China and Iceland sign free trade contract

The China-Iceland free trade pact will lower tariffs on a range of goods and is expected to boost seafood and other exports from the Nordic state to the world’s second-largest economy.

The news of the pact came yesterday at the start of a five-day visit to China by Icelandic prime minister Johanna Sigurdardottir that highlights her country’s attempts to diversify an economy badly mauled by the bursting of the financial bubble in 2008.

Chinese premier Li Keqiang told Ms Sigurdardottir the agreement was “a major event in China-Iceland relations”.

“It also signals the deepening of our relationship, especially our economic relationship which has been lifted to a new height,” Mr Li said during talks following a welcoming ceremony at the Great Hall of the People in the centre of Beijing.

Trade between China and Iceland, a country of just over 315,000 people, rose 21.1 per cent last year to the equivalent of £117 million, according to the Chinese ministry of foreign trade. Iceland exports mostly fish to China and imports Chinese products from ships to shoes. Ms Sigurdardottir has been keen to push Icelandic services and the geothermal energy potential of the island nation.

Iceland has unique importance to China as it attempts to gain a foothold in the Arctic, where melting ice is opening passages for shipping and could create a boom in extraction of resources such as gas, oil, diamonds, gold and iron.

China is seeking permanent observer status in the Arctic Council, an eight-nation body that includes Iceland and decides on policy in the region. China is expected to be accepted when a final decision is announced next month, drawing support from the prospect of heavy Chinese investment in the region’s mining industries as advertised by its proposal to sink the equivalent of £1.5bn into Greenland to secure 15 million tonnes of iron ore per year.

Shipping via the Arctic would cut about 4,000 miles and two weeks off the journey between northern Europe and Shanghai. Seeking to prove the route’s viability, Chinese researchers last August completed their first 19,000-mile journey between Iceland and Shanghai.

China sees a range of opportunities in the Arctic and will continue to expand its research in the area and conduct further expeditions, said Leiv Lunde, director of the Oslo-based Fridtjof Nansen Institute.

He added: “Chinese companies are now very eagerly awaiting policy signals from the Chinese government on what kind of priorities they will give to the Arctic.”

China’s desire for a presence in the Arctic has prompted an unusual degree of interest in Iceland. China recently completed what is far-and-away the largest embassy complex in the Icelandic capital, Reykjavik, reportedly capable of accommodating a staff of 500.

And Wen Jiabao – China’s premier until a leadership transition was completed in March – included a rare stop in Iceland on a visit to Europe last year.

It hasn’t always been smooth sailing, however. Chinese investor Huang Nubo has been blocked in his bid to build an adventure tourism resort on a barren patch of north-eastern Iceland that would have included an airport, golf course, and 120-room hotel.

Iceland rejected his original bid to buy the land, which comprises 0.3 per cent of Iceland’s territory, prompting an angry Mr Huang to blame Western prejudice and unfounded suspicions that he was a tool of the Chinese military. Icelandic officials have said they don’t see the resort as viable.

Mr Huang has said he would drop the project unless he gets approval by the end of May.

Xu Hong, deputy general manager of Mr Huang’s Zhongkun Investment Group, said the company remained in contact with the landowner and Icelandic government.

“We’re optimistic that we’ll be able to have the response by the end of May,” Mr Xu said.