Mongolia

Mongolia

Mongolia has complicated historical relations with its neighbours China and Russia. Although political and economic exchanges between Mongolia and China have grown over the past decades, popular anxieties about China remain.

Mongolia

Written by People's Editors.

Historical Background

Mongolia, the second-largest landlocked country in the world, has complicated historical entanglements with its only neighbours: China and Russia. Mongolia declared independence from the Qing Empire in 1911, establishing a theocratic monarchy under Bogd Khan. The People’s Revolution of 1921 ended the one-year military occupation of Mongolia by Xu Shuzheng, a general of the Anhui clique, and eventually destroyed the anticommunist White Guards in the country. This paved the way for the foundation of the Mongolian People’s Republic (MPR), a socialist regime and a satellite state of the Soviet Union. The Nationalist government of China did not recognise the MPR’s independence until the former went through protracted negotiations with the Soviet government, which were crystalised in a plebiscite held in the MPR in October 1945. Hence, the MPR obtained de jure independence from the Republic of China in January 1946, and the newly independent country established diplomatic relations with the People’s Republic of China on 16 October 1949. The two socialist regimes enjoyed a honeymoon period in the 1950s, during which they engaged in formal economic and cultural exchanges, including China’s financial aid and labour assistance for socialist construction in Mongolia. However, with growing tensions during the Sino-Soviet split, bilateral relations between Mongolia and China soured to the point that contact was effectively severed for nearly three decades.

In 1990, a group of younger Mongols dissatisfied with limited domestic reforms spearheaded a prodemocracy revolution, which forced the communist government to resign. The post-socialist transition introduced a multiparty electoral system and rapid economic privatisation. Mongolia adopted an open, non-aligned foreign policy, with the primary goal of maintaining friendly relations with both Beijing and Moscow. In 2004, the country received observer status in the Shanghai Cooperation Organisation. In 2011, the Mongolian Parliament passed the ‘third neighbour’ policy for strategic balancing, which allowed the country to cultivate good neighbourly relations with the United States, Japan, the European Union, and India, among a few others. In March 2012, Mongolia established a ‘global partnership’ with the North Atlantic Treaty Organization (NATO).

Over the past three decades, political and economic exchanges have grown between Mongolia and China. In April 1994, the two countries signed the Sino-Mongolian Treaty of Friendship and Cooperation. In 2003, on Chinese President Hu Jintao’s visit to Mongolia, the two countries announced the establishment of a partnership of good neighbourliness and mutual trust. Eight years later, during the visit of Mongolian Prime Minister Sukhbaataryn Batbold to China, the two countries announced a strategic partnership. In August 2014, Chinese President Xi Jinping visited Mongolia, during which the two sides issued a joint declaration about further upgrading bilateral relations to a comprehensive strategic partnership, with a view to enhance cooperation in mining, infrastructure, and finance. Even though the Mongolian foreign ministry quickly made concessions in response to criticism from Beijing, the Dalai Lama’s visit to Mongolia in 2016 provoked a temporary halt in the momentum of bilateral relations. In 2020, due to the implementation of a new ‘bilingual education’ model in the Inner Mongolia Autonomous Region, protests for the preservation of Mongolian language and culture erupted across both Inner Mongolia and Mongolia. Mongolian President Khaltmaagiin Battulga (in office from 2017 to 2021) has promoted traditional script in national media but has not spoken directly about these events.

Despite increased contact at the diplomatic level, popular anxieties about China remain extant. The trope of Chinese threat is occasionally amplified in nationalist political discourses. For instance, in the 2017 presidential campaign, accusing one’s opponent of having Chinese ancestry was deployed as a tactic to attract voters and distract public attention from policy issues. A level of distrust of Chinese products is also revealed in the response to the national COVID-19 vaccination campaign. In Mongolia’s multilateral diplomacy to secure vaccines, China has provided the majority of supplies so far, while Russia’s Sputnik vaccine—preferred by a certain segment of the Mongolian population—faced delays in manufacturing. To encourage the uptake of the Sinopharm vaccine, the Mongolian Government offered each citizen 50,000 MNT to complete the full course of shots.

