Fueling the Dragon: Russia and Mongolia's High-Stakes Coal Trade with China
by Abdul Rafay Afzal
China's increasing demand for coal is noticeably shaking up the global coal industry, significantly impacting Russia and Mongolia, both of whom hold vast coal reserves. Their capability to handle this accelerated coal demand could reshape these economies while posing certain challenges. This new market dynamic has currents that extend beyond commerce, with deep repercussions in politico-economic domains.
Economic Opportunities: Fueling Strategic Economic Growth
Mining and trading coal to satisfy China's growing demand can present worthwhile opportunities for both Russia and Mongolia. For Russia, increased coal trade with China could serve as an economic palliative against the sting of Western sanctions imposed due to its conflict in Ukraine.
Mongolia, improving its economy after 2008 which is considered as the global financial meltdown, has been leveraging this development as a critical shot in the arm. As per the International Monetary Fund's (IMF) report, following a brief slump, the Mongolian economy posted robust growth rates averaging 9.2% per year from 2010 to 2013, owing to a mining boom and strategic investments like Oyu Tolgoi. Despite challenges constituted by the COVID-19 pandemic and restrictions on trade with China, Mongolia's primary trading partner, its economy rallied in 2022, posting a growth rate of 4.7% driven by mining production and coal & copper exports.
Ashok Lavasa, Vice President of the Asian Development Bank during his visit to Mongolia this year, has said: "ADB will support Mongolia in its development vision (Vision 2050) to become a “dynamic and modern economy with a thriving middle class by 2050."
Navigating Economic and Environmental Hurdles
Scaling up coal exports to meet China's demand isn't without formidable challenges. Overreliance on single-resource exports could chafe against the very fibers of economic diversification while creating unfair income disparities.
Moreover, this paradigm shift occurs within a broader context of global commitment to climate change benchmarks. With China still largely dependent on coal to fuel its energy mix—55-65% in the years from 2020-23—increased coal supply from Russia and Mongolia could be interpreted as contrarian to the objectives set forth in the Paris Agreement.
Furthermore, transitioning to a coal-centric export model isn't merely an issue of extraction and shipment. Essential infrastructural updates, such as reviewing the capacity of Russia’s Siberian railway network and addressing issues at Mongolia-China border crossings—where different rail gauges cause logistical consternation—need to be addressed.
Geopolitical implications to consider include the evolving China-Russia energy relationship, which could affect Mongolia as it delicately balances its links with both powers.
The easing of sanctions on Russia might be tied to an increase in coal exports which could reinforce the political alignment between China and Russia. This can cause a shift in the balance of power in the region and create challenges for Mongolia to find its footing in the coal export market amidst strong competition.
To tackle environmental challenges, regulations such as carbon pricing and emissions caps can be implemented, helping reduce the negative impacts of increased coal production and consumption.
Countering Arguments and Offering Recommendations
It's crucial to counterbalance viewpoints and proactively address challenges that may emerge. As Russia faces global criticism over its war with Ukraine, the international community could consider implementing a ban on Russian coal exports. How this influences the shared coal export market with Mongolia warrants detailed exploration.
Simultaneously, Russia’s deepening ties with China, underscored by increased energy exports, may dictate a recalibration in Mongolia's coal export strategy, requiring innovative approaches to safeguard its interests.
Concrete policy suggestions encompass a range of factors, from infrastructural investments to comprehensive resource distribution strategies that are fair and socio-economically sustainable. To truly understand the human side of these challenges, perspectives from civil society groups or local communities that are impacted must be included.
There's no disputing the significant economic opportunity for Russia and Mongolia as they fuel China's rising coal demand. However, to make the most of this upward trend, they need to address the complicated challenges head-on and balance immediate gains with long-term sustainability. Sound, strategic planning can then enable them to optimally navigate the shifting currents of global coal trade.
Guest author bio: Abdul Rafay Afzal is from Lahore, Pakistan currently a law student at Liverpool John Moores University, UK. He writes perceptive columns on geopolitics, international relations, and legal affairs etc. providing unique insights into the global landscape in different Pakistani and International Newspapers and Media outlets in English & Urdu languages.