In 2009, the bilateral trade figure stood at US$2.4 billion with China importing US$1.3 billion worth of commodities, which accounted for more than 70 per cent of Mongolian exports. According to official Mongolian statistics, China invested a total of US$2.3 billion in 2009, which represented more than 60 per cent of total foreign investment in Mongolia.
According to Luvsandagva Davaatsedev, chairman of the Coal Industry Association of Mongolia, almost 100 per cent of Mongolian coal and copper exports went to China in 2009, and the coal export figure could grow by as much as six-fold in the next five years once some of the large coal mines become operational. Mongolia replaced Australia as the largest coking coal exporter to China in 2005.
Sinophobia on the steppes
High dependence on China for trade and investment is causing an unprecedented wave of Sinophobia in Mongolia. This fear has been driven by geopolitical fear, historical legacy and sometimes open racism. Sandwiched between two former imperial masters, Mongolia’s landlocked geography can be described as nothing but a geopolitical nightmare for its leaders. Its national strategy is often a case of a depressing choice between the lesser of two evils. It is understandable that vast and sparsely populated Mongolia, at the doorstep of an emerging superpower, is anxious for anxiety’s sake itself.
The imperial legacy of China still lingers in the minds of some Mongolians and this landlocked country only gained independence from China as late as 1921. Ironically, Taiwan still officially recognises Mongolia as part of its official territory, and it is not uncommon to hear mainland Chinese refer to Mongolia as ‘outer Mongolia’, a dated name alluding to its status as a former imperial possession of China.
The influx of Chinese businessmen and labourers is also provoking racial tension in the country. Whether it be disapproval of Chinese migrant labourers’ behaviour as unhygienic, or Chinese businessmen’s behaviour as philandering, many Mongolians feel alienated by the arrival of large numbers of Chinese. Consequently, anti-China themes are rapidly capturing the airwaves and newspaper headlines, from unfounded allegations of rape and pillage to more justified concerns over Chinese disregard for industrial relations laws and regulations. Chinese construction workers are fast becoming random victims of Mongolian neo-Nazis, and some Mongolian politicians are more than happy to jump on the anti-Chinese bandwagon to attract popular votes.
Challenges of investing in Mongolia
Like Chinese resource investments elsewhere, Beijing’s black gold rush into Mongolia is largely driven by giant state energy companies such as Shenhua and PetroChina. Like regulators elsewhere in the world, Mongolians are fearful of a takeover by China Inc. Its proximity and overwhelming dependence on China have increased that fear a hundred-fold. Despite China’s apparent dominance, Beijing has been assiduously excluded from investing in the crown jewels of Mongolian mining assets such as the prized Tavan Tolgoi coal project and the world’s largest unexploited copper mine at Oyu Tolgoi.
According to the Chinese press, a host of Chinese state energy giants such as Chinalco and Zijin Mining were interested in bidding for the Oyu Tolgoi project in 2002; however, the National Development and Reform Commission (NDRC)-supported deal fell apart after much political opposition from Ulaanbaatar. Even indirect equity participation by Chinalco faced significant opposition last year.
The CEO of Khan Bank, Mongolia’s largest bank, Peter Morrow said on the sidelines of a Euromoney mining conference in Mongolia that ‘Chinalco is unlikely to get involved in Rio Tinto PLC’s massive copper-gold Oyu Tolgoi mining project in Mongolia as a direct partner, since it may trigger political resistance from the Mongolian government’ and ‘that would be a real stick in the eye for the Mongolian government.’
Mongolia’s national railway infrastructure strategy further highlights the government’s weariness towards China. Like many resources-exporting countries caught in the middle of a mining super-cycle fuelled by Chinese demand, Mongolia’s Soviet-era railway is poorly prepared to transport the vast bulk of commodities to China. Given Mongolia’s proximity to China, and that some of its largest mines are less than 100 kilometres from the Chinese border, it seems that this infrastructure bottleneck could be easily remedied.
