China Eyes Bite of Mongolia?

As Russia and China vie for access to its minerals, Mongolia has turned to the US as a counterweight. But is its democracy safe?

For most of the last several centuries, Mongolia has been controlled by one of its two superpower neighbours. China ruled Mongolia for more than 200 years, a reign that ended only with the collapse of the Manchu empire in 1911. Just a few years later, a communist government, subservient to the Soviet Union, took over.

So when Mongolia achieved true independence in 1990 as the Soviet Union was collapsing, its new leaders were faced with a quandary, one that remains unresolved today: how best to maintain functional independence sandwiched between China and Russia.

Lately, this question has become even more urgent, as miners have started to unlock Mongolia’s vast mineral wealth. In October 2009, the Mongolian government signed a $5 billion agreement—worth as much as the country’s annual gross domestic product—with international mining companies to exploit the Oyu Tolgoi mine in the southern Gobi Desert, expected to yield a billion pounds of copper and 330,000 ounces of gold every year for at least 35 years. The country also has substantial coal and uranium reserves.

Those prospects have raised the stakes, particularly for China, which is hungry for raw materials to feed its dynamic economy. But it worries Mongolians, who fear that China has irredentist claims on its territory. As a result, Mongolia’s leaders have tried to maintain a delicate balancing act, keeping the Chinese investment they need while staving off political influence from Beijing by courting other international partners.

This is no more in evidence than in a throwback to a key element of 19th-century geopolitical competition: railroads.

The coal mine at Tavan Tolgoi, near the copper-gold Oyu Tolgoi mine in the Gobi near Mongolia’s border with China, is the biggest undeveloped mine in the world, and has drawn the interest of the world’s top mining companies. It’s expected to produce 50 million tons of coal per year when it’s developed.

That will require a new rail line to be built from the mine site to existing railroads and eventually to China, which is expected to consume all, or nearly all, of the coal from Taval Tolgoi. But the nearest existing Mongolian railway is 400 kilometres away.

So a far shorter and cheaper option would be to build a line directly south, to China, about 80 kilometres from the mine. The holding company that now owns Tavan Tolgoi, Energy Resources LLC, plans to build a private rail line along that path and has agreed to a contract with Deutsche Bahn AG, Germany’s state-owned railway, to conduct a feasibility study. Deutsche Bahn has said it plans to start running trains on the line by 2011.

But the Mongolian government has balked at the plans. It worries that connecting the mine to the Chinese rail system and not the Mongolian one would allow China too much effective control over the mine, as well as others in the same area, like Oyu Tolgoi, that are likely to use the rail line if it’s built.

Looking at a plan for the proposed rail line to China on a map, ‘it looks like China is taking a bite from Mongolia,’ says Mashbat Otgonbayar Sarlagtay, an analyst at the Institute for Strategic Studies in Ulaanbaatar.

The Mongolian government acknowledges that the route to China is cheaper than building a 400-kilometre spur east to the existing Mongolian rail network. But it says national strategic considerations trump cost. ‘The railway is very important to us. We can’t give permission to build private rail lines if it doesn’t fit into the government’s plan,’ says Dashbaljir Nemekhbayar, head of the Finance and Investment Department of the Mongolian Ministry of Roads, Transport, Construction and Urban Development. ‘Investors are looking for the biggest profit. We’re looking for different things. If they come to our country they have to work with us.’ As a result, the government ‘most likely’ will block the construction of the Energy Resources/Deutsche Bahn proposed railroad, Nemekhbayar says.

The Mongolian government’s stance has caused consternation among international lenders like the World Bank and the Asian Development Bank, who are considering investing in that route. The banks argue that the eastward route, to the Mongolian network, would triple transportation costs from the mines to China. In addition to being a longer journey, such a route would require changing trains because the Mongolian network is on the same wide gauge as the Russian and former Soviet lines, while China uses the standard, narrower gauge.

‘The only way that makes sense is the narrow-gauge railway straight down to China,’ says Adrian Ruthenberg, the Mongolia country director for the Asian Development Bank. ‘It’s a no brainer. It’s what every expert suggests.’

