Recent visits to Mongolia by Chinese and Russian Presidents, Xi Jinping and Vladimir Putin, have cemented deals that may see the mineral-rich country double trade with its neighbours and achieve a wider market reach for its exports through the overhaul and expansion of its ageing rail network.
A two-day visit by Xi in late August resulted in 26 new trade and cooperation agreements being sealed, among them four targeting improvements and development of the rail sector, with another two pending. China agreed to offer sea ports and railway transport access to Mongolia and help finance a number of projects in medical care, education, railroads and residential community construction, according to media reports.
This visit was followed by talks between Putin and Mongolian President Ts. Elbegdorj in early September. Russia also agreed to step up cooperation in developing Mongolia’s transport infrastructure, particularly its railway network.
“Mongolia is located between Russia and China after all. We are big trade and economic partners, and Russia has bilateral trade with China that already has come to $65bn-67bn in 2014. It therefore makes sense to put Mongolia’s transport possibilities to greater use than is the case today,” Putin said during a press conference in Ulaanbaatar.
Talks with Xi centred on the use of the Trans-Mongolian railway, a national rail network aimed to be 5600 km at completion, as a land route for trade between Asia and Europe with a goal of transporting 100m tonnes of cargo by rail to Europe by 2020.
The expansion of Mongolia’s rail connections with China would boost the local economy and open up much of the country for greater development, according to Neil Ashdown, a senior analyst at global information and analytics firm IHS.
“The mineral-rich southern belt of the country is largely unserved by rail infrastructure,” Ashdown told German news agency Deutsche Welle in late August. “This has made its mineral exports less competitive – for example, in the absence of rail connections, coal is currently trucked to loading stations, and then to the Chinese border. This process is expensive and time consuming.”
Mongolia, which has natural resources worth an estimated $1.3trn, also needs to strengthen the transport links between its various economic hubs, particularly between different mineral basins, according to N. Algaa, executive director of the Mongolia National Mining Association.
“Apart from the transit railway, domestic transportation is important,” he said in an interview in August with The UB Post. “If Mongolia doesn’t construct a railway, we will never create a stable environment for supplying products,” he added.
A sticking issue, however, is whether Mongolia will retain the Russian broad gauge as its rail track size for the new projects outside the expansion of the Trans-Mongolian line or change to the standard international width used by China. Currently, Mongolia’s rail network uses the 1520-mm broad gauge, a legacy of the Soviet era. While this allows for ease of shipment to Russia, it means any cargoes destined for China must be transferred to different wagons at the border.
Both Russia and China have a vested interest in seeing Mongolia’s rail network upgraded due to the steadily increasing transit trade between them via Mongolia, which currently represents at least a quarter of total rail freight and provides a significant source of revenue for Mongolia.
China already takes up to 90% of Mongolia’s exports, mainly minerals, and ships in 37% of its imports, with bilateral trade valued at $6bn in 2013. During the latest meeting, the two governments pledged to lift this to $10bn by 2020.
The issue of which gauge to use has become a political one, with some members of parliament and the public concerned that aligning the national network with that of China will increase the country’s dependence on Beijing, rather than diversifying its trading partners and export routes.
“Xi’s visit I think went a long way in easing Mongolia’s fear of China dominating Mongolia’s economy by opening up its ports and railway. This will no doubt make it easier for Mongolia’s parliament to approve standard gauge railway from Tavan Tolgoi to China,” economist and editor of CoverMongolia NewsWire, “Mogi” B. Munkhdul, told OBG.
Mongolia, however, is not solely focusing its attentions on Russia and China. The longstanding “Third Neighbour” policy aims to increase development, cooperation and maintain national security with the support of not only its two largest neighbours, but also other influential countries.
“Mongolia is now even closer to its third neighbours, having finally gained true access to the seaborne market, via both China and Russia, and by demonstrating its transit potential of connecting Europe and Asia,” said Munkhdul.
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