The following is a guest post from one of our readers in Iceland, Neil Holdsworth. Neil has been updating me via email regarding a Chinese investor who is seeking to purchase a massive amount of land in Iceland and the controversies that have been attendant to that. When he asked me why I don’t write a post about it, I asked him the same question and the below is the result.
As has been reported extensively elsewhere, China has taken an interest in Iceland as a potential location for a deep sea port on arctic shipping routes and as a future source of fresh water. Though China has not shown signs of embarking on an Africa-style resource grab in Iceland, it obviously has a long term strategic interest in the country. It is proposing to develop what will be by far the biggest embassy in Reykjavik, raising eyebrows among the country’s 320,000 inhabitants.
Despite Iceland’s being part of the European Economic Area, investment opportunities for outsiders here are limited. However, the tourism industry is open to foreign investment and a number of successful tourism related businesses are seeking finance for expansion. Financing is nearly impossible to obtain in Iceland because of its banking problems (there are mostly no new loans, only old loans being renegotiated and written off). For this reason and others, the government is keen to attract foreign investors in this sector.
Instead of buying into relatively safe and established companies, this China group is trying to do something much more symbolic and grand. China wants to come to Iceland’s rescue, but on China’s own terms and in its own way — buying no less than 0.3% of the land mass of the country and unveiling a vision of a new Chinese sponsored tourism in the country. China-based investors are proposing two huge hotels, a new airline, golf courses to be built in the mountains, horse riding, and hot air balloon rides. And all of this is going to happen year round.
This vision for Iceland makes little commercial sense and is very unlikely to work, mainly because for about 80% of the time in Iceland, the weather is so miserable you can’t go outside for more than a few minutes at a time. What probably started as a genuine and good natured attempt to invest in an area of the economy in which Icelanders are desperate for investors, has descended into a fiasco. Everyone wants to know why the Chinese investors need 300 square kilometers of land for a hotel, and Mr. Nubo, who is heading up the investment from the China side, has no convincing answer.
Mr. Nubo is saying the controversy is making him think about taking his money elsewhere. Iceland’s interior minister (from whom approval of the deal is necessary) has responded to the effect that he is more interested in looking at speeding up the approval times for residency permits, than in dealing with Mr Nubo, who can wait in line with everyone else.
Though buying up 300 square kilometres of overgrazed wilderness does not confer rights to build a Chinese military base in the Icelandic countryside, there are some people here [in Iceland] who seem to believe that. Even if Mr. Nubo and his group buy the land, Iceland will still require they secure planning permission and pass Environmental Impact tests, for whatever it is they want to do with it. Whatever Mr Nubo’s motivations for his project, this episode does demonstrate how suspicious people are of China, and of how little soft power China actually has, particularly in the West.
Indeed, the most believable analysis I have heard of the project itself is that China wanted to help Iceland out and so it sent over a property developer/poet/cat lover/arctic explorer with connections to the Icelandic Social Democratic party to invest in the one area of Iceland’s economy where foreign investment is tolerated. Despite this, it has all backfired spectacularly. As someone who lives part-time in Iceland and who is cautiously optimistic about China’s role in the world, I’d suggest that if China wants to use FDI as a way of building up good will among Icelanders, it consider building a brewery in my town of Flateyri would achieve a lot more (and cost much less) than golf courses and five star hotels.
11-26-2011 Update. Iceland has rejected Mr. Nubo Huang’s purchase of this land, saying that it is incompatible with Icelandic laws. An article on this can be found here.