By Terrence Edwards | TSOGTTSETSII, MONGOLIA
A few miles from Mongolia's giant Tavan Tolgoi mine, about 2,000 trucks a day set off across the Gobi desert, delivering coal to China on a road so narrow and ridden with pot holes it has become an accident black spot.

Nearby stand the foundations of a railway meant to connect Tavan Tolgoi to China to the south. The unfinished line would enable cash-strapped, landlocked Mongolia to sell more coal at higher prices to its biggest customer, which could also finance the project.

But despite the obvious economic benefits, the project has become a casualty of the ambivalence Mongolians feel about China's growing influence.

Those feelings loom large over a Mongolian presidential election on Monday.

"It's been left here for two years without any work," said the governor of Tsogttsetsii district, Orgodol Badarch, pointing to a gravel surface where the rails should have been laid, stretching into the distance for more than 200 km (124 miles).

"I'm not sure, but it may have to be rebuilt completely."

Voters will choose between an investment-friendly candidate and a populist "resource nationalist" rival in an election that is a referendum on both economic policy and China's role.

China's share of Mongolia's foreign trade was 68.5 percent from January to May this year, up from 1.5 percent in 1989. China took 90.5 percent of Mongolia's exports from January to May.

China wants Mongolia's coal and copper, and has the cash to build the infrastructure to get it - if Mongolia allows it.

Julian Dierkes, specialist in Mongolian politics at the University of British Columbia, said there was a lot of nationalist language in the party manifestos.

"Most of this must be thinking of Mongolia as united, but also, in part, united against China, even if that is not explicit," he said.

Miyeegombo Enkhbold, standing for the ruling Mongolian People's Party (MPP), is "open to foreign investment from all countries, that of course includes investment from China", a party official told Reuters.

"The reality for today is we have the supply, China has the demand," he said, while adding that Mongolia had to diversify and "reduce inappropriate dependence" on one country.

Enkhbold's main challenger, from the Democratic Party, is a former martial arts star, Khaltmaa Battulga, who has voiced suspicion about China's aims in a country that was under Chinese domination for centuries, until it gained independence in 1921.

Battulga said in an emailed statement on Thursday that China "is and must be a great partner of ours", but added that "rail and transportation for any country is both a national security and an economic issue".

"The resources will finish in 40 to 50 years and there will definitely be conflict between the Mongolians and the Chinese," Battulga said in a 2014 television interview.

Polling is not permitted during election campaigning, but in a March survey, 24.3 percent said the MPP could best solve problems compared with 10.6 percent for the Democratic Party.

POLITICS OF RAIL

Mongolia's economy has more than doubled in size since 2010, but some regions have seen little benefit and lack running water and reliable electricity.

While growing trade has brought jobs to Tsogttsetsii, poor transport means Mongolian coal is sold at a discount. Deliveries to China earned $66 a ton in April, half the price of shipments from Australia.

The railway track from Tsogttsetsii was meant to have been laid in 2014, but financing dried up. A tentative 2015 pact with China's Shenhua Group and Japan's Sumitomo Corp (8053.T) to develop the mine and the railway was blocked by parliament.

Battulga, transport minister from 2008 to 2012, had favored the wider Russian tracks, arguing that the international standard would leave Mongolia dependent on China. He recently said he'd go along with whatever parliament decided.

A century ago, Chinese warlords used railways to help colonize Inner Mongolia, and some Mongolian nationalists argue a cross-border link could help facilitate a Chinese invasion.

Though driven by Chinese demand, and by a billion-dollar deal to develop the Oyu Tolgoi copper-gold deposit now run by Rio Tinto (RIO.AX)(RIO.L), Mongolia's 2011-2013 mining boom encouraged politicians to think about ways to minimize dependence on China, and they drew up plans for rail links to the Russian Far East.

Parliamentarians also passed legislation blocking investment by foreign state-owned firms, aimed at blocking plans by the China Aluminium Corporation (2600.HK)(601600.SS) to acquire the Mongolia-based SouthGobi Resources (SGQ.TO).

But Mongolia can't be choosy. The government has been forced to implement austerity measures to secure a $5.5 billion bailout from the International Monetary Fund in May.

Ultimately, economic growth may hold more allure for voters than nationalism, said Sumati Luvsanvandev, head of the Sant Maral Foundation polling group.

"Anti-China sentiment cannot bring support to Battulga. They are interested in economic prosperity," he said of voters.

"They may be suspicious, but they're also quite pragmatic."

(Additional reporting and writing by David Stanway in SHANGHAI; Editing by Tony Munroe, Robert Birsel)

Published Date:2017-06-25