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Will China Freeze America Out of the Arctic?

August 14, 2019 Topic: Security Region: Americas Tags: ChinaArcticRussiaEconomyXi Jinping

Will China Freeze America Out of the Arctic?

There are implications that China and other states will continue to participate in the Arctic economy. America is falling behind.

Beijing has made international commitments that it wishes to eliminate SOEs; however, the data suggests that Beijing has different ideas. It has embarked on a path of reducing the overall numbers and restructuring those remaining to make them “bigger and stronger.” This makes perfect sense; Beijing has calculated that it can more easily weather the international criticism of their SOEs versus the internal problems of having to furlough large numbers of workers. According to the World Economic Forum, China is home to 109 corporations listed on the Global Fortune 500 but only 15 percent of those companies are privately owned and Beijing is likely to continue its past practice of using SOEs as a mechanism for implementing policy, providing socioeconomic policy (full employment), and building infrastructure. China’s official “Belt and Road” portal brags that eighty SOEs are the backbone of China’s Belt and Road construction and have carried out over three thousand infrastructure projects.        

The second reason why there is likely to be lackluster U.S. participation in Arctic infrastructure projects is that Chinese have much greater international construction capacity. Deloitte’s 2017 Global Powers of Construction (GPoC) found that, among global construction companies, Chinese firms “dominate the Top 100 rankings in terms of revenue, with the largest three Chinese groups representing around 30% of the GPoC’s total sales.” According to the same report, the United States continues to have a good presence in the international construction but Chinese firms are generally much larger and, in total, had sales of 440B Euros. U.S. firms had sales of only 20 percent of that amount (roughly 85B Euros) during the same period. The market cap of Chinese firms was 113 billion euros to the U.S. 55.6 billion euros.

Given the less advantageous funding opportunities and much smaller size, it is hard to envision U.S. businesses (or frankly those from Norway or Canada) playing a dominant role in Arctic infrastructure if it means they will have to compete head-to-head with the Chinese without help. CSIS recently did a study and found that in Asia, the vast majority of companies (roughly 90 percent) involved in infrastructure are Chinese because of the above advantages and because Chinese firms are networked better, have more advance information of proposed projects. One may also assume they have much lower operating costs for such things as insurance, audit, and workplace compliance. Given this, it is understandable that U.S. owners and shareholders are unwilling to chase Arctic projects.

Implications for the Trump Administration 

All of this clouds the question of where exactly is the Trump administration when it comes to the Arctic. Is Pompeo’s speech just a rhetorical flourish? If you went to the office of a U.S. legislator or public official in most any federal agency and mentioned the work “Arctic” they would probably say that they enjoy a good “Arctic Blast” from Dairy Queen every now and then. That ignorance, which seems to permeate most in the Congress and the administration, is troubling. Russian author, Vladimir Isachenkov wrote for the Associated Press that the United States (save for an occasional statement) seems uncommitted to Arctic security:     

[W]hile U.S. President Donald Trump’s administration has seen the Arctic through the lens of security and economic competition with Russia and China, it has yet to demonstrate that the region is a significant priority in its overall foreign policy. The post of special U.S. representative for the Arctic has remained vacant since Trump assumed office.

Russia, however, has made reaffirming its presence in the Arctic a top goal, not the least because the region is believed to hold up to one-quarter of the Earth’s undiscovered oil and gas. Russian President Vladimir Putin has cited estimates that put the value of Arctic mineral riches at $30 trillion.

For the United States, the implications of continued brisk Chinese and other states participating in the Arctic economy is that the United States must figure out how it is going to secure a place in the overall Arctic economy. Some of this begins with better financing and, to that end, a consensus is emerging that the Arctic coastal countries form an Arctic Development Bank for Arctic infrastructure projects. U.S. international trade and development lending organizations like EXIMBANK, SBA, TDA and OPIC could offer new loan products that provide rates which are at least as good as those which are available from China’s institutions. Aggressive action by U.S. embassies and the Department of Commerce to identify potential areas for U.S. industrial participation either alone or in combination with other countries such as Russia, Canada, Norway, is something that should be implemented immediately. Greater military presence to reinforce the United States commitment to the region is also appropriate to militarily stabilize the region; however, those actions should not be viewed as a substitute for much larger U.S. economic footprint. 

Mark E. Rosen is the SVP and General Counsel at CNA. A retired Navy Captain (JAGC) who served nearly nine years in the Pentagon as a military planner and international affairs advisor, Mr. Rosen’s particular expertise is in the maritime field including maritime disputes, piracy, maritime security and maritime arms control. Mr. Rosen holds an appointment at GW School of Law. The views expressed in this article are those of the author alone and do not necessarily represent the views of CNA or any of its sponsors.

Image: Reuters