Geopolitical Report ISSN 2785-2598 Volume 43 Issue 8
Author: Riccardo Rossi

In response to the US strategy of political-military containment in the Asia-Pacific region, the People’s Republic of China (PRC) has recognised the strategic importance of the China-Mongolia-Russia Economic Corridor (a component of the Belt and Road Initiative) in enhancing the energy-industrial infrastructure and expanding the Chinese economic and cultural influence in Central Asia.

In this context, this report aims to investigate Mongolia’s strategic role in China’s regional foreign policy by looking at geophysical and economic factors.

Mongolia: The impact of the geophysical factor

Since the launch of the Belt and Road Initiatives (BRI), China has identified Mongolia’s geography as an element to be exploited to increase economic-political influence towards the Ulan Bator government. In relation to the Mongolian territory, the People’s Republic of China acknowledges two geophysical attributes that are of considerable geopolitical relevance.

1. Mongolia’s intermediate position between the Russian Federation and the People’s Republic of China (with which it shares a 4,700 km border line) combined with the country’s geological conformation. In the north there are mountains and forests, in the centre large expanses of steppes and in the south the vast Gobi Desert (1,295,000 km²), which stretches as far as the Inner Mongolia Autonomous Region of China (IMAR). Over the last decade, the Mongolian geophysical structure, combined with the difficult climatic conditions, have triggered a process of urbanisation towards the capital Ulan Bator, involving some 600,000 people. Today, almost half of the population (3.3 million) lives in urban centres, with minorities of nomadic herdsmen located in the steppes and forests.
2. Mongolia is rich in raw materials, which are indispensable for the national energy supply and the functioning of the Chinese high-tech industry. Ulan Bator has extensive deposits of coal, copper, fluorspar, gold, iron, molybdenum, tungsten, uranium and zinc, mostly located in the provinces of Orkhon, Darhan-Uul, Selenge, Umnugobi, Khentiie Sukhbaatar. The Mineral Resources Authority of Mongolia estimated that there are about 1170 known deposits and over 80 types of mineral resources in the country. In recent years, the mining sector’s share of GDP has reached 24.5% and 90% of Mongolia’s total exports to China and Russia.

Considering Mongolia’s geographical position and substantial mineral resources, Beijing stressed their pivotal role in pursuing targeted geo-economic aims.

The geo-economic factor

Ulan Bator, cognisant of its geographical location and fossil wealth, has crafted the foreign policy doctrine “third neighbour” under Article 10 of the 1992 Constitution. This doctrine is based on adopting a neutral stance and fostering cordial and impartial relations with Moscow and Beijing.

Mongolia has launched several economic-industrial development plans in recent years, such as the Steppe Road and the Sustainable Development Vision 2050. The Steppe Road envisages massive investments in infrastructure (high-speed railways and highways) and energy networks. The Mongolian government, regarding the aforementioned issue, acknowledges the significance of diminishing reliance on coal (nearly 90%) in the generation of electricity and heating. In the coming years, Ulan Bator will exploit the geophysical conformation and climate of the Gobi Desert to produce electricity through solar panels and wind power plants.

In 2020, the Mongolian parliament introduced the Sustainable Development Vision 2050, envisioning that by 2050, the country will have development programs in place that would result in a GDP of USD 77.7 billion and a GDP per capita of USD 15,000. This will make it possible to reduce poverty and enhance all the services needed by citizens.

Ulan Bator, in pursuing the goals of the Steppe Road and Sustainable Development Vision 2050, is aware of the unavoidability of intensive exploitation of mineral/fossil resources. Projections for the period confirm this assessment 2018-2043, which shows a gradual increase in production from 77,669.86 to 137,083.49 tonnes.

Beijing aims to enhance its influence in Mongolia through an economic-diplomatic doctrine, taking advantage of the limited technological capabilities of the Mongolian government and the ‘third neighbour’ policy. This doctrine can be summarised in two main points.

1. Drawing up multilateral agreements. Beijing, Moscow, and Ulan Bator signed an agreement in 2016 in Tashkent to strengthen the China-Mongolia-Russia Economic Corridor (CMREC). The agreement provided for implementing 32 projects targeting the logistics, energy and infrastructure sectors (high-speed railways and roads), which are essential to connect Chinese cities to the most important Mongolian mines.
2. Bilateral agreements. Beijing considers diplomatic dialogue with Ulan Bator an indispensable element to counter Moscow’s economic and cultural influence in Mongolia. In 2014, China and Mongolia signed a Memorandum of Understanding, allowing for both an increase in the number of Chinese seaports (Qinhuangdao, Huanghua, Huangdao and Tianjin) open to foreign trade to Ulan Bator, and discounts of no less than 40% on customs duties for Mongolian goods transiting through the People’s Republic of China. Mongolia transports 1/3 of its goods destined for the Asia-Pacific and European markets via Chinese territory.
   In the same year, Beijing and Ulan Bator signed the Memorandum of Understanding on the Establishment of PRC-Mongolia Economic Cooperation Zone (ECZ). Near the Chinese city of Erenhot and the Mongolian municipality of Zamyn-Uud, it covers 9 km2 in the territory of IRMA and an equal amount in Mongolia. They expect the ECZ to become fully operational by 2035, guaranteeing a regional production of more than CNY 30.5 billion and a total flow of goods close to USD 10 billion. From the PRC-Mongolia Economic Cooperation Zone, most Mongolian raw materials (metals and coal), which are needed to supply part of the industrial-military sector of the People’s Republic of China, will pass through.

China, through diplomatic dialogue with Mongolia, has pursued a twofold goal. First, to establish himself as Ulan Bator’s main economic partner. In 2022, Beijing exported $1.43 billion worth of goods to Mongolia, a growth rate that has increased by 86.9% over the past five years, from $62.8 million (2017) to $1.43 billion (2022). Ulan Bator, in the same year, exported coal ($5.99B), copper ore ($2.73B) and iron ore($389M) to the People’s Republic of China.

Through diplomatic dialogue, Beijing could achieve, as a second goal, the possibility of purchasing raw materials from Mongolia at an inexpensive price, partly reducing the problems arising from the Malacca Dilemma.

Conclusions

It is conceivable that Beijing, considering Mongolia an indispensable territory, could increase political-diplomatic pressure towards Ulan Bator. Hypothesis confirmed by Beijing’s vision in considering the Mongolian territory as an important bridge between the People’s Republic of China and the Asian and European markets, partially counteracting the US containment doctrine in the Asia-Pacific.

The Mongolian government, faced with this scenario, is at a crossroads: either fully join the BRI (running into the dilemma of the debt trap), or continue with the “third neighbour”, seeking to rely more on the Russian Federation, Japan, the United States, Kazakhstan or Kyrgyzstan.

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