Yet the Mongolian government made a decision that defied not only geography but also basic business common sense. Instead of building a railway connecting mines with the booming Chinese export market the government decided, in April 2010, that it would build a 5,683-kilometre railway on Russian gauge standard to connect itself with Russian sea ports. The only plausible reason for this curious decision is that Mongolians are desperate to diversify away from reliance on China.
According to research notes prepared by a Chinese broker, the planned new railway track would increase the distance between Tavan Tolgoi mine and the nearest Chinese seaport, Tianjin, by more than 3,000 kilometres and triple transport costs. There is little doubt that the Mongolian government is willing to pay a very hefty price for economic independence, despite Mongolia having been voted as the second worst country in the world for mining investment according to the Survey of Mining Companies 2010 by Canadian think tank the Fraser Institute.
Chinese experience in Mongolia highlights again the worrying trend for policy makers in Beijing that many resources rich countries are wary of state-led Chinese investment. Beijing has to do something about its image of China Inc on a shopping spree. A starting point would be to let firms make their own investment decisions independent of government agencies such as the NDRC. Lack of tact and judgement is a source of much irritation even amongst state-owned energy companies. Demonstration of good corporate citizenship is essential to assure host countries of the benefits of Chinese investments. Sinosteel’s delicate treatment of indigenous heritage sites in Western Australia is an example that could be followed elsewhere.
Justin Li is principal of the Institute of Chinese Economics and an associate of EAF.
Interestingly Australia is also seeking to diversify its portfolio of mineral export markets (including rare earth elements) away from China, in this case towards Japan. In addition to Russia, what other possible markets does a land-locked country like Mongolia have? Is Japan (via the Russian sea port option) in the picture?
Energy and commodities are highly globally traded products, and there is no need to diversify for diversification’s sake.
No matter how diversification is done, China is the largest user and importers for many commodities and that does put a limitation on diversification.
Rather than fearing being too dependent on China, Mongolia needs to meet the challenges associated with its geographical location by joining regional organisations and participating in regional and global economic integration and be an organic part of it and benefit from it.
There is no easy escape from economic integration into isolation and benefit from isolation.
If Mongolia continues to resist regional economic integration, it runs the risk of paying a high price.
One correction and a couple of comments:
Correction: Mongolia was never ever a Chinese colony. Mongolia was a part of the Manchurian (by now, a vanished race from North East Asia) Qing dynasty. Mongols and Manchurians had very close relationships (for example, all Qing emperors starting from Kangxi’s father had Mongolian blood because Kangxi’s grandmother was a Chinggis khan’s descendent and Mongolian princess). Crucially, until the 1900s (for 250 years), Han Chinese were forbidden to settle in the lands north of the Great Wall, and colonize Mongolian lands. When in 1911 the Qing dynasty collapsed Northern Mongolia (roughly current Mongolian Republic) declared its indepence, and defended it together with Russians in 1921, and 1939. Furthermore, Mongolian forces together with Russians liberated Inner Mongolia and Manchuria in 1945.
A couple comments:
1. Besides historical hostilities (two nations have been fighting with each other for several thousand years, and the proof of it is the Chinese Great Wall) and cultural differences (Mongolian horse-based nomadic culture versus Chinese rice-cultivating peasant culture), there are TWO very important POLITICAL PROBLEMS between two nations:
(a) The southern part of Mongolia is now Inner Mongolia province of China, and two districts in Xinjiang are historically Mongolian lands too. Mongolians in Mongolia are very bitter of having lost large lands (two-thirds of historical Mongolian land) to China with its Mongolian population. And these Mongolian lands are brutally colonized by Han Chinese settlers. This is why Mongolians do not welcome Chinese investments in the country because they think that the Chinese will do the same to Mongolia as what theyr did and are doing in Inner Mongolia.
2. Mongolia has become a successful democracy since 1990, and therefore, many Mongolians do not trust the intentions of the Chinese COMMUNIST government. This is another reason of why there is very little trsut between two nations and governments.
