On December 30, 2020, the EU and China agreed to a landmark investment treaty to boost trade and investment between the two largest markets in the world after more than 13 years of hard negotiations. President Xi Jinping said that the deal would bring a “brighter future” in cooperation between China and European countries.
The EU-China deal could unlock Eurasian landmass connecting Beijing with Brussels through an economic corridor offered by Mongolia.
Although the first phase of this investment deal focuses on financial services and telecommunications the next level of EU-China treaty can cover transport and infrastructure issues.
Image from www.handelsblatt.com
Mongolia as an economic corridor and stabilizing factor between Russia and China
As tensions between Russia and Ukraine escalated, Russia and China looked into closer ties and started to work together on a multipolar system. Western economic sanctions on Russia prompted two countries to work even closer. And here comes how Mongolia can play its geostrategic position.
China's "Silk Road" program, now known as "Belt and Road Initiative" (BRI) around the world encompassed Mongolia and around 30 projects were proposed in the beginning.
By 2018, Mongolia refined its proposal into three components backed by studies of Mongolian researchers. Eastern provinces of Mongolia would focus on animal products and tourism as part of BRI. Central provinces would connect to the Chinese infrastructure and western provinces would develop tourism and cross-border trade.
Today Russia is doing a feasibility study to build a gas pipeline through Mongolia to the southern neighbor, which could generate $1 billion to Mongolia in transit fees. The construction of the highway connecting three countries could also benefit Mongolia’s economy tremendously.
Obviously, Mongolia is a small country compared to its two big neighbors. But it has become apparent to both countries that their cooperation would be meaningless if they don’t get active participation from Mongolia.
In 2014, President Elbegdorj initiated a trilateral summit in Dushanbe among three presidents, which has become an annual summit. Mongolia has had a strategic partnership with China since 2014 and the same level of relations with Russia since 2016, which was upgraded to a comprehensive strategic partnership in 2019.
Millennium Railway of Stability and Prosperity
Jack Weatherford wrote at length about the Pax Mongolica, which had a stabilizing effect on the Eurasian social, cultural, and economic life of people living in the 13th and 14th centuries.
Pax Mongolica helped to grow free trade and communications between Europe and China and Central Asia.
Similarly, I have proposed that a high-speed railway connecting Chinese northeastern coastal areas with Xinjiang, Central Asia, Russia and ultimately Europe through Mongolia could have a long lasting effect on trade, economic and cultural prosperity in the same way as Pax Mongolica.
image from Wikipedia (https://commons.wikimedia.org/wiki/File:Rail_map_of_PRC.svg)
The high-speed railway through Mongolian territory would be around 4,000 km. I call it “the Millennium Railway” that brings stability and prosperity to the region connecting Europe with Beijing through a hard infrastructure stretching 7,000-8,000km.
Its construction will be a mega project that can cover 3,700 km from eastern Mongolia to the western provinces at a speed of 340-400 km per hour.
It would be possible for a person in Dornod province to travel to Khovd within a day by not taking a plane at the cost of MNT 500k and saving 30-40% on a high-speed train. On top of that, connecting northeastern China with Uighurs could integrate the region into more developed and coastal areas of China.
Funding Millennium railway
People ask me how this mega project will be funded. According to the World Bank, it costs from $17m- $21m to construct one km of high-speed rail in China. Obviously, building a horizontal high-speed railway across Mongolia running from Harbin through Altai mountains to Xinjiang would require colossal investment and years of construction work.
But I would like to note that the Asian Infrastructure Investment Bank (AIIB) has cash in hand and is well-positioned to look into financing megaprojects with long-term vision. Beijing has been expanding its high-speed railway network at phenomenal speed.
Also, Russia would need to have a stake in the project as it will be a joint Russian-Mongolian-Chinese vertical railway. Russia is already building the Moscow-Kazan high-speed 772km railway, to be completed by 2023, with an ambition to connect Moscow with Beijing in the future.
I can’t stress enough that China is really interested in expanding its BRI through various "economic corridors" connecting Beijing with Brussels. Mongolia geographically is the closest route for Beijing to reach the Western markets. Cross-country railway makes sense to Chinese, which was mentioned by my Chinese contacts in private many times.
I have also presented my idea to Mongolian key-decision makers, including the secretary of the National Security Council, members of the government, and the state-owned Erdenes Tavan Tolgoi coal miner (which is financing another vertical railway for commodity transports). They all took great interest in the Millennium high-speed railway concept as well.
The perils of the Chinese debt trap
Mongolia has a high debt level - close to 70% of GDP. The government is also massively spending on emergencies for its citizens and small businesses to relieve economic hardships due to Covid-19.
Getting more Chinese debt for building the Millennium high-speed railway could make Mongolia unable to serve its debt and endanger it into default. It is widely known that the Chinese have relatively high rates for its infrastructure loans (over 6%) on top of the fact that Chinese EximBank does not accept debt relief if a country can’t service its debt payments.
If Mongolia can’t repay China could pressure Ulaanbaatar to provide preferred access to coal (Tavan Tolgoi) and copper (Oyu Tolgoi, Erdenet) assets or to ask for support on Beijing’s policy over Inner Mongolia and Dalai Lama.
Therefore, Mongolia needs to manage the financing issues carefully so that national interests are not endangered. At the same, it should be noted that the Chinese decision-making process is not monolithic as it may seem to be. There are multiple competing interests by the provincial administrations, central government and party apparatus in Beijing, state-owned entities, and banks in financing and constructing large scale railway construction along with the BRI network. Understanding and leveraging in a smart way these relationships and interests is key in advancing high-speed railway projects across Mongolia.
In the end, I would like to bring here what Chinese Ambassador Chai Wenrui told me following President Battulga’s visit to Beijing earlier this year. President Xi Jinping was thrilled about President Battulga’s donation of 30,000 sheep for combatting the Covid pandemic.
According to the Ambassador, Xi Jinping thanked President Battulga almost 30 times while quoting Chinese word of wisdom: “If you have received a drop of beneficence from other people, you should return to them a fountain of beneficence”, with credit to Confucious.
China is the second-largest fast-growing economy in the world. Mongolia has the best relations with China today, which gives a great opportunity to leverage the Belt and Road Initiative and connect the rest of the world with China through such projects as the Millennium High-Speed Railway.
Research of Mongolian scientists on “Mongolia-Russia-China economic corridor”, Ulaanbaatar, 2018
Pax Mongolica magazine, issue 2, UB, 2017
Professor Baysakh Jamsran is a Sc.D. and a former Director at the Institute of International Affairs of the Mongolian Academy of Sciences. He authored numerous academic books on Mongolian foreign policy and international relations and lectured Mongolian diplomats at the School of Foreign Service, the National University of Mongolia.
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