The group of five countries in Northern Europe—Denmark, Finland, Iceland, Norway and Sweden—often referred to as the Nordic countries or Nordic-5, have lately been in the news for two reasons. First, Prime Minister Narendra Modi, during his three-day visit to Europe in May, held bilateral engagements with the Nordic-5 and also participated in the second India-Nordic Summit. Second, two of its members, Sweden and Finland have, in the shadow of a looming Russian threat, begun the process of joining the North Atlantic Treaty Organization, or NATO, thereby fundamentally altering the security architecture of the region.
There is a third, often less explored factor of how geopolitics and geo-economics have been intersecting in the Nordics, and it refers to their relations with Xi Jinping’s China.
When China was a country that preferred to be loved, perhaps its most sustainable outreach in Europe was to the Nordics. Ever since China started preferring to be feared, its snug relations with the Nordics started undergoing a transformation. Exacerbated by Beijing’s poor human rights record, crackdown on Hong Kong protests, global wolf warrior-ism, conspicuous engagement and development of dual-use technology in the Arctic and finally the Covid-19 pandemic, the China-Nordic bonhomie has turned sour. Now, the region collectively lists China as a systemic rival, second only to Russia. As a result, the Nordic countries are strengthening their ties to the Western bloc. It is also in this context that India’s outreach to the Nordics, although a tad late, is more well-timed and well-oiled than ever before.
Is there a common Nordic dimension towards China?
Although grouped together culturally and geographically, it would be rather fallacious to assume that the five countries have identical foreign policy goals, common national interest pathways or until recently, even identical international affiliations.
Despite similarities, China’s relationship with the five Nordic nations has followed markedly different trajectories. Economic dimension has been the main driver of Nordic-China cooperation. High-income Nordic economies with considerable resources in technology and human capital have benefited from importing consumer goods produced in China.
Until a few years ago, the Nordic countries seemed to be eagerly pushing for closer ties with China. The engagements focused on expanding bilateral relations that ranged from frequently held high-level meetings, signing of Memorandums of Understanding (MoUs) and even outmanoeuvring each other to attract more Chinese investments. China-led initiatives by the Asian Infrastructure Investment Bank (AIIB) were received positively. In 2013 when Russia brought China with its deep pockets as an observer in the Arctic council, it was welcomed by the Nordics.
Beginning of disenchantment
These favourable perceptions, however, could not stand the test of time. Disenchantment with China became pronounced since 2019, owing to factors like the Huawei controversy, Hong Kong protests and China’s treatment of the Uighur minority. These developments forced the Nordics to revisit their China policy. In early 2019, the EU Commission in its China strategy paper called it a “systemic rival”, a stand that was soon adopted by both Finland and Denmark. In January 2020, much to China’s dismay, a ‘pillar of shame sculpture’ was erected in front of the Danish parliament in solidarity with Hong Kong. By 2021, the relationship between Denmark and China had soured further as China imposed sanctions against the Copenhagen-based NGO, Alliance of Democracies.
Coming to Sweden, the deteriorating ties could be traced to the Gui Minhai case and the Huawei ban, which has been met by Beijing’s diffident ‘shotgun’ diplomacy, in turn taking a heavy toll on bilateral relations.
Finland has been actively criticising China’s dubious intelligence activities. Last year, in a critical report by the Finnish State security service, China was unambiguously called out as a potential threat to Finland’s critical infrastructure.
Wary of the Asian power’s influence on operations, the Nordic region has almost completely rejected China’s Confucius Institutes over suspicions regarding Beijing’s propaganda machinery. In June 2022, the University of Helsinki in Finland joined the universities in Sweden and Denmark that chose to close their Confucius Institutes.
Unlike other Nordic countries where relations remained steady until 2018, Norway saw its hitherto warm relations with Beijing plummet to sub-zero temperatures when the 2010 Nobel Peace Prize was given to imprisoned human rights activist Liu Xiaobo. Although ties were restored in 2016 and economic investments from China followed, the Norwegian government’s reports in successive years have been tougher on China.
