China and Iceland sign free trade agreement

BEIJING (AP) - Iceland became the first European nation to have a free trade deal with China on Monday in an agreement that is also an important development in China's drive to expand its influence in the Arctic.

The signing between Iceland and China should boost exports from the isolated Nordic state to the world's second-largest economy. It comes 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 that was badly mauled by the bursting of a massive financial bubble in 2008.

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.

A final decision on China's bid is due next month, and it has received strong support amid the prospects of heavy Chinese investment in the region's mining industries as advertised by its proposal to sink US$2.3 billion (S$2.8 billion) into Greenland to secure 15 million tonnes of iron ore per year.

Shipping via the Arctic, meanwhile, would cut about 6,400km 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 30,000km journey between Iceland and Shanghai.