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.