Why the China-Nordic split is likely to deepen
The Nordic political worldview upholds a rules-based world order that can safeguard its interests through open institutions, ideally underpinned by liberal norms. Obviously then, it is a mutually exclusive position with respect to the global ambitions of China. Apart from this rather fundamental divide, three underlying factors show that geo-economics alone will not suffice in sustaining the China-Nordic equation.
The first driver is the confrontational China policy adopted by the US in 2018, which has re-established its position as the key security provider and partner of Nordic countries. Following the US’ securitisation campaign against Huawei—which exerted mounting pressure on European allies and partners to stop using Huawei’s equipment—Nordic countries have squeezed the Chinese tech giant out of their digital infrastructures. Denmark was the first to openly criticise Huawei as a potential security threat in late 2018 and early 2019 on 5G and took measures that effectively barred Huawei from their digital infrastructure without imposing an outright ban. Sweden was more vocal in opposing the company and went for an outright ban.
The second driver is the hardening and assertiveness of the Chinese regime under President Xi Jinping, notably in terms of its handling of human rights issues and crackdown on dissent, which is at loggerheads with the liberal democratic values espoused by the Nordics.
The third driver is China’s support of Russia in the Ukraine war, which has resulted in a massive backlash against Beijing. Barring a few exceptions such as Hungary, China is seen as a disruptive factor, a systemic rival who cannot be trusted like its all-weather ally Russia.
This sentiment has echoed in the decision of seven Arctic Council members to suspend cooperation with Russia.
Taken together, these three drivers have created a widening structural divide between China and the Nordic countries, highlighting fundamentally different political systems and an eroding political trust that might pave way for a broader decoupling agenda.
Is decoupling possible?
Between 2018 and 2021, while China’s share of total trade increased for all five Nordic countries, it also resulted in higher trade deficits with China.
Second, China’s share of trade with the Nordic countries remains between 5–9 per cent, which indicates that the general economic exposure to China continues to be limited. The exception is Norway, where China, with its 13.1 per cent share, was the main source of Norwegian imports in 2021. Despite political differences, Norway and China are close to signing a Free Trade Agreement and have successfully negotiated a new version of the Double Taxation Avoidance Agreement.
China is also a major source of foreign direct investment, especially in Finland, where Chinese investment has reached 5.7 per cent of GDP (2020) and is now the third largest source of FDI.
Despite positive economic indicators, China has used punitive economic methods against some Nordic governments and other actors to attain political goals. Subsequently, the Nordic governments have also become wary of Chinese investments, thereby introducing new investment screening mechanisms (Denmark did so in 2021; Sweden’s will take effect in 2023) or amending existing laws (Finland in 2020, Norway in 2022) to allow local authorities to filter foreign investments through a national security lens and also bringing national laws in line with new EU regulations. China’s Nordic dream is not without its distinct glitches.
India’s Nordic outreach
India’s Nordic Outreach has developed almost simultaneously with its deepening Arctic engagement. The Nordic region looks upon India as a balancer to China’s presence and backs India’s bid for a permanent Security Council seat at the United Nations (UN). India enjoys positive relations with the Western bloc as well as with Russia. However, Russia’s weakening legitimacy and stature in the region is likely to lead India to recalibrate its bilateral and multilateral engagement with the region and venture into innovative cooperation on blue economies, ocean governance and green technologies.
India’s current status as the world’s fifth largest economy is not commensurate with its current bilateral trade with the Nordic countries at merely $13 billion, which also seems insignificant compared to China-Nordic bilateral trade at $70 billion. However, the systemic factors limiting China-Nordic ties present an opportunity for India and the Nordic-5 to expand mutual cooperation based on sustainable trade practices and trusted connections.
The writer is an Associate Fellow, Europe and Eurasia Center, at the Manohar Parrikar Institute of Defence Studies and Analyses. She tweets @swasrao. Views are personal.
(Edited by Zoya Bhatti)