BRI Status

Mongolia actively participates in regional connectivity, especially in the tripartite cooperation between China, Mongolia, and Russia. In 2013, the Mongolian Government proposed an upgrade of infrastructure (railways and highways) and boost of energy fluxes (oil, electricity, and natural gas) along a vector that was later named the ‘Steppe Road’. Noting the economic complementarity, the Chinese Government praised the potential of smoothly integrating its Belt and Road Initiative (BRI) with Mongolia’s proposal. In 2016, the leaders of China, Mongolia, and Russia signed an outline of the plan for constructing the China–Mongolia–Russia Economic Corridor (CMREC), with an emphasis on improving infrastructure, facilitating transportation, and increasing trilateral trade. In 2020, a tripartite working group held its first meeting to prepare for the implementation of the project.

Current Economic Relations

Trade: The contemporary Mongolian economy is highly dependent on both global commodity prices and the economic performance of its largest trading partner, China. Mineral products accounted for more than 80% of Mongolia’s total exports in 2019. Other exports include textiles, animal hide and hair, and food. According to China’s Ministry of Commerce, bilateral trade with China accounted for 64.4% of Mongolia’s foreign trade in 2019. Mongolia has also signed several bilateral and multilateral agreements since joining the World Trade Organization (WTO) in 1997. For instance, it signed an agreement with the European Union (EU) for GSP+, a special incentive arrangement for sustainable development and good governance as part of the EU’s Generalised Scheme of Preferences. In 2018, the US Congress introduced the Mongolia Third Neighbour Trade Act to authorise duty-free treatment for the import of cashmere products from Mongolia, which was later reintroduced for consideration in 2019 and 2021.

Investment: China is a major investor country in Mongolia, along with Canada, the Netherlands, Luxembourg, and Singapore. Due to a downturn in commodity prices, slowed economic growth in China, and changes to local investment law, the scale of foreign direct investment (FDI) in Mongolia dropped significantly in 2011, and the number of newly registered foreign companies also decreased. FDI has been on a slow but steady track of recovery since 2016. According to the United Nations Conference on Trade and Development’s World Investment Report 2020, Mongolia’s FDI reached 2.4 billion USD in 2019—a 12% increase from 2018, with mining making up nearly 80% of the total. Chinese investment accounts for approximately 30% of FDI. In recent years, the Mongolian Government has increased investment in road construction as part of its national development strategy using various types of loans from foreign governments and international organisations. For instance, the Western Highway Project is a road financed by the Asian Development Bank to link Mongolia’s western region to China and Russia. Chinese soft loans have supported the construction and restoration of the Yarmag Bridge in Ulaanbaatar and the upgrade of the Nalaikh Road, a main gateway connecting the capital to the eastern and southern provinces.

Source: Chinese Ministry of Commerce.

Aid: While the Soviet Union, other countries in the Council for Mutual Economic Assistance (CMEA, or COMECON), and China were the main aid providers for Mongolia’s socialist construction, the sources of aid to post-socialist Mongolia are more diverse. The top donors now include Japan, South Korea, the Asian Development Bank, Germany, and EU institutions. According to a report by the Organisation for Economic Co-operation and Development, Mongolia received 314.5 million USD in net official development aid in 2019, 18% of which contributed to economic infrastructure and services, 17% to other social infrastructure, and 8% to education. In recent years, China’s aid to Mongolia has also increased, notably towards the construction of schools and kindergartens, a development centre for children with disabilities, wildlife preservation, and the provision of border inspection equipment. During the COVID-19 pandemic, Mongolia donated 30,000 sheep to China in support of the fight against the viral outbreak. Subsequently, China donated vaccines, medical supplies, and personal protective equipment (PPE) to Mongolia.

Controversies in Bilateral Relations

Mining: The mining sector contributed 25% of Mongolia’s gross domestic product (GDP) in 2019. Mining products such as iron ore, coal, copper concentrate, zinc concentrate, fluorspar, molybdenum concentrate, and crude oil accounted for 83% of total exports. In addition to Mongolian companies and multinational corporations, various Chinese private and state-owned enterprises (SOEs) are engaged in Mongolia’s mining industry—a contested sector that is believed to bring wealth and development to the country but also provokes local anxieties about dispossession on economic, political, and existential levels. The desire for coking coal for steel production in China drives Chinese SOE investment in coalmining. Notably, the China Investment Corporation and China Cinda Asset Management Corporation Limited, both state-owned financial institutions, are the major investors in SouthGobi Resources Ltd, a Canada-based, Toronto and Hong Kong-listed coal producer operating the Ovoot Tolgoi Mine, 40 kilometres from the Mongolia–China border. Since 2020, Mongolia has emerged as one of the top exporters of coking coal to China, following China’s sanctions on imports from Australia.

