Transforming Mongolia-Russia-China Relations: The …Transforming Mongolia-Russia-China Relations: The Dushanbe Trilateral Summit",

The Asia-Pacific Journal | Japan Focus Volume 12 | Issue 45 | Number 1 | Nov 03, 2014

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Transforming Mongolia-Russia-China Relations: TheDushanbe Trilateral Summit ドゥシャンベ三極サミット　モンゴル・ロシア・中国関係の変換に向けて　

Alicia Campi

The trilateral summit among the presidents ofMongolia, China, and Russia, on the sidelines ofthe Shanghai Cooperation Organization (SCO)at Dushanbe, Tajikistan on September 11,2014, was the culmination of a deliberatesummer whirlwind policy blitz of MongolianPresident Tsakhia Elbegdorj to position hiscountry to take advantage of deepening Sino-Russian economic relations. Concerned that a“great game” to create a new version of theEurasian Silk Road was being played outwithout any Mongolian input, Mongolia’sactivist president used the celebrations aroundthe commemoration of different anniversariesin Sino-Mongol and Mongol-Russian relationsto make certain that his two powerfulneighbors did not proceed with transportationand energy cooperation without taking intoaccount the role of a mineral-rich Mongolia.The landlocked Northeast Asian nation isseeking to become an internat ionaltransportation hub and at the same timediversify its mineral exports. This spotlighttrilateral summit moment in Mongolian-Chinese-Russian relations, together with thetrips of Chinese President Xi Jinping andRussian President Vladimir Putin to Mongolia afew weeks previous, attracted attention,bordering on concern, of other Eurasiancountries, the European Union, and the UnitedStates who do not fully comprehend Mongolia’sstrategy.

A Spring and Summer of Bilateral Summitsin Shanghai and Ulaanbaatar

The Dushanbe summit came at a time whenboth China and Russia have serious foreignpolicy challenges in their home regions—Chinain the South China and East China seasinvolving clashes with Japan, the Philippinesand Vietnam among others, and Russia inUkraine resulting in increasingly cripplingeconomic sanctions. Mongolia, for its part, hashad a precipitous decline of over 62% inforeign direct investment (FDI) and reductionof its growth rate to 5.3% (one-half of 2013’s11.8%) in the first half of 2014.1 This wasconnected to concern over Mongolia’svacillating investment legal regime and aslowdown in sales of coal to China. All of thesefactors propelled increased cooperation amongthe three nat ions in the f i rs t ha l f o f2014—initially seen via a series of bilateralmeetings. The first example was the planningamong the leaders when they were in Shanghaion May 20, 2014 at the Fourth Summit of the

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Conference on Interaction and ConfidenceBuilding Measures in Asia over the timing ofthe Xi and Putin visits to Mongolia. President Xihad agreed to go to Ulaanbaatar to celebrate65 years of Sino-Mongolian diplomatic relationsand announce a new push towards energizingChina’s strategic partnership with Mongolia.Putin’s Mongolian visit, ostensibly to celebratethe 75th anniversary of the Soviet-Mongolvictory over an invading Japanese army in 1939at Khalkhin Gol (Nomonhan), was aimed atjumpstarting Russian’s morbid economicrelations with its former Cold War satellitewhose trade and investment picture has beenmonopolized for over a decade by China.Originally it seems that Xi and Putin mulledover the possibility of holding a trilateralgathering in Ulaanbaatar in August, but thistimetable ultimately was rejected becausePutin decided to squeeze in a 5 hour visit toMongolia instead on September 3rd as part of aswing through the Russian Far East. Mongolianofficials told this writer they believe that whilePutin was in Shanghai, he also agreed to notoppose Chinese proposals for deeperinvestment and economic ties with Mongolia inexchange for China’s support for Russian planson modernizing and developing rail links withMongolia.2

