Mongolia and the People's Republic of China - Paths to a Strategic Partnership (2003-2011)
The world is on the move. The fourth industrial revolution and the associated digitalisation of society have long since begun. Who will determine the new world order? Who will emerge victorious from it? The power struggle to reorder international relations is felt daily and worldwide. Mongolia, too, must determine its foreign policy coordinates and integrate. At this time, it makes sense both to look back and to work out new concepts. Here is a review by a German Mongolist from the perspective of 2016.
Reflections of a German Mongolist from 2016
Mongolia and the People's Republic of China
Paths to a Strategic Partnership (2003-2011)
Certainly, the foreign policy of a classically continental country like democratically constituted Mongolia, which finds itself squeezed between the great powers Russia and China, is not as simply structured as that of some other countries. The need to assert its perennial interests under the complicated conditions of an "insularity", its very different historical experiences with its geographical neighbours, and the one-sided fixation of its fragile economy on nomadic cattle breeding mining and the export of raw materials to China as its only market, Mongolia oscillates between a relatively predictable foreign policy concept on the one hand and complicated foreign policy manoeuvres and "games" on the other, which embed it in larger constellations of power and relationships such as communities of values, strategic cooperations, medium- and short-term alliances, and political games played by regional and international players. This also includes the thoroughly multifaceted combination of foreign and domestic political "games" according to a scenario that is sometimes worked out in advance and also integrated elsewhere, with some main and secondary playgrounds, with actions that pretend to have other objectives, and with the planned interplay of one's own national interests and proxy interests consciously entered into because of the expected benefits, as well as domestic chaotic effects calculated in a goal-oriented manner, etc. At the core of it all, one can always recognize the endeavour to balance the influence of the geographic neighbours (above all China's) with the help of "third" neighbours and at maximum profit, in order to gain more security and a consolidation of one's own independence and, in view of the lack of access to the sea, to gain access to the world unhindered by the neighbours. It should not be overlooked that the "third" neighbours are also sometimes the object of this "balancing". A study on Mongolian security policy written in China in 2007 assumed that Mongolia was assigned the role of a "democratic wedge" between Russia and China by the USA at the beginning of the 1990s. Since then, the authors wrote, the following pattern could be discerned in Mongolian security policy: A. reduction of Russia's and China's influence on Mongolia with the help of the USA, B. balancing of China's influence by means of Russia's, and C. balancing of Russia's influence by means of Chinese influence. (Needless to say, this construct was and is of particular interest to the US, which regards both Russia and China as strategic rivals).
Mongolia built up good neighbourly relations with Russia and China, but also took a modicum of care to ensure that the rivalry between the two neighbours did not lose any vitality on its territory. It therefore welcomed the fact that the Russian side took into account the value of Mongol independence in its defense concept for the Siberian territories, which is why it itself paid due attention to the "Chinese memory" that Outer Mongolia had once been in the inventory of the Manchurian Qing Empire. In its 1994 foreign policy conception, Mongolia emphasized that it "does not follow any of its neighbours unilaterally, maintains balanced relations with them on the whole and broad cooperation in accordance with good neighbourliness."[i] It also kept in mind the Mongolian peoples in the Russian and Chinese borderlands. The aforementioned conception states:
"2. expand relations and cooperation with the Mongolian nationalities located outside the borders; assist each other in preserving and developing their language, culture and tradition; receive support and assistance from them for the development and progress of Mongolia".[ii]
On the whole, the implementation of these policy lines in Mongolia's practical foreign policy could and can actually be understood, but the specifics of the geographical neighbours, Mongolia's own domestic political development and also the later policy of the "third neighbour" partly set objective limits to the objectives laid down in the foreign policy concept. Thus, from about 1998 onwards, the equal status between their two geographical neighbours was lost in their foreign trade relations. By 2003, the Russian share of Mongolia's foreign trade had dropped to 21.63 per cent, while the Chinese share had risen to 34.10 per cent. But the Kremlin was still relaxed about this. The most important Mongolian state-owned enterprises were Mongolian-Russian joint ventures, some of which, like the "Ulaanbaatar Railway", were even of a strategic nature. The almost 100 per cent Mongolian fuel import from Russia and the old debts from Soviet times of about 11 billion USD seemed more than sufficient to keep the "foot in the door". Serious economic relations of the West did not exist anyway. Political relations with Mongolia showed a brief upswing through the state visit of President V.V. Putin in 2000, but then quickly lost momentum. China, on the other hand, worked intensively and continuously to improve its relations with Mongolia, which was helped by the fact that the ex-communist Mongolian People's Revolutionary Party (MPRP) had held almost all parliamentary seats and formed the government since the 2000 parliamentary elections. The president of the Mongolian state was also a former MPRP leader.