3. Regarding the railways, Mongolia wants to export its copper and coal to Japan and Korea through Russia.
4. Lastly, opinion polls (professionally done by Western organizations) in Mongolia show that 75 percent of Mongolians do trust Russia and Russians whereas less than 1 per cent said the same regarding China and Chinese.
Questions for Bold:
While the Mongolians may be bitter in terms of the parts lost which they may think belonged to them, much more Chinese may think that Mongolia should have never been allowed to split from China. And indeed many mainland Chinese have been very bitter towards the communists and the communist government that had ‘agreed’ to the independence of Mongolia in the first place.
In that context, the Mongols should be grateful to the Chinese communists and the communist government, because the other major political party in the last century in China was the Gomindang that is now in government in Taiwan and it has been said that they did not accept Mongolia’s independence. Should they be in government in the mainland, they may still want Mongolia back to China!
It is true that the Han Chinese and Mongolians may have fought each other for many centuries, but it is equally true and a fact they became one for hundreds of years until the Mongolia’s succession from China in the first half of the last century, whether it was the Mongols conquered China or China colonised Mongolia does not matter much. The time they were one is longer than the time the history of the current USA, and certainly than current Australia!
It is clearly difficult to evaluate the opinion polls you cited without knowing the detailed sources of those polls.
But for many Chinese, both mainland and in Taiwan, they may not trust those polls and the purposes of those Western organisations. They may think some Westerners simply want to divide China and make it weaker. And by that logic, they suspect that some Westerners clearly don’t want to see China becomes any territorially larger.
When will people stopped writing that Mongolia was under Chinese possession. China and Mongolia were both under Manchurian rule for 260 before each rebelled for their independence. Manchurians were never Chinese to begin with. They were nomadic tribe, which took power and invaded China and then Mongolia. Also Yuan Dynasty was never Chinese Dynasty. It is true that China was under the control of Yuan Dynasty, however they were under Mongolian rule. So never ever in a history of the world, Mongolia was under the possession of Chinese. So one should be careful to use terms such as Mongolia was under the possession of China, or China should’ve never let Mongolia separate are meaningless. If one was to use such term, he or she should say, China should have invaded outer Mongolia when they had the chance to do so.
First we have Lincoln Fung’s sweet talk of economic rationalism (“Rather than fearing being too dependent on China, Mongolia needs to meet the challenges associated with its geographical location by joining regional organisations and participating in regional and global economic integration and be an organic part of it and benefit from it.”)
Then Bold’s different take on Mongolian history seems to have hit a nerve and Lincoln Fung shows his true colours. He falls back on all the old Han Chinese arguments to imply that Mongolia really “belongs to China”
1. The old chestnut of “who cares who invaded who?” — which Bold didn’t raise at all, but an old favourite among Chinese. It’s used to argue that Mongolia belongs to China, and it ultimately doesn’t matter whether China invaded Mongolia or Mongolia invaded China. It’s as if someone were to say that Britain should belong to India because Britain invaded India a couple of centuries ago. Of course it matters who invaded who!
2. The statement that “Mongolia split from China” after “hundreds of years together”. The whole point of Bold’s post is that Mongolia did NOT belong to China; it was a possession of the Manchus. In fact, Mongolia and China were not “together” in the way that Han Chinese like to make out. The Manchus did NOT allow Chinese to settle in Mongolia (either part). Mongolia was NOT administratively a part of China proper (18 provinces); it was controlled by a Chinese-style Colonial Office. The Manchus encouraged the publication of books in all their dominions, but in China itself the ideology was Confucianism; in Mongolia books were about Lamaism. The Han Chinese position on Mongolia, which is obviously espoused by Lincoln Fung, is based on the simplistic assertion that “The Qing dynasty was a ‘Chinese’ dynasty; therefore everything the Qing owned belonged to China”. Bold’s view is the standard Mongolian view of history, and Lincoln Fung certainly wastes no time in telling us that this isn’t the Chinese view! Perhaps that’s why you meet so many Chinese in China who say that China should take Mongolia back. (If you want to see some incredibly chauvinist comments, try any Chinese bulletin boards on topics dealing with Mongolia.)