Xi Jinping (left) and Vladimir Putin in

China

Mongolia hosted Chinese President Xi’s statevisit on August 21-22. Mongolian leadersdeemed the visit very successful in signalingChinese recognition of the value of strongerpolitical and economic ties to Mongolia, as wellas for Chinese acquiescence to Mongolia’sdesire to develop trilateral cooperation amongChina, Russia and Mongolia on a shared visionfor a new Silk Road economic corridor. TheChinese signed 26 documents with theMongols, and Xi’s personal offer, in his addressto the Mongolian parliament which wasbroadcast live on both Mongolian and Chinesetelevision, for the Mongols to participate in his“China Dream” initiative was seen in Mongoliaas a positive gesture by the government anddomestic press. However, Mongolian blogsresonated with nervous chatter about Chinesehegemonic ambitions fueled by Xi’s strangerecital of a famous Mongolian nationalist poemin which he called Mongolia his “native land.”3

Mongolia and China signed a Joint Declarationon relations that set a bilateral trade target of$10 billion by 2020 (up from $6.2 billion in2013) under a "three-in-one" cooperationmodel , integrat ing mineral exports ,infrastructure construction and financialcooperation. The Chinese side promised toprovide Mongolia 1.3 billion RMB [US$260million] of aid within 3 years for majoreconomic projects and to possibly grant a softloan in the amount of RMB 1 billion [$162.7million]. The presidents of Mongol Bank andChinese National Bank agreed to an increase ofthe currency swap exchange from 10 billion to15 billion RMB to provide foreign currency toMongolia’s domestic market.

The five new transportation agreements mayprove the most significant of all in that theyrelate to the future of Eurasian economicintegration and Sino-Russo-Mongoliancooperation on regional rail projects. Thesewere 1) Inter-Governmental Agreement on

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“access to the seaport and transit transport” 2)Inter-Governmental General Agreement ondevelopment of cooperation of the railwaytransit transport 3) Inter-Governmental MOUon Development of Railway Cooperation 4)MOU between Min is t ry o f Road andTransportation of Mongolia and RailwayAuthority of People’s Republic of China onrenewal of the “Mongolia and China BorderRailway Agreement” and 5) Agreement on“Mongolia-China Border Port ManagementCooperation Commission” between NationalCouncil of Border Port of Mongolia and GeneralCustoms Office of People’s Republic of China.The latter document designated six Chineseseaports, including Tianjin, Dalian, and Jinzhou,for the transit of Mongolian exports to overseasmarkets. A key breakthrough for the landlockedMongolia was the agreement that two-thirds ofMongolian goods transported on Chinese railswould be destined for the Chinese market whileone-third would be for export via Chineseseaports to third countries. Border crossing co-operation and access to rail capacity withinChina were promised, and four new Mongolianports (Shiveekhuren, Bichigt, Gashuunsukhaitand Nomrog) were opened for rail transport.New tariffs and additional volume forMongolian cargo on Chinese railroads wereestablished, and China also gave Mongolia a40% discount on current transportation tariffs.The big catch to all of these agreements is thenecessity to secure ratification by theMongolian parliament, which remains dividedon new rail links to China and which size railgauge to use.

Mongolian President Tsakhia Elbegdorj(right) and Xi Jinping

Not two weeks later the Mongols welcomedRussian President Putin’s visit as visual proof ofa new era in Russian economic investment inMongolia to balance nearly total Chinesemonopolization (89% in 2013) of Mongolia’sforeign trade. The 14 bilateral agreementssigned were vaguer than those with China, butof greater importance was Putin’s politicalmessage that Russia had not forgottenMongolia. What is most interesting about therail projects covered in the Russo-Mongolianagreements is the potential impact on Sino-Russian rail cooperation. An example is theelectrification and construction of a secondtrack for the 1100 km (684 mile) rail fromMongolia’s northern border with Russiathrough the planned Sainshand mineralsprocessing industrial zone in the Gobi to ZamynUud on the Chinese border. Russo-Mongoliancooperat ion a lso covered explor ingdevelopment of a western Mongolian railwayline joining Russia and China for Russianexports to China, India and Pakistan, as well asresearching utilizing the 230 km (143 miles)Choibalsan–Erentsav eastern railway for transitgoods into northeast China. During the pressconference that Putin held at the end of theMongolian visit, he singled out bilateraltransport cooperation: “This is a very importantsector for Mongolia, and it is in our intereststoo to increase Mongolia’s transit potential.Mongolia is located between Russia and Chinaafter all. We are big trade and economicpartners and have bilateral trade with Chinathat will come to $64 or already $65-67 billionthis year. It therefore makes sense to putMongolia’s transport possibilities to greateruse than is the case today.”4