However, it’s not only Mongolians who’d rather the railroad didn’t go directly to China. Russia, as a legacy of the Cold War, controls 50 percent of the state rail company, Ulaanbaatar Railway. And it wants to build that 400-kilometre line from Tavan Tolgoi to the Mongolian network, which would allow the coal to be transported to Russia.

It’s also widely believed that Russia is blackmailing Mongolia by threatening to block the construction of the eastward route if the southern one is built first. Russia has significant leverage: it’s putting up the funding for the eastern route, and still maintains strong ties to the Mongolian government.

‘Russia has lots of control, Mongolia can’t make decisions by itself on the railroad,’ says Nemekhbayar. ‘Strategically, geopolitically, Russia will block the narrow-gauge railway from being built in Mongolia. …Politically they can do it somehow. We have only two neighbours.’

Even the international backers of the Chinese route acknowledge the potential problem. ‘A section of Mongolian society thinks that if they build the southern connection, then Russia won’t build the eastern one. And there may be some truth to that,’ Ruthenberg says.

China favours the southern route, naturally, but Nemekhbayar says they don’t have the means to block the eastern route. ‘Russia already is in Mongolia,’ he said. ‘The Chinese are not in Mongolia.’

So, caught between China and Russia, Mongolia has also sought to create a military bulwark by increasing its military ties with the United States and other western countries. In the 1990s, it tried to take part in UN peacekeeping missions, but the United Nations deemed Mongolia’s armed forces unsuitable for deployment, Mashbat says. The United States, however, eager to recruit as many countries as possible for its ‘coalition of the willing’ against Iraq, accepted Mongolia’s forces despite their faults, he says. A contingent of about 150 Mongolian soldiers carried out perimeter security operations at Camp Echo in southern Iraq—the country’s first combat action since World War II—until Mongolia ended the deployment in 2008. (It has since sent a contingent of troops to Afghanistan.)

Mongolia’s participation earned it some financial reward from the United States, including a $285 million aid package through the Millennium Challenge Corporation and the establishment of annual joint peacekeeping exercises, called Khaan Quest.

‘This [peacekeeping exercise] is one of the gains we got from Iraq,’ Mashbat says. US military cooperation with Mongolia also includes an initiative unique to Mongolia in which a small group of US Marines ‘embeds’ with Mongolian forces full time to help train them in western military methods. In addition, Mongolia has achieved its goal of taking part in UN peacekeeping operations, with a contingent of about 250 soldiers in Sierra Leone since 2006.

Russia, concerned about US influence anywhere on its periphery, has pushed back against Washington’s moves. It has started its own series of military exercises, under the Darkhan rubric, and has pledged $7 million in military aid (though while Russia and Mongolia officially say the exercises are devoted to peacekeeping, Mongolian defence officials privately say they are more modest, focusing on how to fix aging Russian equipment that the Mongolian military uses).

Moscow also has attempted to stymie US influence over Mongolia’s railroads. The United States had agreed to give $285 million to renovate Mongolia’s existing railroad (a project unrelated to the coal mine railway), but one of the conditions for the aid was an external audit of Ulaanbaatar Railway, a condition the Russian side blocked, forcing the Mongolian government to come up with replacement projects on which to use the funding.

So far, Mongolia’s delicate balancing act has worked. Mongolia can look optimistically westwards toward Kazakhstan, a country whose doctrine of a ‘multi-vectored’ foreign policy is similar to Mongolia’s ‘third neighbour’ concept and which has used natural resource wealth to dramatically improve its economy since independence.

Mongolia has so far resisted the political example of its neighbours, and is rated as ‘Free’ in Freedom House’s annual index. And while incomes are still low, they are growing—and as more mining projects come online, they are bound to grow more.

But even as incomes grow, so will pressures from outside. It’s still unclear whether Mongolia’s independent democracy will be able to stay that way.

By Joshua Kucera for www.the-diplomat.com

Source:http://the-diplomat.com/2010/03/19/china-eyeing-a-bite-of-mongolia/