Mongolia Approves New Rail Project with Great Powers in Mind

On November 2, the Mongolian newspaper MN-Onoodor reported that the Mongolian cabinet had adopted a plan to extend the existing railway infrastructure. The plan envisages the construction of a 1,100 kilometer-long internal railroad to begin later this year. The proposed railroad would connect Dalanzadgad, the capital of the country’s southernmost Omnogovi Province to Choibalsan, Dornod Province in northeastern Mongolia. Not surprisingly, the project will connect what would become the burgeoning industrial centers of an emerging resource-driven economy. Southern Mongolia is home to massive deposits of copper, gold and coking coal, conveniently located only 80 kilometers from its border with China, which is the largest consumer of these commodities. Northeastern Mongolia possesses large reserves of uranium and oil, which are still being estimated, but are strategically located close to both China and Russia (MN-Onoodor, November 2).

This represents a mixed blessing for the contemporary geo-economics of Mongolia. But this project also is an entirely mixed political puzzle. At first glance, constructing a railroad directly to China makes much more sense –it is economically feasible, cost-and time-effective in terms of transportation expenditure and immediate revenue. After all, as observed by Joshua Kucera in The Diplomat on March 19, this was the advice of mainstream international experts and financial institutions, the World Bank and the Asia Development Bank included. However, Mongolia leaves this option for the future and meanwhile it concentrates on expanding its domestic railroad infrastructure and connecting it to the Russian system. This decision seems to reflect a cohort of other-than-economic considerations –geopolitical calculations, aspirations for sustainable industrialization, and finally public opinion, which matters as the new electoral cycle unfolds.   

Moscow’s influence and leverage in Mongolia’s railroad industry cannot be underestimated. Russia controls 50 percent of the state-owned Ulaanbaatar Tomor Zam company and uses it to practically block the unrelated project to renovate the existing Trans-Mongolia railroad using the large portion of the $285 million grant provided by the Millennium Challenge Account signed with the US. This fact alone shows that the railroad remains a Russian strategic asset in Mongolia and a source of potential leverage. Yet, this alone cannot be used as a single interpretation of the Mongolian overture. It is a strategic ambiguity that along with its existing dependence on Chinese imports, and even greater dependence upon the export market for its mineral resources Mongolia may be more vulnerable politically in making concessions to Moscow. Accepting Russia as the dominant partner in its infrastructure sector is rationalized by the need for geo-economic balance, which in the absence of a direct land route to other major economies Mongolia should seek an equal distribution of commodity export and transit. This is partly based on the temporary closure of the border post in Zamyn-Uud (Mongolia) – Erlian (China) in 2002, ostensibly for “technical reasons” that also “coincidentally” occurred during the visit of the Dalai Lama XIV to Mongolia. Moreover,  Beijing’s recent decision to halt the export of rare earth elements to Japan prompted the latter to seek suppliers elsewhere; and Mongolia, as Asahi Shimbun reported on October 4, “has agreed to work with Japan to loosen China’s stranglehold on vital rare earth elements” (Asahi Shimbun, October 4).

Even if Mongolia were to foster such cooperation, it would have to recognize that its hypothetical exports of rare earth elements could be similarly blockaded and that this may not result from any mistake by Ulaanbaatar. Putting skeptical scenarios aside, there is also willingness to develop long-term, sustainable industrial growth in order to avoid becoming an economy based on mineral extraction. En route from Dalanzadgad to Choibalsan is the town of Sainshand where the Mongolian authorities plan to build a processing plant for coal and other minerals in anticipation that it could bring value added production into the nation’s export basket. The ideal destination for these finished commodities would be the Asia Pacific markets of Japan and South Korea. Russia has, according to Amarjargal Gansukh, Mongolia’s Deputy Minister for Roads, Transportation and Urban Development in an interview with the Mongolian new agency in early November (www.news.mn November 3), offered three of its seaports provided that Mongolia connects its railroad to their system. By adding uranium and rare earth elements to copper and gold to its exports, Mongolia will secure what it has always sought: stable export markets that complement the domestic industrial output and job creation.     

Finally, few in Mongolia underestimate the importance of public opinion: the country remains, after all, a participatory democracy and the major parties now unwillingly look forward to the 2012 elections. Mongolian society has a sense of cultural alienation from China and fears that growing economic dependence on its powerful neighbor might evolve into political subservience; the Mongolian electorate is not sympathetic to any political force even vaguely perceived as “promoting a Chinese agenda.” This outweighs all rational calculations of the immediate economic benefit and dwarfs any advice or opinion of Western experts otherwise welcomed and respected in that society. In other words for Mongolia, Russia remains what it has always been –an unavoidable partner crucial in balancing China. This has been true since Tsarist times, the same was true, albeit at a high cost, with the Soviets, and this also seems to continue with contemporary Russia.