Arctic investment sparked by global warming

In the past ten years, the heat in the Arctic has continued to increase. While paying attention to the ecological changes in the Arctic, people also regard the Arctic as a new hot land for investment. In December 2019, Rosneft confirmed that it is in talks with major Japanese energy companies on investment in the “Oriental” oil project in the Russian Arctic. For Chinese companies to invest in the Arctic, related opportunities and risks are important issues that must be considered.

Arctic routes are of great value

Since the beginning of this century, news of Arctic warming has been heard. There are reports that the scale of ice melting in Greenland this year is unusually large compared to the past. According to statistics, in just 5 days from July 30 to August 3, 2019, 90% of the ground in Greenland has melted, with a total of 55 billion tons of melting ice. Because of the importance of the Arctic in the global ecosystem, the melting of such a huge amount of ice sheets will definitely cause major changes in global climate, which will be a serious challenge for the entire ecosystem of the planet. The melting of the permafrost in the Arctic will also cause a large amount of methane and carbon dioxide to be released, which will greatly aggravate the global greenhouse effect and form a larger vicious circle.

But with global warming, the accelerated melting of Arctic sea ice has also attracted attention from neighboring countries to Arctic business opportunities. The most important one is the business opportunities brought by the shipping value of the Arctic routes. Compared with traditional routes, the shipping distance between Northeast Asian countries and European countries can be greatly shortened by sailing through the Arctic routes. Since 2013, China Merchant Shipping has sailed 31 voyages on the Arctic route.

In addition, in recent years China has also actively invested in the development and construction of the Arctic in many other fields. For example, in the field of communication technology, China is communicating with Finland on the construction of a high-speed communication cable, which will connect Europe and Asia through the Arctic Ocean. In the energy sector, three large energy companies in China currently play an important role and have participated in four large mining projects in Greenland, involving 30% of the total mineral deposits and 26.15% of the mineral scale. In September 2014, Russia’s Novatek Corporation was granted an export license for LNG from the Yamal Peninsula. In 2017, China National Petroleum Corporation and Novatek signed a series of strategic cooperation documents.

Docking with the “Belt and Road”

At the end of 2019, Yuri Trutnev, Special Envoy of the President of the Russian Far East Federal District, stated during the “Far East Day” promotion in Moscow that the investment in the Arctic will reach 1,236 billion US dollars in the next five years. For Chinese companies planning to invest in the Arctic or already engaged in business activities, the investment opportunities are not small.

With the melting of the Arctic sea ice, the possibility of commercial navigation on the Arctic routes is increasing. At present, the navigation time of the Arctic has been extended to nearly 5 months (mid July to early December). With the acceleration of the temperature increase of the earth’s poles, the US National Snow and Ice Data Center (NSIDC) predicts that by 2030, ice-free conditions may appear in the Arctic waters in summer, and the Arctic route will become the main reliable route.

The Arctic route is also in line with the “Belt and Road” plan, such as the China-Mongolia-Russia Economic Corridor, China-Europe Railway, and other projects to develop land and sea transport in the Arctic. Realize the situation of Arctic routes blooming in multiple fields. In addition, the “Belt and Road” initiative can give play to its advantages in infrastructure construction, and rapidly advance the construction of the Arctic Ocean coast channel and port facilities.

The Arctic’s key to the global future lies not only in shipping, but also in resources. In 2013, Facebook was put into use in a data center near the Swedish Arctic Circle (see Figure 2). As the company’s largest data center outside the United States, it can take advantage of the natural cold in the Arctic Circle to cool down millions of servers. Arctic tourism resources are also extremely rich. Whether it is a magnificent aurora or a dazzling polar bear, whether it is a peculiar primitive landscape or a pure natural environment, coupled with a unique ice and snow landscape, and rare wild flora and fauna, most people yearn for it. At present, the Arctic is no longer a mysterious area for exclusive scientific research vessels. With the improvement of the socio-economic level, more and more people are eager to lift its mysterious veil and experience the short-term peace in this pure place of the blue planet.

Chinese enterprises can take this opportunity to cooperate with local scenic spots in the Arctic to invest in the development of tourism projects, such as cruise adventures and aboriginal life experiences. Konstantin Roginsky, director of the Russia-China Arctic Research Center, once told Russia Satellite News: “At the moment, Arctic tourism is a high-end product and the price is relatively expensive. However, as the market expands and Arctic cruise tourism vessels increase, this type of tourism may Will shift from high-end projects to more popular products. ”

In addition, for the Arctic, the communication and interconnection construction has been lagging behind for a long time. Even in developed countries such as Norway, there are still obstacles in network information communication in high latitudes. The Guggenheim Partnership estimates that infrastructure investment in the Arctic in the next 15 years will require about $ 1 trillion. The financial support of Chinese enterprises is expected to become the most powerful support for the development of communication network coverage in the Arctic. At the same time, the “Belt and Road” initiative’s support for communications construction will also help promote connectivity and connectivity along the Arctic.

Beware of the three major risks

Although the hard environment for Chinese companies to invest in the Arctic is relatively stable, the soft environment they face, especially the quality of labor, the level of business partners’ cooperation, market maturity, laws and regulations, system construction, policy orientation, and public opinion, is very different Certainty, this will bring certain risks for Chinese companies to invest in the Arctic.

The first is political and social risk. The West has “tinted glasses” for China’s participation in Arctic investment. Due to the fierce conflicts between Russia and Canada in the rights and interests of the continental shelf and navigation channels, the construction of the “Ice Silk Road” promoted by China-Russia cooperation is regarded by Canada as a move that may affect its Arctic status. In addition, Iceland, Norway and other Arctic Council countries are worried that China’s entry into the Arctic will affect the Arctic Council’s strong insistence on sovereignty in the Arctic region.

Second is legal risk. In terms of navigation development, port construction, tourism, and energy investment in the Arctic, only the Energy Charter Treaty deals with issues related to energy investment access, and there are no relevant legal treaties in other areas that set regulatory standards for investment access. To this end, the feasibility of China’s participation in multilateral investment treaties and investment treaties in specialized fields should be studied in depth, and bilateral investment agreements signed between countries in the region and other countries, including China, should be compared, and China’s legal system concerning overseas investment should be reviewed and improved.

The third is equity risk. Due to the differences between Chinese and Western cultures, during the project construction process, Chinese companies will inevitably diverge from the relevant departments of the target countries in terms of environmental protection, employment, intellectual property rights, and trade union rights. Therefore, we must strengthen the protection of China’s labor rights and intellectual property rights, and attach great importance to respect and protection of the rights and interests of Arctic residents and indigenous peoples. At the same time, it should be noted that although the indigenous peoples have independent status in the region, this does not mean that the government departments of the investment target countries can be bypassed and trade with the indigenous peoples can be made directly. Aboriginal people have some sensitivity in their domestic politics, and Chinese companies should recognize this.

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