At an irregular meeting today on January 6, the Cabinet approved the strategy and structure of the Ministry of Economy and Development and the Ministry of Digital Development and Communications, which will soon be established.

The Ministry of Economy and Development will consist of seven departments and eight divisions in charge of matters, including policy planning for development, region and industry, development financing, development research and analysis, trade and economic cooperation with 80 job positions.

The Ministry of Digital Development and Communications will consist of six departments and eight divisions in charge of matters such as implementation of digital development policy, communications policy, and cyber safety policy with 87 job positions.

During the meeting, the Communications and Information Technology Authority of Mongolia (CITA) and the National Development Agency have been dissolved.

Jan. 6 (Xinhua) -- Mongolia's foreign trade turnover increased to 16.2 billion U.S. dollars in 2021, up 25 percent from the previous year, data released by the Mongolian Customs General Administration showed Thursday.

The country registered a foreign trade surplus of 2.4 billion dollars, said the administration.

Mining products accounted for 81.3 percent of the mineral-rich country's total exports in 2021, it said.

Chinese President Xi Jinping’s colossal infrastructure project - Belt and Road Initiative (BRI) -plans to create a vast network of roadways, railways, oil and gas pipelines, and streamlined border crossings stretched from East Asia to Europe. Although Xi launched BRI in 2013, it has been devised on decades of experience to expand China’s global strategic footprint. Within BRI, China-Mongolia-Russia Economic Corridor (CMREC hereafter) is the shortest land corridor between Mongolia and its neighbours that opens up alternative transit routes to facilitate trade and investment in the Eurasian region. Moreover, CMREC involves China, Mongolia, and Russia, all of whom have comprehensive strategic partnerships with each other.

On 11th September 2014, Xi proposed a trilateral regional initiative to link China’s BRI, Mongolia’s Development Road Initiative (referred to as Steppe Road), and Russia’s Trans-Eurasian Railway Network. As a buffer state between China and Russia, Mongolia’s geostrategic location is crucial for linking the BRI, Steppe Road, and Trans-Eurasian Railway network to provide economically viable export routes for three countries – for Chinese manufactured items; for Russian oil and gas; and for Mongolian natural resources such as coal, iron, silver, copper, crude oil, and gold. On 23rd June 2016, China, Mongolia, and Russia signed a tripartite agreement in Tashkent to build CMREC projects, which aim to improve transport connectivity through road, rail, and port construction; and cooperation in trade, investment, energy, agribusiness, communication technology, environment and ecological protection.[i]

The paper tries to assess the transport and connectivity aspect of the CMREC, in particular the section of Tianjin-Ulaanbaatar-UlanUde Central Route that passes through Mongolia, its current status and its geopolitical dimensions.

The Tianjin-Ulaanbaatar-UlanUde Central Route (Central Route hereafter) has a single-track railway freight corridor as well as an international roadway between China, Mongolia, and Russia. This single-track railway freight corridor was built by the Soviet Union that has been in use for many decades. In 2018, China completed the construction of the international roadway for transit trucking service along the central route. The Central Route connects UlanUde (Eastern Siberian City) and Ulaanbaatar (Mongolian Capital) to the Tianjin port via Erenhot (a Chinese border town in Inner Mongolia). Mongolia has been over-dependent on this Central Route to import and export to China.[ii]

While Mongolia allowed China to construct roadways along the Central Route, the up-gradation of the single-track railway freight corridor into a double-track electrified railway freight corridor did not happen due to geopolitical competition between China and Russia.[iii] China has adequate capital and finance to upgrade this single-track railway freight corridor. But, the ground reality indicates that all Chinese railroad projects are only on paper in Mongolia, awaiting implementation.[iv] For better access to China’s vast market, technology, labour, and infrastructure, there have been constant demands by some groups of Mongolian people to allow the narrower Chinese track gauge (1435 mm) in Mongolia. Russia does not allow the change in railroad standards as it is a matter of geopolitical influence, considering that any infrastructure development project has always had the dual-use potential for civil-military purposes.[v]