3. Then, to cap it all, we get the standard justification for Chinese chauvinism towards former Qing territories — Westerners just want to split China! The fact that Mongolia is an independent nation and is recognised as such by the Chinese government is irrelevant. Indeed, Lincoln Fung goes on to state that “Westerners clearly don’t want to see China become any territorially larger”. In other words, it doesn’t matter what Mongolians (like Bold) might want, what’s important to people like Lincoln Fung is that nasty Westerners are stopping China from expanding its territory!
Is it any wonder that the Mongolians are intent on maintaining their independence at any cost, when so many little Han chauvinists hold exactly to these kinds of belief. And is there any reason that we should believe the self-serving arguments of the Chinese — that Mongolia should just give up and build rail links so China can partake of its cheap resources at bargain-basement prices? The chauvinistic comments of this man are PRECISELY the reason why the Mongolians want to build railways elsewhere than to China. Mao Zedong would never have sold his country out for the sake of a few dollars. Why should the Mongolians be any different?
Leaving Lincoln Fung’s comments aside, one of the problems that Mongolia faces is that China is passively blocking the export of Mongolian coal via China. Of course it would be great for Mongolia if it could export its cheap coal via Tianjin, but unfortunately any coal exported through Tianjin, whether of Chinese or Mongolian origin, is treated by the Chinese as “Chinese coal”. Until the Chinese show that they are willing to help the Mongolians export to foreign markets via China, instead of holding them hostage over their inland position, the Mongolians will continue to attempt to build railways through Russia. (Although even then it would be imprudent for the Mongolians to put themselves at the tender mercies of China, which could use any pretext to strangle off coal shipments for political or economic ends.)
@fung
1. Mongols and various Turkic peoples were living for many thousands of years in the Eurasian steppes. Most of the time, they had nothing to do with the Chinese. The only times the Mongols and the Chinese (Han) were together, are 90 years of the Mongolian Yuan dynasty in China, and 260 years of the Manchu Qing dynasty in China. 350 years is NOT even 10 percent of the time duration since proto Mongolic and Turkic peoples started to move into Northern Eurasian steppes from Northern India – 10 thousand years ago. Therefore, your assertion that Mongols and Chinese were one and the same most of the time, is JUST false. 10 000 years versus 350 years! Think about this! And most of the time, the Chinese were on the receiving end of the Mongolian and Manchurian sword.
2. The Mongolians always get SURPRISED when the Chinese claim the Mongolian Yuan Dynasty heritage given the brutal Mongol colonization of China, mass slaughter of the Chinese (40 million Chinese died in the 13-14 centuries, and roughly 20 million of them were killed by Mongol soldiers), and lowest social position (5th class citizens) assigned to the Chinese in the Mongolian Yuan dynasty. It must be self-humiliating and self-demonizing for the Chinese to claim the heritage of the regime (Mongol Yuan) that treated the Chinese worse than their horses. For example, the Yuan government officially classified 5 legal “subjects” (Ih Zasag Law):
(1) highest aristocratic class – Mongols
(2) upper class – Turkic, Kipchack, and other Caucasion peoples
(3) middle class – various tungusic people of north asia – Korean, Zurchen (Manchu) and others
(4) “lower middle class” – Mongol horses (Yes, Mongols regarded their horses higher than some lowest ranking humans)
(5) The lowest low class – the Chinese!
For Mongolians, it is very hard to comprehend why the Chinese want to claim the Mongol-Yuan dynasty when they were treated worse than animals (yes, horses are animals).