The attitudes of successive Mongolian governments towards FDI in the mining sector have been turbulent, oscillating between addressing public concern and investor interests. In 2006, Mongolia implemented a 68% windfall tax on the profits of mining companies operating within the country—the world’s highest—only to repeal it in 2009 due to protests from investors. In 2012, the Mongolian Parliament passed the Strategic Entities Foreign Investment Law, which listed mineral resources as a strategic sector for national security. As such, more stringent screening and parliamentary approval were required of private and SOE investment above a certain threshold, which was interpreted as a direct response to the attempt by the Aluminium Corporation of China (Chalco) to acquire a stake of up to 60% in SouthGobi Resources. This law is often cited as a significant contributor to the dramatic decline in FDI, from 1.6 billion USD in 2011 to 630 million USD in 2012. Under pressure to boost economic growth, the government’s 2013 Investment Law narrowed the scope of state intervention, waiving parliamentary approval for foreign private investment, and requiring screening only when the foreign SOE owns 33% or more of the equity in the Mongolian entity. The law also simplified the procedures for investment registration, provided large investors with tax stabilisation certificates, and established the powers and responsibilities of the relevant regulatory agencies. Despite Ulaanbaatar’s pro-mining policies, local populations have protested against the uneven distribution of mining wealth, environmental degradation, and the threat to pastoral livelihoods.

In 2018, the Mongolian authorities revoked the mining licences of a Chinese-financed GPF company operating the Salkhit Silver Mine, in Dundgovi Province, and transferred the mine to state ownership. The company was found guilty of tax evasion and judicial corruption, and was criticised locally for failing to support local development.

Labour: Due to a chronic shortage of skilled labour and structural unemployment, tensions have existed between local citizens and foreign workers in post-socialist Mongolia. The Law on the Legal Status of Foreign Citizens stipulates that the total number of foreign nationals residing in Mongolia for private purposes (including study, work, investment, family, business, and other reasons) shall not exceed 3% of the total Mongolian population, and the number of foreign nationals from a single country shall not exceed 1% of the total population. According to the Mongolian Immigration Agency, as of 31 December 2019, there were more than 22,600 migrants from 127 countries regularly residing in Mongolia. China has been a major source of migrant workers, most of whom are employed in the mining and construction sectors. For Chinese labourers, working in Mongolia without proper legal documents and dealing with wage arrears are not unheard of. Legally ambiguous practices are often associated with the employer’s reluctance to pay the mandatory fees for foreign labour, fluctuations in labour demand, and the lack of legal protection for foreign labour. Due to the high unemployment rate and economic impoverishment in Mongolia, between 2000 and 2010, anti-Chinese sentiments intensified, manifesting themselves mostly in discursive and symbolic violence. In recent years, cases of physical violence specifically targeting Chinese citizens and companies have been sporadic, but anti-Chinese narratives remain common.

Debt sustainability: Building on an undiversified economy with a heavy reliance on mining, Mongolia’s post-socialist development has incurred a large gap in funding, which has been resolved through government borrowing and FDI. The Mongolian Government issued several sovereign bonds to raise funds in the international market and, in 2020, it issued the 5.5-year ‘Nomad bond’, raising 600 million USD to repay a previous bond. Bond issuance has led to a substantial increase in the level of external debt. Mongolia’s total foreign debt was 221.5% of its GDP in 2019. The possibility of future infrastructure projects related to the BRI/CMREC not only give rise to hopes of economic prosperity, but also induce fears of a possible ‘debt trap’, as the completion of such projects requires large investment and most probably foreign loans.

Railway: Mongolia’s railways have been a critical site of geopolitical competition, with protracted debate and tactical manoeuvring over upgrades and network extension. Ulaanbaatar Railway (UBTZ), a Mongolian–Russian joint venture established in 1949, remains the sole national railway operator. The two existing railways in Mongolia use the 1,520 mm Russian wide gauge, rather than the 1,435 mm Chinese standard gauge. Due to the difference in gauges at the border with China, passenger trains change bogies while freight trains are reloaded—a costly operation given the significant volume of transnational cargo. However, anxieties and fears related to connectivity with China are rooted less in economics, and more in geopolitics. In 2010, the Parliament of Mongolia passed ‘Resolution 32’, the state’s plan for building an integrated national railway system, which postponed building railway links to China to the second phase. In 2014, the Parliament of Mongolia held a special vote on the issue of rail gauges for certain newly built lines, approving the use of the 1,435 mm gauge on the line between Ukhaa Khudag (part of the Tavan Tolgoi coalfield), Oyu Tolgoi (a copper and goldmine), and Gashuun Sukhait (a Mongolian town on the Mongolia–China border), which was expected to increase mineral exports to China. The decision was subsequently reversed, likely due to deep paranoia in Mongolia regarding anything related to China. The new railway connecting Tavan Tolgoi—one of the world’s largest untapped coalmines, which exports 95% of its products to China—and Gashuun Sukhait continues to use the wide gauge.

