Then in the 17th century Mongolia was conquered by the Manchu-led Qing dynasty.
Both have gone their own way for the past hundred years, but the history lesson is worth remembering, because Mongolia’s mining development today is dependent on its giant, resources-hungry neighbour.
As a result, the China-Mongolia dynamic plays a big role in shaping foreign investment policy – like the foreign investment law that was passed earlier this year in response to Chalco’s attempt to buy a majority stake in a Gobi desert coal mine.
Even though Chalco has since walked away from that deal, China already plays a dominant role in the Monoglian mining sector, according to a recent report by analyst Gavin Bowring at consultancy Gavekal:
Chinese companies have secured an effective stranglehold over Mongolia’s resources; they control up to 70% of resource assets, having bought mining and exploration licences (about 4,000 in total) from politicians and well-connected business groups.
Although most projects are small scale they constitute the bulk of current mining activity. As the biggest customer for Mongolian production, Chinese entities have used their control over rail, road and storage linkages to ensure they pay low price. In this face-off between Ulan Bator and Beijing the reality is that China Inc has most bases covered.
The result of this dynamic is a slow rise in resources nationalism among Mongolian voters, with several nationalistic parliamentarians selected in the June elections. According to Bowring this doesn’t bode well for foreign investors, Chinese or not:
The focus of populist anger has been China’s tightening control over Mongolia’s economy and claims that politicians sold the country’s commodity birthright too cheaply. The challenge facing Mongolia’s new government is to rebalance its relationship with foreign investors—in particular Chinese firms—without killing the proverbial golden goose.
It won’t be an easy balancing act.Financial Times
- Mongolia’s Coal Riches Causing Diplomatic Nightmare with Russia, China (chinadailymail.com)
- SouthGobi Resources fires CEO after Chalco drops bid (business.financialpost.com)
- Governance and corruption in Mongolia: mixed messages (eastasiaforum.org)