Dushanbe Trilateral Summit

The Mongols in the spring had begun to talkpublicly about a trilateral summit meetingtaking place in Ulaanbaatar. When it finally

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occurred in Dushanbe, President Elbegdorjparticularly hailed the meeting as a historicallysignificant first in the history of the threecountries5 and suggested it take place everythree years in Mongolia. Both Xi and Putinexpressed their general interest but did notconfirm the venue and timing. President Xiproclaimed that the trilateral summit was of“great significance to deepening mutual trustamong the three parties, and pushing forwardregional cooperation in Northeast Asia.”6 Hesaid that his Silk Road Economic Belt initiativemeshed well with Russia's transcontinental railplans and Mongolia's desire to build up aChina-Mongolia-Russia economic corridor in itsTalyn Zam [Steppe Road] program. However,he cautioned that if this concept were tosucceed, the three nations needed tostrengthen traffic interconnectivity, facilitatecargo clearance and transportation, and build atransnational power grid.7 As for Putin, henoted that: “Things discussed at this meetingcreate the appropriate mechanism to discussand resolve the largest projects to beimplemented by us in the future, and weagreed to promote our cooperation in thisregard.” Moreover, the Russian leader assertedthat the geographic proximity of Mongolia,Russia and China facilitated long-term projectsin infrastructure, energy and mining: “We havethings to discuss and we find it important,feasible and useful to establish a regulardialogue.”8

Many foreign observers saw the Dushanbemeeting as proof of China and Russia’sdeepening coordination, especially regardingMongolia and the greater Eurasian continent.However, equally discussed was the concern ofMongolia’s “third neighbors” about the realintentions of President Elbegdorj. Despite thestrong democratic record of Elbegdorj from hisdays in the streets as one of the key protestleaders who brought down Mongolia’scommunist government in 1990 and the factthat the plethora of agreements with bothChina and Russia to improve Eurasian

transportation connections through Mongoliaalso should help Turkey, Europe, Japan andSouth Korea to become stronger regional tradepartners, Mongolia’s new strategy has caughtmany, including in the restless foreign investorcommunity, off guard. When a Mongoliandelegation visited New York and Washington inconnection with President Elbegdorj’s speechto the United Nations General Assembly in lateSeptember, its members were met with abarrage of questions from American officialsabout the future of Mongolian allegiance to itspolicy of reaching beyond its two borderneighbors to integrate into the world economy(the so-called ‘third neighbor policy’), as ifMongolia were returning to a pre-democraticmentality.

This concern, while understandable, arisesfrom a lack of understanding of Mongolia’soverall trade predicament and its limitedoptions to find a way forward. After 20 years ofunsuccessful efforts to find new trade partnersother than its two border neighbors for itsminerals and animal by-products, Mongols ofall political persuasions came to recognize thatthey cannot ameliorate the Chinese monopolyover the ir economy wi thout carefu ldevelopment of real transport and pipelinea l t e rna t i ves t o the i r p resen t poorinfrastructure. Following World Bank and IMFadvice to just build new roads and rail spurssouth to service the Chinese market wouldmerely perpetuate the dependence on China,yet it may be necessary in the short- and mid-term to keep the economy afloat. A longer termstrategy of reviving Russian economicinvestment in Mongolia and building transportinfrastructure north to link with the Trans-Siberian rail system as well as promotingMongolia as a reliable and cheaper alternativefor Sino-Russian transit traffic within a greaterEurasian transit zone are absolute necessities.Moreover, Elbegdorj and many otherMongolian policymakers are clever enough torecognize that the Chinese-Russian politicalrapprochement, which is based on economic

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self-interest, can only profit Mongolia ifMongolia is seated at the negotiating table andparticipating in drafting new transport andenergy growth models. Thus the U.S. and otherdemocracies should be supportive ofMongolia’s strategy of trust building aspossibly leading to greater Northeast Asianpolitical stability and being economicallybeneficial to American allies such as Japan,South Korea, and Australia.

