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Is China’s ‘Debt-Trap Diplomacy’ in Greenland Simply on Ice?

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Is China’s ‘Debt-Trap Diplomacy’ in Greenland Simply on Ice?

Should Greeland continue to move toward independence, the cash-strapped territory would be at high risk of falling prey to Chinese investments that seek to gain influence.

Is China’s ‘Debt-Trap Diplomacy’ in Greenland Simply on Ice?
Credit: Depositphotos

The Inuit Ataqatigiit (IA) party win in Greenland’s general elections in April 2021 was seen by many as a blow to the Kvanefjeld mining project in southern Greenland, and more broadly representative of greater pushback by the energy-rich autonomous territory against rare-earth mining projects that contribute to environmental damage. There has been burgeoning international interest in Greenlandic resources, particularly iron ore, lead, zinc, diamonds, gold, copper, uranium, and oil.

But the leftist IA party represents something else too – a move toward greater autonomy from Denmark, with the ultimate goal of full independence. However, Greenland can’t go it alone. The island constituency is at risk of debt-trap diplomacy from China’s Polar Silk Road investments if Greenland is unable to garner adequate funds from liberal partners.

Consider the funding controversy over the expansion of Nuuk’s airport. When Denmark opened investment negotiations, a Chinese investment company – the Chinese Communication Construction Company (CCCC) – stepped in and offered to finance the construction of the entire project. In the final stage of negotiations, Denmark declared the Chinese investments a security risk and agreed to foot 33 percent of the total construction bill ($109 million). The CCCC dropped its bid following this announcement.

While Denmark’s decision to reject Chinese funding on Greenland’s new airports was wise, could an independent Greenland resist the offer?

As a dependent territory possessing the right to self-determination, and with a majority in favor of independence, only one thing stands in Greenland’s way – financial backing. With a majority of Greenland’s GDP financed by an annual Danish block grant of 3.9 billion Danish krone ($614 million), a successful independence movement remains on hold, but for how long? Despite Denmark grappling to retain the Arctic island, the independence movement continues to develop. Greenland may become independent sooner rather than later, and its independence will have ramifications for the entire globe.

A newly independent and cash-strapped Greenland is at high risk of falling prey to Chinese investments that seek to sway its political positions, often referred to as “debt-trap diplomacy.” Debt-trap diplomacy is a tactic used by the Chinese government to gain political or economic concessions from lower-income nations by over-extending infrastructure loans that then prove impossible to pay back on time. China is now the globe’s largest global creditor.

These investments seem ideal for nations that may struggle to gain financing otherwise, offering ways for developing countries to build necessary infrastructure while simultaneously avoiding the policy prescriptions that come with loans from the International Monetary Fund (IMF) or the World Bank.

However, such loans are then owed not to international organizations operating under public accountability, but directly to the Chinese government. Without transparent methods for debt-relief, if and when these countries default on their loans they are left indebted to China and politically weak to resist potential demands for strategic resources or diplomatic support.

Consider Sri Lanka and Djibouti, both of whom received project investments from China that left them heavily indebted. In 2017, Sri Lanka defaulted on its loans with China and offered its strategic port of Hambantota in exchange for a debt write-off. Djibouti, in an effort to offset its debt to China, now houses China’s only overseas military base.

Greenland’s domestic financing highlights larger issues at stake – the implications of independence in the rapidly changing Arctic arena, the increasingly high costs of climate mitigation, and the need for greater regulation in the ever-expanding FDI sector.

Having lost nearly 3.8 trillion tons of ice in the last 30 years, and experiencing rain on the peak of Greenland’s ice sheet for the first time in recorded history, a newly independent Greenland may expect to face novel financing challenges beyond resource extraction. Managing the costs of climate mitigation and emerging risks, tourism, great power competition, greater Northern Sea Route activity, and increasing military operations taking place in the Arctic all pose unique challenges to the region.

Naalakkersuisut, the Greenlandic government, must remain wary of the increasing risk for debt-trap diplomacy in Greenland, especially as it bears the brunt of climate change, securitization, and a global energy crisis increasingly viewed with the Arctic in mind. Clear policy guidelines on the regulation of foreign direct investment must be created soon – policies that cornerstone Greenland’s rule-based governance framework and reaffirm relations with liberal partners.

Otherwise, debt-trap diplomacy may simply be waiting on ice before warming to a thaw and working into Greenlandic negotiations, untethering security interests vital to the strength of the liberal order in the Arctic.