China approaches Mongolia
The state visit that China's President Hu Jintao paid to Mongolia on 26 June 2003 was therefore expected to give a strong boost to the development of bilateral relations. The two presidents proclaimed the development of relations into "a good neighbourly partnership based on mutual trust". In the Joint Statement of this visit, the sides reaffirmed each other's "respect for their independence, sovereignty, territorial integrity and their respective chosen paths of development." The communiqué also said:
"The Chinese side expressed its support for Mongolia's nuclear-weapon-free status and Mongolia's course of not stationing foreign troops and weapons, including nuclear and other weapons of mass destruction, on its territory. The sides reaffirmed that they will not participate in any military and political alliance directed against each other and will not conclude any treaty or agreement with any third country that would cause harm to the state sovereignty and security of the other side."[iii]
China attached particular importance to the first part of this passage. The Mongolian Basic Law (1992) had originally prohibited "Stationing foreign military forces in the territory of Mongolia or admitting over the state border to traverse."[iv]However, on 8 January 1998, this prohibition was lifted by a law (which was also foreseen as possible in the Basic Law).[v] If China also took into account the vague text of the "Agreement on Military Exchange and Mutual Visits" concluded between Mongolia and the USA in 1996, it at least felt that its interests were affected, especially since in May 1998, in a "Joint Communication Mongolia-USA", the USA for the first time committed itself to"a secure, independent, democratic and prosperous Mongolia".[vi]In addition, Mongolia was explicitly listed for the first time in the "United States Security Strategy for the East Asia-Pacific Region" in the same year.[vii] All this was reason enough for China to enter into corresponding bilateral agreements with Mongolia, with which it shares a 4,700-kilometre border. Mongolia and China agreed during Hu Jintao's state visit to "vigorously develop mutually beneficial trade and economic relations" and defined
"the promotion and support of trade and investment, the deepening of cooperation in the fields of mining and manufacturing, the exploitation of natural resources and the development of infrastructure."[viii]
as the main branches of further bilateral cooperation. Hu Jintao granted Mongolia a soft loan of USD 300 million. If Mongolia had taken advantage of this immediately, China would have become Mongolia's largest donor overnight.
Russia follows suit
Whether agreed with China or not, Russia quickly followed suit. After a tough struggle with itself, it decided at the end of 2003 to cancel Mongolia's old debt of about 11 billion USD, with the exception of 2 percent of the total amount. This was a very pragmatic act. China intended to be a major investor in Mongolia's strategic sectors such as mining and infrastructure. Russia had to catch up if it did not want to leave Mongolia to China alone. The Mongolian and Russian prime ministers therefore agreed at a meeting in Moscow on 1 July 2003 "to expand their investment cooperation on all sides... with a view to exploiting larger deposits of raw materials and developing Mongolia's infrastructure".[ix] The intensification of military and military-technical cooperation was also one of the prime ministers' central topics. It went without saying that these decisions accelerated debt relief, because the debt would have hindered investment cooperation with Mongolia. However, Russia attached conditions to the debt relief. Mongolia was to pay the aforementioned 2 per cent of the old debt immediately and join the Shanghai Cooperation Organisation (SCO). The Mongolian government paid the 2 per cent by borrowing the sum from the Canadian mining company Ivanhoe Mines, which operates in Mongolia, at 3 per cent interest for the term of one year. Mongolia then joined the SCO in 2004 with observer status. It thus opted for a compromise that Russia later said had been tailored specifically for Mongolia.
