To hear the people of Iceland describe it, the wilderness area of Grimsstadir in the country's remote northeast is as serene a spot as you can hope to find on the planet. From its cluster of farms and guesthouses, you can watch the dazzling northern lights, drive to Europe's most powerful waterfall a short distance away and, according to the area's website, enjoy "big, beautiful crystal-clear skies and mountain vistas."
But something far less serene has played out in Grimsstadir in recent weeks: a battle over China's rising economic clout. A plan by Huang Nubo, the billionaire chairman of China's Zhongkun Investment Group, to build a $200 million tourist resort in the area has sparked one of Iceland's fiercest controversies since its banks imploded three years ago, helping catapult markets into a global financial crisis. With Iceland still trying to reverse its downturn, Nubo, a former Communist Party official, proposed building a high-end hotel, Europe's biggest nature reserve and a golf course. Iceland's officials rejected the plan in November, suspecting that Nubo was eyeing other possibilities too, including Iceland's huge potential for energy companies as global warming makes the Arctic more accessible. The attempted deal, China's first major bid for a piece of Iceland's wide-open property market, is unlikely to be the last. Iceland's open vistas are not only appealing to the massive wave of Chinese tourists venturing abroad, says Jonas Parello-Plesner, senior policy fellow at the European Council on Foreign Relations in London, but they are "also linked to China's strategic interest in the Arctic."
The battle in a sleepy corner of Europe mirrors a broader anxiety about China's rising presence on the continent. As the E.U. struggles to survive and keep debt-ridden members like Greece, Italy, Spain and Portugal from defaulting, officials have turned to China and other emerging markets for tens of billions of dollars in cash to dramatically expand Europe's bailout fund. China is still mulling the risks and benefits of chipping into the teetering project. But that hasn't stopped its aggressive pursuit of other European assets, from choice real estate to global corporations. In November, Lou Jiwei, chief executive of China's $400 billion sovereign wealth fund, said he wants the fund to be a partner in Britain's $40 billion infrastructure plans, a first step in China's bid to help rebuild the West's faltering infrastructure.
Cash injections from China could help Europe do everything from revamping crumbling bridges and developing high-speed rail lines to filling a gaping hole in its rescue plan. Beijing, meanwhile, would get a leg up on the world stage, where its influence is often blunted by accusations by once rich Western powers of human-rights abuses and unfair trade practices. Still, many fear that the Middle Kingdom is using the euro-zone crisis as an opportunity to snap up the continent's prized assets at discounted prices and win big political concessions on issues like arms sales and trade at a time when European leaders are in no position to bargain.
China's huge surplus about $3 trillion in foreign-exchange reserves and its growing ranks of superwealthy are deeply unsettling to beleaguered Europeans, who fear its outsize financial clout will encroach on their everyday lives. The number of ultra-rich Asians rose nearly 10% last year, to 3.3 million, surpassing Europe's 3.1 million. Chinese tourists fill luxury department stores in Paris and London, soak up Bordeaux from vineyards owned by Chinese companies and book rooms at luxury resorts like Club Med, where the largest shareholder as of November 2010 was the Chinese investment company Fosun. As China carves out a presence across the continent, analysts predict its investments in everything from road building to fashion are poised to expand rapidly, especially as it tries to develop more sophisticated industries at home.
The turn to Europe is the latest phase in China's global spending spree. The country has plowed countless billions of dollars into resource-rich countries in Africa and Latin America over the past decade to meet its insatiable demand for raw materials, sealing long-term partnerships in oil and gas and in iron ore, copper and other strategic metals. As China's middle class grows and its workers demand higher living standards, Beijing is under pressure to make the transition from basic industries like manufacturing and infrastructure to the higher-end products and services pioneered by the Western world. That has made German companies like heavy-duty-machine maker Schiess, which excels in engineering, and design-savvy Scandinavian firms like Saab increasingly attractive buys. As China shifts "away from emerging countries and other Asian countries," Parello-Plesner says, "investment in Europe will rise drastically."