2. In 1911, when the Manchu Qing collapsed, Northern Mongolia announced its seperation, and Mongolia de facto restored its independence. After that Mongolians in Mongolia never looked back! And in 1945, the Chinese Guomindan government, and in 1949, the current communist government officialy recognized Mongolia’s independence. These were just de jure formalities. Even if Guomindan was in power in China, they had no chance against the Soviet army from 1921-1930s, and the Mongolian army from 1935-1980s. The Mongolian army remained the best equipped and battle hardened in Asia well into the 1950s. I remind you that the Mongolian and Soviet armies freed Manchuria and eastern parts of Inner Mongolia from the Japanese in August 1945. What you-Chinese were doing? Well, everybody knows that you-Chinese were being culled by the Japanese in Nanjing and other places. Therefore, the Chinese owe the Soviets and Mongolians for Manchuria and Inner Mongolia! By the way, contemporary Taiwan and Guomindan are really does not matter for Mongolia because Taiwan and Guomindan remain real Polynesian PYGMIES politically and diplomatically in the world.
3. The very fact that some Chinese and Taiwanese want to claim the Mongolian lands, make the Mongolians very suspicious and distrustful of the Chinese. After all, all China’s neighbors have many reasons to be wary of the Chinese and China!
4. The polling organization I mentioned is the Sant Maral foundation based in UB. The director is a Harvard Sociology PhD. The opinion polls consistently show that 85-90 percent of Mongolians distrust (to put mildly) the Chinese including Taiwanese.
5. I read the other day from a Mongolian newspaper that Mongolia wants to join the NATO or newly proposed Asian NATO composed of US, Japan, and Korea, and so on. It seems that Mongolia is right to be very cautious with the Chinese!
I think some of the comments here show that Justin Li’s conclusions are a little off the mark. China certainly has problems being accepted as an investor in overseas natural resources, and the issue of State-controlled companies is a significant issue. But Mongolia is not the ideal example to illustrate this.
1. There are deep historical issues between China and Mongolia that override any questions of State-controlled investment. The problem is well illustrated by the exchange between Lincoln Fung and Bold.
The problem is that Mongolia’s independent status flies directly in the face of China’s modern self-narrative, which is: ‘China was bullied by the Western imperialists, and in order to stand up again as a great power it has to reclaim all territories that were taken away from it at the end of the Qing’ (this includes Tibet, Taiwan and large areas in the north of India). The fact that they have to make an exception for Mongolia makes Chinese nationalists extremely uncomfortable, and they are bitter at the Russians for stopping them from taking Mongolia back. The Mongolian self-narrative, as expressed by Bold, is completely different, and the Chinese reaction is quite visceral. In fact, accepting the Mongolian point of view would involve a tacit admission that independence for Tibet and Xinjiang is also justified. Needless to say, this is an extremely sensitive topic in China. Many of Lincoln Fung’s arguments are just unthinking regurgitations of standard Chinese views of history, in particular in relation to the Chinese right to ‘own’ surrounding territories that are historically not fully Chinese, despite being part of the Manchu (Qing) realm.
2. In the case of Mongolia, much of the current resources exploitation and transportation activity is actually in the hands of private Chinese companies. Unfortunately, Chinese companies have shown themselves willing to break the law in an effort to ensure that neither taxes nor employment opportunities go to the Mongolian side. Corruption among the Mongolian elite and bureaucrats, who connive in letting Chinese companies do this as long as they personally benefit, doesn’t help.
3. The third issue is the one I have mentioned above. That is, China’s refusal to allow Mongolian goods to ‘transit’ China on the way to third destinations is simply holding the Mongolians to ransom. A marriage made in heaven — yes, the Chinese and Mongolians can be great trading partners, as long as the Mongolians sell cheaply to China and don’t try to sell to anyone else. That’s nobody’s idea of a fair and equitable trading relationship. Despite the fair rhetoric, the Chinese have shown that they are happy to play a different game, and the Mongolians can’t be blamed for wanting to ensure their independence by building a railway to Russia.
In the end, Justin Li’s arguments don’t really hold water, at least not in the case of Mongolia.
To Bold,
I sense the very strong anti-China tone in your comments. But you probably forget why the Chinese can rightly claim the Yuan dynasty as its own without many serious historians questioning it. In short, ‘might makes it right.’
