Relationship with southern neighbor China is key to Mongolia’s development potential as link between Asia and Europe.
A visit to China by Mongolia’s foreign minister late last month marked a significant and positive shift in the relations between the two countries and facilitated the implementation of an economic bailout package that Mongolia badly needs.
On Feb 20, just as Mongolian Foreign Minister Tsend Munkh-Orgil visited Beijing, China joined an international consortium to provide Mongolia with a series of loans to ensure the country has enough cash on hand to cover payments on some so-called Chinggis Bonds that are coming due this month.
China’s part of the package included a commitment to extending a currency swap line worth 15 billion yuan ($2.18 billion).
Mongolia had angered China in November by allowing a visit by the 14th Dalai Lama, who has pushed for separating Tibet from China.
In January, during a phone call between Chinese Foreign Minister Wang Yi and Munkh-Orgil, Mongolia said it had reflected deeply on the visit and promised to not allow the Dalai Lama to visit again.
On Feb 20, Wang said the bilateral relationship “is ready for another start”.
Just five years ago, Mongolia was the fastest growing economy in the world with GDP expanding by more than 17 percent. In 2016, the country barely avoided a contraction, and only managed growth of about 1 percent thanks to a resurgence in coal prices toward the end of the year.
“The economy (of Mongolia) has been slowing in addition to the softening of commodity prices, but in terms of the near-term outlook I would say it is positive,” said Akiko Terada-Hagiwara, a senior economist in the East Asia department of the Asian Development Bank.
Long reliant on its plentiful natural resources, Mongolia has other needs, not the least of which is infrastructure to facilitate further growth.
“In terms of infrastructure, the country needs to build a lot. Electricity demand is high … but they will need to shift to clean energy,” said Terada-Hagiwara. “In terms of growth, probably more infrastructure is needed around the mining areas, including transportation and water supply.”
And both the investment and markets that Mongolia needs are in China. Mongolia depends on China for much more than just quick cash to stave off a default.
The country is likely to benefit from infrastructure projects associated with the Belt and Road Initiative, a China-led drive to improve connectivity along the historical Silk Road trading routes.
A landlocked country of 3.1 million people, Mongolia has just two neighbors, China and Russia. Without access to ports, Mongolian coal has to be transported overland.
The country has been working with a number of international companies, including large Chinese enterprises, to develop mega projects but it has yet to overcome a bottleneck caused by a lack of railway capacity.
That is why Mongolia could emerge as one of the biggest beneficiaries of the Belt and Road and become a pivotal link between Asia and Europe. One leg of a proposed Eurasian rail link would travel through Mongolia.
Little of this is likely to happen, however, without support from China.
Mongolia’s neighbor has long been the largest export market for its goods, including coal, milk, copper, gold, cashmere and leather. By the end of 2016, China bought some 80 percent of Mongolia’s exports. At the same time, China provided about a third of Mongolia’s own imports.
This year, the development of the Oyu Tolgoi gold and copper mine, which has long been delayed, is coming online and is expected to be a big driver of economic growth and should help keep the economy in positive territory.
The Oyu Tolgoi mine is operated by multinational mining giant Rio Tinto which started construction of the mine in 2010 but production was stopped in 2013 after a disagreement over costs and revenue sharing between the company and the Mongolian government. Shipments started again in 2015.
Copper and gold are two of Mongolia’s many plentiful natural resources.
However, the country may be most famous for its coal deposits. Most coal mined in Mongolia goes to China.
“Coal has to be exported to China but currently most of it is done by truck. If they had trains going to China that would be more efficient but currently they don’t,” said Terada-Hagiwara.
Most coal moves out of Mongolia’s giant mines such as Tavan Tolgoi in large trucks that, on good days, flow relentlessly into China through border crossings along the Inner Mongolia autonomous region.
There are occasionally hiccups — the flow was temporarily stopped in December when some border townships such as Urad Middle Banner raised fees to cross into China.
It is only when it reaches the other side of the Chinese border that the coal can finally be loaded into trains and distributed throughout the country.
For China, having access to high quality coal from nearby Mongolia is a boon.
Thomas Hugger, founder and CEO of Asia Frontier Capital, a fund that invests in Mongolia and Mongolia-focused companies, noted that China has to source other commodities from around the world, while for coal “they have some of the best resources at their doorstep”.
The timing may also be good for Mongolia, said Hugger, because “China just announced that it will stop importing coal from North Korea, and that is huge for Mongolia”.
China has been keen to work with Mongolia to develop projects that give it access to coal, often at prices below the global market price.
In December, the Mongolian government met with representatives of Shenhua Coal, a major Chinese State-owned enterprise, which is considering taking over the development of the giant Tavan Tolgoi mine from Mongolian government-owned Erdenes Tavan Tolgoi.
The one outstanding issue is a $350 million loan that Erdenes owes to another Chinese company, Chalco.
Mongolia’s Prime Minister Jargaltulga Erdenebat is likely to attend the Belt and Road Forum for International Cooperation in China, which will take place in May.
Mongolia is also looking to boost ties with Russia. The two countries signed a cooperation agreement in February during a visit by the Mongolian foreign minister.
The tripartite program to establish the Mongolia-Russia-China Economic Corridor is also being discussed. The idea for an economic corridor between the three countries was first floated in 2015 and cemented in June 2016 during the 16th Summit of State Heads of the Shanghai Cooperation Organization, of which all three countries are members.
The corridor fits in well with the Belt and Road strategy, which was initiated by President Xi Jinping in 2013.
“I am happy with the way our trilateral ties are developing,” said Xi in June 2016. “Our three countries’ ministries, local authorities and companies are working actively to implement this road map, and are organizing intensive coordination of projects in trade, the economy, humanitarian ties, transit traffic, tourism and sports.”
Source: www.chinadailyasia.com

Published Date:2017-03-08