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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."

The buying blowout has already begun. China's direct investment in Europe doubled from 2009 to '10, according to the Ministry of Commerce, and is on track to rise again this year. The figures are still small, but the trend is upward. Just five years ago, China's direct investment in Europe was $1.3 billion, but in the first half of 2011, three of China's deals in Europe each exceeded that amount, according to a European Council on Foreign Relations report co-authored by Parello-Plesner. Although the lines are fuzzy, China's forays into Europe include investments by its government and sovereign wealth funds, deals with rich Chinese private investors, and Chinese corporations buying up European firms.

Beijing's official splash-outs on euro-zone debt have gained the most attention. Last year, the government purchased $500 million in Spanish debt and pledged to buy more from Italy and Greece as a way to prop up the euro and debt-ridden European consumers, the biggest buyers of Chinese exports. It has also been on a mission to diversify its foreign-exchange reserves away from U.S. dollars. Thanks to a steady stream of euro purchases over the past several years, China now holds an estimated one-quarter of its assets in euros. But as the euro-zone crisis has worsened, Chinese officials have backed away from their euro-buying frenzy. "There's a perception in China on the official level and among companies that there is a big sign flashing over Europe which says RISK, RISK, RISK," says Duncan Freeman, research fellow at the Brussels Institute of Contemporary China Studies. The Chinese government is also facing public pressure to spend more at home on restive workers squeezed by rising inflation and weak social services. When Chinese officials make statements about alleviating Europe's debt problems, the Chinese public asks, "Why should China spend its carefully saved financial resources to bail out much wealthier Europeans who have been irresponsible?" says Steven Tsang, professor of contemporary Chinese studies at Nottingham University.

As a result, Chinese buyers are homing in not so much on sovereign debt or public assets as on Europe's luxury brands and strategic industries. The car industry is a prime target as Chinese carmakers struggle to break into Western markets and shake their shoddy made-in-China image. In October, Chinese car companies Pang Da and Youngman agreed to buy the struggling Swedish automaker Saab for $140 million, and last year China's Geely Automotive bought Ford Motors' Volvo car unit for $1.5 billion.

Higher-tech and industrial buys give China a way around Europe's tight grip on tech exports. Wanhua Industrial Group bought a controlling stake in a chemical firm in Hungary for $1.6 billion, and BlueStar bought a silicon company in Norway for $2 billion. And in June, three Chinese solar-panel manufacturers raised $10 billion from two of China's state-owned banks to expand operations in Europe. In the past few months, China Investment Corp., China's sovereign wealth fund, has expressed interest in Italy's national oil company ENI and its largest power company, Enel, which could raise more than $40 billion for Italy's flailing government. "Chinese companies used to think that investing in ailing companies was the right strategy. But more and more, they realize they rather want to invest into the best companies," says André Loesekrug-Pietri, chairman and managing partner of Beijing-based private-equity fund A Capital.

China also wants a bigger stake in building out Europe's outdated infrastructure. But the offer by its sovereign wealth fund to partake in upgrading European roads, ports and other heavy-duty projects comes with a condition: that China operate the projects as a partner rather than working under European firms as a contractor. Last year, Chinese shipping giant COSCO signed a 35-year lease on the bigger of two piers in Athens' Piraeus port. Under the $5 billion deal, China overhauled the port's shipping facilities — something the cash-strapped Greek government was incapable of doing — so that now, the Chinese-run terminal can handle about 5,000 containers a day.

Such offers are hardly unattractive to E.U. governments. Despite their wariness, European officials have diligently courted Chinese business. Chinese Premier Wen Jiabao was given royal treatment during his July visit to Britain, Germany and Hungary, and Hungarian officials blocked human-rights groups from demonstrating during his trip, even though Hungary has long provided sanctuary for Tibetan exiles. For many E.U. officials, there are simply more urgent issues than human rights, namely the potential for China's mountain of cash to ease their debt burdens.

But there are big concerns about the downside of accepting China's financial help. "In the future, when the Dalai Lama comes to Europe, the European governments will think twice about making statements about China's human rights," says Nicola Casarini, research fellow at the E.U.'s Institute for Security Studies in Paris. "China will expect from Europe a so-called friendly behavior, and that means restraining from publicly accusing them."

Cozier ties could also give Chinese firms an unfair advantage in Europe's wide-open economy if, as China shops freely for European assets, many Chinese industries remain closed to foreign investors. The Chinese government's close relations with business add to the discomfort. Chinese delegations to Europe often mix government officials with executives, and the government has the power to block business deals. "Many see Chinese investment as having a political agenda, or that all investors are arms of the state," says Freeman. In exchange for offers to purchase more euro-zone debt, for instance, Chinese officials have been demanding that Europe lift the arms embargo it imposed after the 1989 Tiananmen Square massacre.

Official dealings like those are muddying the waters for private investors like Huang, who accused Icelandic officials of Cold War — era prejudice for rejecting his resort proposal after initially welcoming it. Huang, who had worked as a minister in the Chinese Central Propaganda Department and the Ministry of Construction, said Western countries were demanding that China open its markets to the West while "closing their doors to Chinese investment."

Beijing has also pressed the E.U. to approve its "free-market economy status," a technical term within the World Trade Organization (WTO) under which E.U. countries would drop their antidumping legal cases against China, the country with the largest number outstanding. The new status would make it easier for China to export goods like leather shoes and bicycles to Europe. French and Italian officials, who once fiercely opposed the idea, have softened their stance as Europe's crisis has deepened. "In the last month, the mood has really changed," Casarini says.

Whether China can win these concessions depends in part on how bad the euro crisis gets — and on whether Chinese diplomacy can allay European doubts. Tsang believes Beijing is fueling its bad image in the West by expressing little concern for Europe's crisis. "There's not enough recognition that helping the E.U. is in their common interest," he says. That attitude could intensify during the coming months as China braces for major changes with President Hu Jintao's retirement, scheduled for next year. Chinese politicians "will avoid taking any risks which backfire on individual leaders," says Tsang.

Chinese investors have their own qualms. At a Hong Kong investment summit in November, Gao Xiqing, general manager of China Investment Corp., complained about foreigners who expect China to "go and invest, leave our money there and just depart. We won't get seats on the board. We won't have any say in how a place is run. That's not how things are done." To avoid political haranguing, China has supported expanding Europe's bailout fund by working through the International Monetary Fund rather than dealing directly with European governments, a proposal backed by other emerging countries like Brazil. But European officials have balked at China's insistence on gaining greater say in the IMF as well as having its currency included in the IMF's basket currency, the Special Drawing Right.

With Europe's debt threatening to tip the world into another all-out recession, leaders of the once rich world can no longer afford excessive pride. China may be sidelined by Old World clubs like the IMF and WTO. But in one-on-one dealings, its economic largesse holds sway. Even if China's cash infusion to Europe falls through, it is sure to continue gobbling up other European treasures. For beleaguered countries like Greece and Spain, the deals out of China are looking better every day.

• Vivienne Walt
• As the euro-zone crisis deepens, China is angling for the union's most prized firms