Russia was critical of Chinese investments in Mongolia for many years. Ultimately, a tripartite consensus has been reached to upgrade the Tianjin-Ulaanbaatar-UlanUde Central Route into a double-track electrified railway line by 2030. However, the precondition is to use the Russian locomotives in the up-gradation process, which will be bought on the additional loans from the Russian Banks. A few years back, the Mongolian Parliament approved building two Chinese railroad projects with narrower track gauge standard (1435 mm) from the Tavan Tolgoi coal mine and Khuut coal mine to the Erenhot border port. In 2020, however, the Supreme Court of Mongolia overturned the decision regarding narrowing the gauge for the railroads; therefore, Mongolia remains strictly committed to a 1520 mm broader track gauge favouring the existing Russian-Mongolian rail system. In other words, the traditional Russian-Mongolian military and technical ties check and balance the Chinese geostrategic influence in the CMREC freight corridor projects in general.[vi]

It is worth mentioning that Mongolia’s trade route with the world passes through the Erenhot port (a Chinese port in Inner Mongolia) that has been transformed into an important rail freight hub. At Erenhot port, China has built massive infrastructure and railroad facilities to increase the passing capacity and total cargo volume annually. With 8000 freight trains this year, Erenhot port became a significant transportation channel that carries cargo up to Malaszewicze in Poland. The Erenhot port now serves 53 China-Europe freight trains to deliver goods in ten European countries.[vii] Already, 1497 freight trains passed through the port with 10.2 million tonnes of cargo until July 2021.[viii] But the problem lies on the Mongolian side of the international border due to the incompatibility between the Russian-Mongolian rail track gauge (1520 mm) and the Chinese rail track gauge standard (1435 mm). It takes a longer time in overall border transit because of the required change in bogies of the freight trains.[ix] Beyond the Tianjin-Ulaanbaatar-UlanUde Central Route Railroad Corridor, there are ideas on paper about Tavan Tolgoi Railroad Project that seeks to link Mongolia’s Tavan Tolgoi Coal Mine to the Erenhot port. There is hardly any progress in implementation that has been made so far. The non-upgradation of the Central Route Railway Freight Corridor limited Mongolia’s regional trade and impacted its economic development to its full potential.

Economically, Mongolia has been trying to integrate with other regional economies. Within the first ten months in 2021, Mongolia’s foreign trade with 151 countries was around a total trade volume of USD 13.2 billion. During the same period, Mongolia exported 86 per cent of its total exports to China, while the total imports were 39.7 per cent from China.[x] In 2017, when Mongolia signed the USD 5.5 billion bailouts by the International Monetary Fund (IMF), the Chinese debt of USD 2.743 billion was approximately 10 per cent of its external debt of USD 27.43 billion. In 2020, however, Mongolia’s nominal external debt of USD 28.91 billion was around 220 per cent of its total GDP of USD 13.14 billion.[xi] The rapidly increasing Chinese debt resulted in Mongolia’s reluctance to sign any major investment deal with China. In addition, Mongolia’s quest to diversify its trade and investment portfolio can be driven towards reducing its overdependence on the Chinese economy in the long run. In this backdrop, Mongolia did not permit three Chinese banks (Industrial and Commercial Bank of China, Export-Import Bank of China, Bank of China) to operate and finance the infrastructure projects in Mongolia.[xii]

To make sense of contemporary Mongolian policy-making, one needs to briefly look at the Mongolia-Russia relations too. Mongolia was never a part of the erstwhile Soviet Union. In the 1940s-50s, the joint construction of the Trans-Mongolian Railroad Network (2200 kilometres long) was done by the Soviet Union and Mongolia. Since then, Russia inherited 50 per cent ownership in Trans-Mongolian Railroad Network. Now, any railroad track up-gradation project requires Russia’s prior involvement or approval. Russia’s military and technical ties make Mongolia a geostrategic buffer state to safeguard the security interests of its Far Eastern region. After adopting the 1992 Constitution, Mongolia institutionalised its military neutrality considering the security interests of Russia and China. However, in reality, Russia’s traditional military and technical ties with Mongolia are stronger than Mongolia’s present relations with China.[xiii]

