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Game of alliances

China has taken a keen interest in Iceland. Its real interest is probably not geothermal power and fuzzy jumpers, however

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On paper, there would seem to be little reason why China would choose Iceland to be the first European country to sign a free-trade deal with. By all measures – size, economic power, military might, population – China dwarfs Iceland.

The most obvious reason (and why this website would write about it) why China would put in seven year’s worth of negotiations to lower tariffs with a country it only does $400 million worth of trade with (the same figure for the EU is $600 billion, by comparison) is Iceland’s land – or rather its placement in the Arctic

China, there is little doubt, would like to become an Arctic power. But without land there, it remains, using its own term, a near-Arctic state (it is 1,500km away from the Arctic Circle – slightly closer than Germany, yet slightly further away than the UK) and the conventional wisdom has been that China is cosying up to Iceland in order to buy an Arctic proxy.

Having a close ally in the region would no doubt help it further its interest, but there is good reason why this might not be the case.

SEE RELATED: China’s Arctic allies

Firstly, in many ways, China already has established itself as an influential player in the region. Last year, it snagged a seat – albeit only as an observer – on the Arctic Council, a policy co-ordination body. And in December, it took steps to expand its capacity to conduct research in the region. China, territory or not, is already present in the Arctic.

Secondly, China does not need good diplomatic guanxi in order secure mineral and oil rights. Many, not least evironmental groups, fret that China’s real designs are on the region’s natural resources. This is partly true, but this is just as much a commerical motivation, and business ties, rather than diplomatic ones, have allowed it to secure drilling rights in Icelandic waters. Using diplomats to knock on doors (or listen at them) can certainly help the process, but China’s global firms are increasingly less reliant on their diplomats.

Still, it is impossible to deny China’s interest in Iceland. In addition to the free-trade deal, Reykjavik regularly receives high-level delegations from Beijing, and it is embassy there reportedly staffs 500 diplomats (America, for comparison, is said to have 70 at its embassy.) Away from the capital, a corner of the island was nearly purchased in 2011 by a Chinese investor with ties to the Communist party.

SEE RELATED: My rival’s rival

There are, to be sure, a list of official reasons for China’s interest. When the free-trade agreement was struck, the two governments also issued a joint statement calling for bilateral co-operation on gender equality, labor issues, Arctic affairs, geothermal power, culture, education and tourism. But human rights was also mentioned on the same list, making it sound more like diplomatic boilerplate than an actual course of action.

But for all China’s interest in Iceland as an Arctic beachhead, the biggest prize might well be located further to the south and east. Iceland, while not a member of the EU enjoys access to the single market through its membership in the European Free Trade Association and the European Economic Area.

Though not a true backdoor to the European market, the trade deal with Iceland would bring Iceland a step closer to the EU, literally and figuratively. However, EU experts have pointed out that this would not provide China with any advantage at all, should Iceland join the 28-member bloc, since it would have to dissolve all its bilateral trade deals in order to become a member.

Any chance of that happening were, fortunately for the two new allies, all but put to rest last month when the Icelandic government officially moved to cancel its EU accession process.