 to
case would not affect the bilateral officials have ceased official duties promote sustainable investments
relationship between Iceland with the Icelandic government, they in Asia, improve infrastructure and
and China.165 This indicates the make use of the prestige gained productivity and secure access to
importance China placed on from their time in office to actively core infrastructure in Asia.176 Iceland
bilateral relations between the promote Sino-Icelandic relations is one of the AIIB’s 57 founding
states. To date, there has been no and pave the way for mutual members, along with the other
concrete confirmation that Huang’s investments. For example, the Nordic countries. Each member
investment pursuits were related to Icelandic bus company Strætó bs.
state appoints one governor to the
the BRI. has purchased 14 electric buses from
AIIB’s board of governors; currently,
Yutong Eurobus Scandinavia.170
Finally, former Icelandic politicians Iceland’s appointee is the minister
are affiliated with boards or of finance and leader of the centre-
companies that have relations with right Independence Party.177
China. Ex-president Ólafur Ragnar The Belt and Road Initiative:
Nevertheless, Iceland has not
Grímsson has served on the Advisory An Icelandic or an American
Holdback? taken up China’s offer to join the
Board of Arctic Green Energy,
BRI. According to high-ranking
which mainly operates in China High-ranking Icelandic and Chinese Icelandic and Chinese government
through Sinopec Green Energy. officials have been discussing officials, Iceland’s reasons for not
Ólafur Ragnar Grímsson maintains common business opportunities yet joining the BRI are fourfold:
that he does not receive payments in the Arctic since before the
for his contributions as a board it currently has no concrete
economic crisis, such as developing infrastructure projects for which it
member, but his part in promoting a shipping hub on the Northern
the company during his time as would need; no Nordic country has
Sea Route (NSR).171 This route now
president must be noted. In 2012, yet officially joined the BRI, which
falls under the area covered by
Arctic Green Energy financially might influence Iceland’s decision;
the controversial Belt and Road
supported his presidential Iceland and China already have a
Initiative (BRI), a Chinese project
campaign.166 A former Icelandic good relationship and agreements
focused on globally improving
minister of education, science and when it comes to free trade, and
trade with China and stimulating
culture worked for Orka Energy Iceland therefore needs to evaluate
economic growth, mainly
(now Arctic Green Energy), whilst he what added benefits the BRI would
through massive infrastructure
was on leave from the Althingi. In provide before making a decision,
investments.172
2015, the minister designated Orka and finally, Iceland is under pressure
Energy (together with the NEA) In 2018, China formally invited from the US not to participate in
as the executive body on matters Iceland to join the BRI.173 This the BRI.178 Formally, the Icelandic
relating to geothermal research happened after the Icelandic government has not yet made a
and development on behalf of the government had taken a gradual decision regarding the invitation.You can also read