To sum up, Mongolia looks to Russia as a security provider traditionally while now considering China as an economic opportunity with caution to avoid its debt-trap diplomacy and increasing trade deficit in China’s favour. Russia’s debt cancellation, free visa regime, and vaccine diplomacy won the heart and minds of Mongolians. But, Russia finds itself in a tight spot to match China’s increasing economic footprint in Mongolia, a common concern for both Russia and Mongolia.[xiv] Recently, Mongolia welcomed the construction of Central Route Roadways by China as well as the improved fuel supplies and haulage services along the Central Route. However, the main challenges, such as Mongolia’s landlocked location as a geostrategic buffer state, low financing, and rail gauge incompatibility between Russian and Chinese standards in Mongolia, have been the main reasons behind the delayed implementation of the CMREC projects. Given the traditional Sino-Russian strategic competition in Mongolia, perhaps short and mid-term investments from India, Japan, South Korea, European Union, and others could help develop Mongolia as a pivotal transit and logistic hub for the Eurasian region.[xv]

By: Dr. Sudeep Kumar, Research Fellow, Indian Council of World Affairs, New Delhi.

China has faced criticism for its lending practices to poorer countries, accused of leaving them struggling to repay debts and therefore vulnerable to pressure from Beijing.

But that is rejected by China, which accuses some in the West of promoting this narrative to tarnish its image.

It says: "There is not a single country that has fallen into [a] so-called 'debt trap' as a result of borrowing from China."

Its loans to lower and middle-income countries have tripled over the past decade, reaching $170bn (£125bn) by the end of 2020.

However, China's overall lending commitments are likely to be significantly greater than these figures suggest.

Research by AidData, an international development body at William & Mary University in the US, finds that half of China's lending to developing countries is not reported in official debt statistics.

It is often kept off government balance sheets, directed to state-owned companies and banks, joint ventures or private institutions, rather than directly from government to government.

There are now more than 40 low and middle-income countries, according to AidData, whose debt exposure to Chinese lenders is more than 10% of the size of their annual economic output (GDP) as a result of this "hidden debt".

Djibouti, Laos, Zambia and Kyrgyzstan have debts to China equivalent to at least 20% of their annual GDP.

Much of the debt owed to China relates to large infrastructure projects like roads, railways and ports, and also to the mining and energy industry, under President Xi Jinping's Belt and Road Initiative.

What are 'debt traps' and what's the evidence for them?

In an interview with the BBC, Richard Moore, the head of Britain's foreign intelligence agency MI6, said China uses what he called "debt traps" to gain leverage over other countries.

Warning about China's 'debt traps'

The claim is that China lends money to other countries, which end up having to cede control of key assets if they can't meet their debt repayments - an accusation that's been long denied by Beijing.

One example often cited by critics of China is Sri Lanka, which years ago embarked on a massive port project in Hambantota with Chinese investment.

But the billion dollar project using loans and contractors from China became mired in controversy, and struggled to prove viable, leaving Sri Lanka saddled with growing debts.

Finally, in 2017, Sri Lanka agreed to give state-owned China Merchants a controlling 70% stake in the port on a 99-year lease in return for further Chinese investment.

Analysis of the port project by UK-based think tank Chatham House has questioned whether the "debt trap" narrative strictly applies, given that the deal was driven by local political motivations, and that China never took formal ownership of the port.

It points out that a large proportion of Sri Lanka's overall debt was owed to non-Chinese lenders, and that there's no that evidence China has taken advantage of its position to gain strategic military advantage from the port.

Despite that, there's little doubt China's economic involvement in Sri Lanka has grown in the past decade, and concerns persist that this could be used to advance its political ambitions in the region.

There are other parts of the world where Chinese lending has also proved controversial, with contracts whose terms could give China leverage over important assets.

China: Loan shark or big spender?

But there are no cases, among the hundreds of loan arrangements studied by AidData and some other researchers, of Chinese state-owned lenders actually seizing a major asset in the event of a loan default.

How does China's lending compare with others?

China does not publish records of its foreign loans, and the majority of its contracts contain non-disclosure clauses which prevent borrowers from revealing their contents.

It argues that such confidentiality is common practice for international loan contracts.

"Confidentiality agreements are very common in international commercial loans", says Professor Lee Jones at Queen Mary University of London.

"And much of China's development financing is fundamentally a commercial operation."

Most of the major industrialised nations share information about their lending activities through membership of what's known as the Paris Club.

China has chosen not to join this grouping, but using available World Bank data, the rapid growth in China's reported lending compared to others can be clearly observed.

China tends to lend at higher rates of interest than western governments.

At around 4%, these loans are close to commercial market rates and about four times that of a typical loan from the World Bank or an individual country such as France or Germany.