Furthermore, because ‘might makes it right’, the Mongolians today can speak and read Russian. After all, the Mongols,the Manchurians,the Turkic, Kipchack, and other Caucasion peoples had long been, and many of them are, still nomads. And that explains why Mongolia has become what it is now.
@tan
You forgot that China was a Mongolian colony the in 13-14th centuries, and a Manchu colony 17-19th centuries. The Chinese were colonized slaves of Mongols and Manchus during 350 years of colonization!
The only reason why Outer Mongolia wasn’t annexed along with Tibet, Xinjiang, Inner Mongolia, and Manchuria was because of the Soviet Union Superpower’s ambition to create a large satellite buffer state against China.
Your largest patron who supported independence in real practical terms has collapsed.
Overall, this is a really good article. China’s presence in Mongolia’s mining sector is, however, more pronounced than the author gives credit for. China does have a stake in Oyu Tolgi as it owns a 9% share in Rio Tinto. Mitsui & Co and Shenhua Group are also both short-listed bidders for Tavan Tolgoi.
The single biggest misinterpretation is applying modern concepts of nations in East Asia to its ancient past.
The term “China” or Central/Middle Kingdom before the 19th century was fluid and not fixated, really more of a geopolitical concept of being at the “center of the world”. A clear example that illustrates “China” was really more of a fluid geopolitical concept was seen in the 18th and 19th century when political philosophers in Japan felt their country was more deserving of using the term “中國 or China” to reflect its geopolitical position, especially after Japan defeated the Qing dynasty. In fact, China was not necessary the official name of a nation-state or empire. The official names were generally the dynastic names such as Great Qing Empire, Great Ming Empire, etc. Another example of how “China” was used was seen during the Northern Song dynasty and Liao dynasty. The ethnic Hans led Song dynasty was in a relative weaker position than the Qidan led Liao dynasty, thus forcing the Song to effective pay tribute and accept an inferior position relative to the Liao. The Liao emperors saw themselves as the legitimate holder of the “mandate of heaven” and occupied a more central (China) geopolitical position. Similarly, people and ethnic description were regional and evolved over time. For example, Cantonese were not always considered part of ethnic Hans. During the Mongol led Yuan dynasty, the definition of Hans included Hans from the north, Qidans and Jurchen (ancestors to the Manchus) while southern were known as nanren. Put it this way, if we have a time machine that takes us back to Yuan dynasty era, no one would know the term “Chinese”.
The basis of the term “Chinese” actually originated from Qing dynasty’s emperor Qianlong and his concept of “five nationalities” which was meant to include both Manchus and Hans. This idea was later adopted by the RoC and then under the PRC. The Qing emperors no doubt saw themselves as legitimate Chinese, a term and modern definition that they originated.
Imperial China was a classical multi-ethnic universal empire. Its territory expanded and contracted based on the strength of each dynasty. More accurately, it depended on the relative strength and ambition of the emperor at the time. Even within a dynasty, the territory it controlled fluctuated. Let’s look at a few examples. Take Xinjiang, the Han dynasty first controlled the region about two millenniums ago. The Ming dynasty initially controlled the so called “Manchu” northeast region before the rise of the Qing. Much of the territories under the PRC today were at some point under the control of major dynasties, including Han, Tang, Yuan, Ming and Qing. Basically, much of the East Asian continent today was an empire (sometimes multiple empires/kingdoms) before the 19th century, ruled by various dynasties. Some of these dynasties were founded by ethnic Hans while some were established by nomadic groups. A dynasty like the Tang was of mixed-ethnicity (Hans and Mongol related Xianbei). Regardless of ethnicities, they were all structured by the same geopolitical objective. They saw themselves and were recognized as the legitimate holder of the “mandate of heaven” (emperor of China), their empires as the legitimate “Central Kingdom” (China) and the rightful successor to the previous dynastic regime. Therefore, it is oversimplification to use modern concepts of the nation-state, sovereignty, citizenship, ethnicity and international relations to describe pre-19th century East Asia. International borders became more legally defined was largely the result of the establishment of the Westphalian sovereignty system influenced by Europe.