A sense of confinement
In this concrete situation, however, Mongolia gained the impression of being absorbed by its geographical neighbours to such an extent that it ran the risk of being pushed back into the old trilateral pattern of relations long thought to have been overcome. The USA did not like the situation either, as it seemed to endanger Mongolia's democratic status, which played an important role in its strategic plans to contain China. The USA reacted. In early 2004, Mongolia and the USA issued a "Joint Statement on Bilateral and Regional Cooperation" on the occasion of the visit of U.S. Undersecretary of State L. Armitage to Ulaanbaatar. The title drew attention. They agreed to develop their "cooperative relationship based on shared values and a shared commitment to democracy, a free-market economy, and the global war against terrorism".[x] The U.S. expressed its willingness to support Mongolia "to integrate itself into regional and international economic and financial structures" and to include it in the aid programmes of the Millennium Challenge Corporation. L. Armitage expressed "American concern" that the parliamentary election to be held in June 2004 might not be "honest". He called on the opposition to form an alliance to restore balance in parliament. As a result, American NGOs active in Mongolia, such as the International Republican Institute, the Peace Corps, the National Endowment of Democracy and NGOs of strategic US allies, intensified their support for the opposition. But China did not remain idle either. At the end of April 2004, Mongolia and China held their first consultative meeting on defence and security issues in Ulaanbaatar, attended by the deputy chief of staff of the Chinese People's Liberation Army. The fact that both sides agreed on joint military manoeuvres was probably a reaction of China to the anti-terrorist exercises that Mongolia and the USA conducted annually on Mongolian territory under the name Khaan Quest from 2003 onwards.
The parliamentary election on 27 June 2004 changed the situation. The MPRP, which had thought to have the best chance of a high electoral victory due to its successful economic policy, was surprisingly confronted with a stalemate. It had to "share" the election victory with the western-oriented alliance "Motherland Democracy" and formed a grand coalition government with this alliance under Prime Minister Ts. Elbegdorj (Democratic Party). (The MPRP would never again succeed in winning an election or forming a government on its own). After the "half" victory in the 2004 parliamentary election, MPRP leader N. Enkhbayar managed to win the 2005 presidential election. When Enkhbayar met with Inner Mongolian Oyuunchimeg, the personal envoy of Chinese President Hu Jintao, after being sworn in as president, he pointed out that China's rapid economic development would provide Mongolia with valuable opportunities. Mongolia wanted to intensify economic and commercial cooperation with China in order to accelerate its own development. It went without saying that Enkhbayar also secretly remained in talks with the Canadian company Ivanhoe Mines about a major Western investment. But Enkhbayar's political influence almost inevitably declined when he accepted the presidency. By law, he was obliged to abstain from party membership as president. He thus had to relinquish the function of MPRP chairperson. Enkhbayar therefore had his confidant, M. Enkhbold, the representative of the influential city faction in the MPRP with close ties to China, elected as party president.
The "third" neighbour
But the government, now led by the democrat Ts. Elbegdorj, also oriented itself towards the implementation of the foreign policy concept of the "third neighbour" since 2004. In concrete terms, this included close, all-round cooperation with the USA and the Western industrialized countries, which saw themselves as being united with Mongolia in a community of values. For Mongolia, the goal of this concept was clear to balance and slowly contain the influence of its geographical neighbours (above all China). Large-scale investments by the "third neighbours" were supposed to "neutralize" the strong economic positions of Russia (joint state-owned enterprises) and of China (largest foreign trade partner and investor). The only suitable sector for this was undoubtedly mining, especially since Mongolia seemed to be among the top ten in the world in terms of its wealth of raw materials. Here, under certain legal conditions, large-scale investments were not only possible, but were also able to exert geopolitical influence. Mining thus had the character of a strategic segment for all sides involved. Here, one could materialize one's strategic interests, obstruct and control the interests of third parties and, as a third party, also influence Mongolia's neighbouring markets in some way. In fact, the real options gave considerable wings to the fantasies of geopoliticians involved. The entry point for the development of a major Western investment was undoubtedly offered by the Canadian company Ivanhoe Mines, registered in the Virgin Islands, which had explored one of the world's largest copper (gold) deposits in the Oyuu Tolgoi area. Ivanhoe Mines listed its shares on the Nasdaq exchange in New York from November 2003. The company had not entirely unselfishly "helped out" the Mongolian leadership by taking out a loan to pay off the remaining debt to Russia. It gained not only interests from the deal, but also 40 mining licences in the Oyuu Tolgoi area (covering a total of 238 square kilometres), which were transferred to it on 16 December 2003 with a term of 60+40 years. One of the licences alone was valued at USD 900 million in 2012. The fact that a few million USD were also "stuck" in the old debt deal, which was strangely brokered by a Czech company, was seen by Ivanhoe Mines as the "joker up its sleeve" for future negotiations. However, it was already clear that Ivanhoe Mines would not be able to be the actual major investor in the final analysis. The company, which specialized in exploration, simply did not have enough capital. What was needed, therefore, was a suitably experienced and solvent partner.
