Mongolia Seeks More Aid From China
November 26, 2022
By Amar Adiya
Mongolian President Ukhnaagiin Khurelsukh visits Beijing on November 27-28, 2022, aiming to secure more aid and cross-border trade opportunities with Chinese President Xi Jinping. This move aligns with the government's goal to boost coal and raw material exports to China.
Khurelsukh's foremost request to Beijing will be for a $30 million loan to build underpasses in Ulaanbaatar to relieve traffic congestion. This adds to the country's growing debt to China, which already provided enormous financial aid to Mongolia in the construction of infrastructure projects such as rail linkages, highways, border ports, bridges, and energy projects.
Khurelsukh also wants to extend “yuan swap” as Mongolia’s central bank owes China 15 billion yuan (US$2 billion).
Given Mongolia's high foreign indebtedness ($13.3 billion) to multilateral creditors in 2023-2026, Xi will almost certainly grant Khurelsukh's requests. Xi also believes that Mongolia can service its debt through massive commodities sales.
Khurelsukh is anticipated to bring up the Russia-Mongolia-China Economic Corridor plan, which was approved during the Shanghai Cooperation Organization meeting in Samarkand in September 2022. He will almost certainly mention the country's rising importance as a transit point in the burgeoning economic and commercial relations between China and Russia.
Khurelsukh’s visit coincides with the commissioning of a new 227-kilometer-long Zuunbayan-Khangi (ZB-KH) rail link to China with a capacity of 20 million tonnes per year.
The new rail not only provides a direct and short path to China's Baotu industrial area (thereby increasing commodities exports by 65 percent), but it also links to Russia through the trans-Mongolian railway (see the map further below).
The ZB-KH railway, which runs parallel to the Tavan Tolgoi-Gaskhusukhait line, will be a vital component of the Russia-Mongolia-China Economic Corridor. It also offers up new maritime routes for Mongolia, possibly accessing non-Chinese coal and commodities markets such as India.
There will be difficult moments in the Khurelsukh-Xi conversation as well.
Aside from the central bank, state-owned coal miner, Tavan Tolgoi has huge debts to Chinese firms through offtake agreements, which has resulted in a slew of corruption investigations and political scandals this autumn. Chinese firms have also been implicated in a corruption investigation involving the Darkhan road building.
These will be touchy subjects as Prime Minister Oyun-Erdene and his followers want punishment for "stolen" coal from the "coal mafia" tied to Chinese contractors.
Xi, for his part, would almost certainly urge Khurelsukh to reaffirm the one-China policy abroad and to control any criticism of Beijing within Mongolia.
Xi would most likely applaud Khurelsukh's "One Billion Trees" reforestation effort and may even provide financial assistance because it can help minimize sand storms from the Gobi desert.
Not everyone in Mongolia is pleased with the country's decision to seek aid from China at the price of abandoning its so-called "third neighbor" foreign strategy.
Former Mongolian Ambassador to the United States Ravdangiin Bold voiced worry about Mongolian officials' growing reliance on Beijing. He cautioned that the experience of Mongolia losing its independence to China 100 years ago may be repeated.
About Amar Adiya
Amar Adiya is Editor-in-Chief of Mongolia Weekly, an English newsletter on political analysis and business intelligence every week. He is also a regional director at Washington-based strategic advisory firm BowerGroupAsia.