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China’s Arctic Ambitions in Alaska

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China Power

China’s Arctic Ambitions in Alaska

To realize its aspirations as a polar power, China has turned to Alaska.

China’s Arctic Ambitions in Alaska

The plane carrying Chinese President Xi Jinping taxis to a stop in Anchorage, Alaska, with the snow-capped Chugach Mountains providing a backdrop (April 7, 2017).

Credit: AP Photo/Mark Thiessen

For signs of Beijing’s Arctic ambition, Washington need look no further than Alaska. After Chinese President Xi Jinping left the Mar-a-Lago summit with U.S. President Donald Trump in April 2017, he stopped in Alaska, not Silicon Valley, to talk business. Alaskan Governor Bill Walker pitched Xi on his state’s economic opportunities, including liquefied natural gas (LNG) shipments. Before Trump’s trip to China a few months later, the White House announced multiple memoranda of understanding (MOU) between U.S. and Chinese oil and gas corporations, including the $43 billion Alaska LNG project. In the months since these presidential visits, the U.S.-China relationship — now on the precipice of a trade war — has grown tense. But in Alaska, deals are still moving forward.

China’s energy interests are not limited to just Alaska, but include the entire Arctic, where climate change is opening up new shipping lanes and recoverable energy resources. As ice begins to melt, energy-insecure Beijing has begun to assert itself more forcefully in the region, investing in the economic, diplomatic, and strategic benefits that it believes the Arctic will bring. Unless the United States pays more attention to China’s Arctic ambitions, Beijing will strengthen its economic and strategic position in the world’s largest emerging frontier at America’s expense.

Beijing to Juneau 

The flurry of deals between Beijing and Juneau stem from China’s frenzied rush to secure projected LNG demand. The world’s second largest LNG importer, China has already signed deals with Australia and Qatar, among others, for 40 million tons a year through 2030, but will still need an additional 20 million tons by the end of that period.

As countries begin to brace for the effects of climate change, Beijing sees Alaska as an opportunity to satisfy its LNG appetite — the Arctic is estimated to hold one-third of the world’s natural gas reserves, with half of these resources located in Alaska. And global warming, happening twice as fast in the Arctic as the world average, will thaw extensive sea ice, which currently hinders commercial ships from traveling through the region.

At first glance, Chinese investment would benefit Alaska. Despite the state’s reputation for vast oil and gas resources, the global boom in natural gas demand, which made LNG exports profitable elsewhere, has passed Alaska by. Dependent on its oil wealth to keep its finances afloat, the state has been forging links with Chinese customers, lenders, and investors to compete with lower-cost shale projects in the continental United States. The flagship Alaska LNG project, started in 2014, could not find funding due to an evaluation calling it “the least economically competitive LNG project in the world.” But now the project is back on track after the Alaska Gasline Development Corporation (AGDC) signed a joint development agreement with Chinese state-owned enterprises Sinopec, China Investment Corporation, and the Bank of China.

While Alaska needs to greenlight these projects to stay fiscally afloat, China has little to lose. Beijing is certainly looking for a stable partner to purchase LNG from, but its deals with Alaska are currently nonbinding, and Alaska is unlikely to find a realistic partner elsewhere. Simply put, if Beijing finds cheaper LNG projects elsewhere — as is likely — it could easily abandon its commitments, like the $34 billion in investment and 12,000 jobs that the project would create in Alaska. For reference, Alaska’s GDP hovers around $50 billion and has been declining since 2012.

If Beijing does choose to go forward with its projects in Alaska, it would still unevenly benefit China. The agreement’s details are scarce, but they appear more similar to China’s predatory financing tactics in the Asia-Pacific than its contracts in the continental United States. AGDC Senior Vice President Frank Richards revealed that the Bank of China, a Beijing state-owned enterprise (SOE), will loan AGDC 75 percent of the estimated $43 billion needed to construct the pipeline and liquefaction plant. In return, AGDC will reserve 75 percent of all pipeline, liquefaction, and terminal capacity for Sinopec, another Chinese SOE, which in turn, will pay the Bank of China back for gas that it receives. Because of this arrangement, Beijing receives both resource and revenue — the Bank of China would receive $3.5 billion of the $8 to $10 billion in revenue that the project is expected to generate annually.