Progress after Dushanbe

Since the tripartite summit, the Mongols havemoved to maintain the momentum of Sino-Russo-Mongolian cooperation. Elbegdorjannounced after the SCO that Ulaanbaatarwould host a meeting on implementing theRailway Transit Transportation agreements justsigned among the three governments and setup a working group to study linking CentralAsia’s natural gas fields to China and SouthKorea through Mongolia via Russia’s “WesternCorridor of Natural Gas.”9 The Mongoliangovernment on October 15th at the 18th regularmeet ing o f the Mongo l i an -Russ ianIntergovernmental commission on trade,economic, science and technical cooperationinitiated a Steppe Road highway projecttogether wi th the Russ ian companyDalistroimachanizasiya to develop a 997 kmhighway, 1100 km high voltage electrical line,gas and oil pipeline from Altanbulag at thenorthern border through Ulaanbaatar to Zamin

Uud on the southern border.10 On October 20th

an MOU for a high speed rail line projectlinking Beijing and Moscow through Mongoliawas signed by Russia and China during a visitto Moscow by the Premier of the PRC StateCouncil Li Keqiang. This new passenger trainproject would reduce the 7000 km journey from6 days to 2. Cost projections for the new railline are set at US$ 230 billion on a 5-yearconstruction time schedule.11 The line wouldparallel the route of the present UlaanbaatarRailway, which likely would be turned oversolely to freight traffic. A few days later inMongolia’s parliament a draft bill was approvedthat permits for the first time narrow-gauge(1,435 mm) railroad spurs from coal processingplants to the Chinese border for transportingraw minerals (Tavantolgoi-Gashuunsukhait,Sainshand-Zamiin Uud, and Khuut-Bichigt),contingent on agreement on border crossingcooperation between Mongolia and China. TheRussian wide gauge (1,520 mm) spurs wereapproved for Arts Suuri-Erdenet, Tavantolgoi-Sainshand-Baruun-Urt-Khuut-Choibalsan, andKhuut-Numrug, while the Sainshand andZamiin Uud lines were eliminated from thegovernment’s proposed plan because of thenew Sino-Russo rail agreement.12

The above-mentioned transport and energyprojects clearly indicate that Mongolia is nowwell positioned in the middle of Chinese andRussian plans to expand their transportationcooperation throughout the Eurasian region.This trend is likely to continue, particularlywith the continuing delay on the developmentof the second phase of the giant Rio Tinto-controlled copper and gold deposit at OyuTolgoi. That project has been touted asinextricably linked to Mongolia’s economicdevelopment. While that assessment is stilltrue, Mongolia has many domestic factors toconsider before coming to a final solution onhow to proceed. With the indecision and delay,western investors have grown weary and leeryof entering into big new mining projects inMongolia at the central government level which

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might be derailed by local and environmentalgroups locked out of the original negotiatingprocesses . A lso , many Mongols areuncomfortable with the present reality of majorwestern companies acting as middlemen tomove Mongolian raw minerals to Chinesecustomers—a pattern that further strengthensChinese monopoly over its economy.

Mongolia now has an alternative to this type offoreign investment—increase its role as at rans i t cor r idor in the reg ion as i tsimultaneously develops its dual rail gaugeinfrastructure in a more balanced manner sothat its products are better able to reach newtrade partners, and it profits in transit feesfrom exploding Sino-Russian trade.