The required repayment period for a Chinese loan is also generally shorter - less than 10 years, compared to around 28 years for other lenders' concessional loans to developing countries.

Chinese state-owned lenders also typically require borrowers to maintain a minimum cash balance in an offshore account to which the lender has access.

"If a borrower fails to repay its debt," says Brad Parks, Executive Director of AidData, "China can simply debit funds from [this] account without having to collect on bad debt through a judicial process."

This approach is rarely seen in loans issued by western lenders.

There's currently an initiative by G20 nations - those countries which have the largest and fastest-growing economies - to offer debt relief for poorer countries to help them deal with the impact of the pandemic.

China has joined this and says it has contributed "the highest amount of debt repayment" of any country taking part in the plan.

The World Bank says that since May 2020, a total of more than $10.3bn has been delivered in debt relief by G20 countries under this scheme.

But when we asked the World Bank for a breakdown by country, it said it could not share the information.

Earlier today (6 January), a huge fire started at the plant of Tavan Tolgoi Fuel Company that provides coal briquettes- alternative product of raw coal, to the 202,000 households in Ulaanbaatar. According to officials, the fire started at 4:00 a.m. inside dryer for charcoal briquettes during the drying process and burnt three buildings at the plant. The fire was extinguished by firefighters after four hours.

The plant said on social media that no one was injured due to the incident. The plant is located in Songinokhairkhan District of Ulaanbaatar city.

In March 2019, the Mongolian government decided to totally ban the use of raw coal. Smoke from the shantytown ger districts, where over 220,000 families live – or half the population of the capital – has long been identified as the main culprit of Ulaanbaatar’s chronic air-pollution. In the light of the ban, the government has put an alternative product on the market made from semi-coke, a by-product of coal. While more expensive, these fuel-efficient briquettes are said to burn twice as long and emit far fewer fumes.

The Ministry of Health reported that 570 new cases of COVID-19 have been reported in the past 24 hours. Specifically, 339 cases were reported in Ulaanbaatar city, with 212 cases in rural aimags and 19 imported cases.

It was also reported that two COVID-19 related death has been reported, raising the country’s death toll to 1,994. Currently, 2,843 people are receiving hospital treatment for COVID-19 whilst 5,353 people with mild symptoms of COVID-19 are being isolated at home.

As of today, the coverage of 1st dose is 69.7 percent (2,266,446) and 2nd dose – 66.5 percent (2,164,820) of the total population. Moreover, 926,184 people (28.5 percent) have received 3rd dose or a booster shot of COVID-19 vaccines nationwide.

Jan. 5 (Xinhua) -- Mongolia is planning to offer a fourth dose of COVID-19 vaccine to its citizens on a voluntary basis, Mongolian Health Minister Sereejav Enkhbold said on Wednesday.

"We are now working on a decision to administer the fourth dose," as the number of daily infections in the country is increasing again due to New Year celebrations, Enkhbold said during a press conference.

Mongolia recorded 585 new infections of COVID-19 over the past 24 hours, the highest record since Dec. 1, 2021, bringing the national tally to 392,189, according to the health ministry.

The disease has so far claimed 1,992 lives in the country after three more patients died in the past day.

So far, 66.5 percent of Mongolia's population of 3.4 million have received two COVID-19 vaccine doses, while 922,681 people aged over 18 have received a booster.

Jan. 5 (Xinhua) -- Mongolia exported 15.9 million tons of coal in 2021, down 44.3 percent from the previous year, the country's Ministry of Mining and Heavy Industry reported on Wednesday.

The sharp drop is directly related to restrictions to contain the COVID-19 pandemic, the ministry said in a statement.

Coal is Mongolia's main export commodity.

The country has planned to export at least 36 million tons of coal in 2022, according to authorities.

At its regular meeting on January 5, the Cabinet discussed the parliamentary resolution on the Khushig Valley free economic zone and decided to submit it to the parliament.

The establishment of the free economic zone will pave the way for solving social and economic issues in the development of Khushig Valley.

The development of sustainable tourism, resorts, creative and cultural industries, malls, environmentally friendly industrial zone, and an international transport and logistics center in the valley will help the country have a multi-pillar economy not dependent on mining.

150 thousand citizens will move to the satellite city to be created in Khushig Valley, which is expected to reduce Ulaanbaatar’s air and environmental pollution by 10 percent and traffic congestion by around 20 percent.