As tensions in the U.S.-China economic relationship continue to escalate, China has still found opportunities to invest in the United States at a subnational level, where regulations are scarce, awareness is low, and its leverage is high. China has effectively set a price at which it can not only secure guaranteed LNG supplies, but also a price it can walk away from if global oversupply in the gas market persists.

What’s happening in Alaska is one example of a larger trend throughout the United States. To ply the U.S. government to the Party’s will, Chinese companies have joined the American Legislative Exchange Council, a group that ghostwrites legislation on a state level. In the absence of strong federal protections, China is taking advantage of this individual state to realize its Arctic ambitions.

The Polar Silk Road 

Xi’s visit to Alaska stems from China’s broader Arctic strategy recently outlined in strategic white paper. One might cursorily dismiss China’s self-declaration as a “near-Arctic state,” but its interest in the region runs deep. China’s economy would greatly benefit from new shipping routes to export its goods and to import large amounts of natural gas. As tensions rise South China Sea, China is looking for alternative sea lanes that it believes are less volatile and faster than those that run through the Strait of Malacca, specifically its proposed Polar Silk Road, which runs through the Arctic and ends in Alaska.

To this end, Beijing has been pouring investment dollars into Arctic countries to bolster its unorthodox claims in the region. China lobbied for and eventually received observer status on the Arctic Council in 2013, recognizing Arctic Council rules that only allow new projects to be proposed through council members or participants. Beijing has also greatly expanded its investment and cooperation with claimant states.

Finland, where Xi stopped before visiting Mar-a-Lago, was the fifth-largest destination of cumulative foreign direct investment from China between 2000 and 2016, receiving a total of $8.43 million. Norway, which received around $7 billion in FDI from China during the same time, and Finland are now speeding up talks to create an Chinese-funded Arctic Corridor, which would drastically shorten delivery time for Chinese exports to Europe. By expanding its presence in Arctic countries, China likely hopes to weaken consensus on environmental protections that would limit maritime shipping in the Arctic and expand opportunities for oil and gas drilling while rules remain weak and untested. And some of China’s Arctic projects might have military applications — research stations and airports today might turn into staging grounds for military satellites and air bases in the future.

Combatting Statecraft in States 

While the United States is focused on China’s use of economic coercion and statecraft on a federal level, it should also address similar actions taking place at a subnational level, where awareness and regulations aren’t as strong, but national security implications exist nevertheless. Chinese investment in infrastructure isn’t inherently negative — if they are able and willing to fund domestic infrastructure that would revitalize development in looked-over states, the United States should let them do so. However, states should ensure that the agreements that they sign are fair (given Beijing’s penchant for predatory investment), have no bearing on state or federal legislation, and don’t ultimately undermine U.S. foreign policy.

State Department officials should reach out to their state and city counterparts and offer them avenues to do the same. During the Obama administration, there was an Office of the Special Representative for Global Intergovernmental Affairs, which supported subnational diplomacy. Unfortunately, during the second term of the Obama administration, this position was left empty. As others have suggested, the Trump administration should appoint a full-time special representative and fully fund this office to coordinate subnational diplomacy and provide advice on sensitive topics like Chinese investment in critical infrastructure.

States cooperating economically with China should also be wary of the military and strategic links that sometimes come along with Chinese investment. Congress should pass current Committee on Foreign Investment in the United States (CFIUS) reform legislation that would expand its jurisdiction to include real estate acquisitions near sensitive sites and investment in critical infrastructure. The legislation would also require CFIUS to keep a list of “countries of special concern” to encourage committee members to apply more scrutiny to transactions from certain countries.

Overall, the United States should reinforce China’s “observer” status in the Arctic Council to preemptively fend off Beijing’s attempts to shape the region’s rules from afar. Instead, the Trump administration should promote international norms, including freedom of navigation and the importance of exclusive economic zones, by continuing to implement its Arctic strategy, and revise as needed to ensure that non-Arctic states like China do not play an outsized role in a region.

To realize its aspirations as a polar power and mitigate its quickly souring relationship with Washington, China has turned to Alaska. The United States should support China when it’s investing in infrastructure development that the federal government would not fund, but should advise states when the funding comes with hidden strings attached or negative, long-term implications to U.S. national security.

Alaska is banking on Arctic’s future economic promise, and China is doing the same with little commitment and scrutiny. Washington should not let its constituent parts handle Beijing without a level playing field.

Ashley Feng is a research associate for China Studies at the Council on Foreign Relations.

Sagatom Saha is an energy policy analyst and Fulbright researcher.