Ultimately this plan could break China’sstranglehold on Mongolian trade by helpingJapan, South Korea, Southeast Asia andVietnam sell their goods as alternatives toChinese ones to Mongolia, especially if NorthKorean ports are developed to avoidVladivostok congestion. Also, a modernized railsystem across Eurasia would permit Turkey,the Middle East, Iran, and Europe to grow theirtrade with Mongolia in a substantive fashion.However, the ever present danger of this newgame plan lies in Mongolia’s ability to managethe influence of the Sino-Russian partnership inits domestic political scene. Mongolian historytells us that rising Chinese and Russianeconomic ties brought strong politicalpressures and even bloody competition. As the

21st century progresses, the challenge ofbalancing economic benefit and nationalsecurity remains key for Mongolian leaders.

Alicia Campi has a Ph.D. in Mongolian Studiesfrom Indiana University, was involved in thepreliminary negotiations to establish U.S.-Mongolia bilateral relations in the 1980s, andserved as a diplomat in Ulaanbaatar. She has aMongolian consultancy company (U.S.-Mongolia Advisory Group), and writes andspeaks extensively on Mongolian issues. Shehas published over 80 articles and bookchapters on contemporary Mongolian, Chinese,and Northeast Asian issues, and advisesChinese and western financial institutions onMongolian investment, particularly in themining sector. She is the author of The Impactof China and Russia on U.S.-Mongolian PoliticalR e l a t i o n s i n t h e 2 0 t h C e n t u r y .(http://www.amazon.com/dp/0773447539/?tag=theasipacjo0b-20)

Recommended citation: Alicia Campi,"Transforming Mongolia-Russia-ChinaRelations: The Dushanbe Trilateral Summit",The Asia-Pacific Journal, Vol. 12, Issue 45, No.1, November 10, 2014.

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Notes

1 Economic growth in Mongolia deceleratedsharply from 8.7% year on year in the finalquarter of 2013 to 7.5% in the first quarter of2014 and to 3.8% in the second, as stimuluswas partly withdrawn and foreign directinvestment plunged by 62.4%, tamping downinvestment by 32.4%. ADB, Asian DevelopmentOutlook 2014 Update (Manila, 2014).

2 Author’s interviews, Ulaanbaatar, August 7-8,2014.

3 From the Natsagdorj poem, “My NativeLand.” Xi read this to open his August 21, 2014speech to the Mongolian parliament.

4 “Answers to journalists’ questions following aw o r k i n g v i s i t t o M o n g o l i a , ”(http://eng.kremlin.ru/transcripts/22900)President of Russia website (September 3,2014).

5 With the exception of a tripartite meeting held

almost a century ago at the level of vice foreignministers. G. Purevsambuu, “First-ever summitheld between Presidents of Mongolia, Russia,and China ,” The Mongol Messenger(September 19, 2014).

6 “China, Russia, Mongolia to Create EconomicC o r r i d o r , ”(http://thebricspost.com/china-russia-mongolia-to-create-economic-corridor/#.VEqSQDHD-po4)thebrickspost (September 12, 201).

7 Mongol Messenger (http://www.president.mn)(September 19, 2014); website of President ofMongolia (September 11, 2014).

8 Mongol Messenger (September 19, 2014).

9 E l b e g d o r j s p e e c h(https://apjjf.org/admin/site_manage/details/wwwpresident.mn/eng), website of President ofMongolia (September 11, 2014).

10 “B. Ooluun, “1000 km highway planned toconnect China and Russia,” The MongolMessenger (October 17, 2014).

11 “Russia and China high speed rail line acrossM o n g o l i a p r o j e c t M o U s i g n e d , ”(https://apjjf.org/admin/site_manage/details/english.news.mn/content/192608.shtml) Montsame

(October 20, 2014).

12 “State Policy on Railway Transportationf i n a l l y a p p r o v e d , ”(https://apjjf.org/admin/site_manage/details/english.news.mn/content/193145.shtml) Montsame(October 24, 2014).