Sources

English-Language Media:

Local media outlets in English include the Montsame news agency, The UB Post, News.mn, Gogo Mongolia, and Jargal DeFacto. Also worth noting is Mongolia Focus, a blog maintained by Mongolia watchers based at the University of British Columbia.

Books, Reports, and Scholarly Articles:

Atwood, Christopher P. 2004. Encyclopedia of Mongolia and the Mongol Empire. New York, NY: Facts on File.

Billé, Franck. 2014. Sinophobia: Anxiety, Violence, and the Making of Mongolian Identity. Honolulu: University of Hawai`i Press.

Bulag, Uradyn E. 2009. ‘Mongolia in 2008: From Mongolia to Mine-Golia.’ Asian Survey 49(1): 129–34.

Bulag, Uradyn E. 2014. ‘To Connect or Not to Connect: Towards Mongolia’s Geopolitical Infrastructure.’ Presented at the Төв Азийн бүс нутаг дахь байгалийн баялгийн хөгжлөөс үүдсэн байгаль орчин, нийгмийн өөрчлөлт: Монгол улс, Өвөр Монгол болон Төвд оронд явуулсан судалгаанаас [Environmental and Social Changes Due to the Development of Natural Resources in the Central Asian Region: A Survey of Mongolia, Inner Mongolia, and Tibet], University of Shiga Prefecture, Japan, 14 December.

Bulag, Uradyn. 2017. ‘A World Community of Neighbours in the Making.’ In The Art of Neighboring: Making Relations across China’s Borders, edited by Juan Zhang and Martin Saxer. Amsterdam: Amsterdam University Press, 121–44.

Campi, Alicia. 2020. ‘Mongolia’s Response to Increasing US–China–Russia Rivalry in Asia.’ Asia Pacific Bulletin (521).

Dierkes, Julian (ed.). 2012. Change in Democratic Mongolia: Social Relations, Health, Mobile Pastoralism, and Mining. Leiden: Brill.

Empson, Rebecca and Tristan Webb. 2014. ‘Whose Land Is It Anyway?’ Inner Asia 16(2): 231–51.

Judge, Connor and Sanchir Jargalsaikhan. 2019. ‘China’s Belt and Road Initiative.’ Mongolia Focus, 12 March. Link

Liu, Xiaoyuan. 2006. Reins of Liberation: An Entangled History of Mongolian Independence, Chinese Territoriality, and Great Power Hegemony, 1911–1950. Washington, DC: Woodrow Wilson Center Press.

Madhok, Shakti. 2005. Sino-Mongolian Relations 1949–2004. New Delhi: Reliance Publishing House.

Munkh-Erdene, Lhamsuren. 2012. ‘Mongolia’s Post-Socialist Transition: A Great Neoliberal Transformation.’ In Mongolians after Socialism: Politics, Economy, Religion, edited by B.M. Knauft, Richard Taupier, and Lkham Purevjav. Ulaanbaatar: Admon Press, 61–67.

Pedersen, Morten and Mikkel Bunkenborg. 2012. ‘Roads that Separate: Sino-Mongolian Relations in the Inner Asian Desert.’ Mobilities 7(4): 555–69.

Plueckhahn, Rebekah and Dulam Bumochir. 2018. ‘Capitalism in Mongolia: Ideology, Practice and Ambiguity.’ Central Asian Survey 37(3): 341–56.

Radchenko, Sergey. 2013. ‘Sino-Russian Competition in Mongolia.’ The Asan Forum, 22 November. Link.

Reeves, Jeffrey. 2013. ‘Sino-Mongolian Relations and Mongolia’s Non-Traditional Security.’ Central Asian Survey 32(2): 175–88.

Rossabi, Morris. 2005. Modern Mongolia: From Khans to Commissars to Capitalists. Berkeley, CA: University of California Press.

Sneath, David. 2018. Mongolia Remade. Amsterdam: Amsterdam University Press.

Cover Photo: Mongolian Steppe. Credit (CC): Yiannis Chatzitheodorou.

The author of this profile wishes to remain anonymous.

Updated on 9 July 2021.


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