America sends signals
Meanwhile, Russia and China used the 800th anniversary of the founding of the Mongolian state (2006) to send high-ranking delegations to Ulaanbaatar to make concrete proposals for their own large-scale investments in mining. The visitors did not come by chance. The Mongolian visits of U.S. Secretary of Defence D. Rumsfield and U.S. President G. W. Bush a year earlier had sensitized and mobilized the geographical neighbours. President G. W. Bush, who seemed to promise Mongolia strong security guarantees, at least verbally, as a "fortress of North Asian democracy" and referred to the USA as Mongolia's "third neighbour", equated communist ideology with Islamic extremism during a speech at the Ulaanbaatar State Palace. He stated, among other things:
"Like the ideology of communism, Islamic radicalism teaches the innocent can be murdered to serve their brutal aims. Like the ideology of communism, it is dismissive of free peoples, claiming that men and women who live in liberty are weak and decadent."[xi]
It went without saying that Beijing drew conclusions for its own security concept from the classification of Mongolia "as a stronghold of North Asian democracy" and the equation of communist ideology with Islamic extremism.
But the USA also took swift action. The Mongolian-American exercise Khaan Quest was already included in the register of international military exercises in 2006. The fact that the USA had also put Mongolia on the list of the few countries to receive aid from the Millennium Challenge Corporation (MCC) indicated that they themselves were aiming for larger investments in Mongolia. This also seemed to be confirmed by the Mongolia visit of ex-U.S. Secretary of State James Baker in March 2006, who in his talks with the prime minister and deputy prime minister called for the accelerated conclusion of the Oyuu Tolgoi contract with Ivanhoe Mines. Russia and China viewed these events with great suspicion. They agreed that the materialisation of Western influence through such a major investment was ultimately against their security interests in Mongolia.
In November 2007, Presidents N. Enkhbayar and G.W. Bush signed the contract for the free MCC aid of USD 285 million. 188.36 million USD of this sum, the amount of which was "coincidentally" reminiscent of the loan offered by Hu Jintao in 2003 but not accepted (sic!) by Mongolia until then, had been earmarked for railway projects. Russia understood this as an American advance on one of its strategic domains in Mongolia, the Mongolian-Russian joint venture "Ulaanbaatar Railway".
Self-esteem and tactical games
The fact that the "greats of the world" were increasingly greeting each other in Ulaanbaatar, like on the occasion the commemoration of the founder of the empire Čhingis Khaan a year earlier, strengthened Mongolian self-confidence and self-esteem enormously. President G. Bush seemed to be aiming at exactly that when he said in an interview about Mongolia:
"The form of your state system is democracy. But there is also reason to associate it with your tradition and tremendously great history."[xii]
Mongolia enjoyed great demand from the part of great powers, but also faced a dilemma. All the major powers suddenly intended to get involved in Mongolia's mining or infrastructure. Western powers explained their claim with a "materialization of Mongolian security interests" through their investments. But the soft pressure exerted from all sides left Mongolia at risk of losing control over these processes and getting caught up in interest games that had little to do with Mongolia's national interests. It was therefore the order of the day for the Mongolian leadership to play for time in order to be able to settle things with a sense of proportion. President N. Enkhbayar moved "mutually beneficial and compensatory" cooperation with Russia and China in the field of transport to the top of Mongolia's list of priorities during the SCO summit in Shanghai (2006). This seemed very logical, as transit transport was an absolutely vital issue for a country without access to the sea like Mongolia. On the other hand, the proposal allowed to suspend the discussion on other possible fields of investment for a certain period of time.[xiii]
Dubious corrections to the Natural Resources Law suspended this law for a certain period of time. The adoption of a business-unfriendly law significantly worsened the investment and business climate in Mongolia. The interest of some Western investors weakened and the pressure eased. A significant number of foreign gold companies withdrew from Mongolia. But they did not leave behind a real vacuum, because Mongolian mining companies had long since possessed the money, the technical-technological know-how and the experience to finally take over the sinecure themselves. Mongolia now began to propagate more strongly not only Oyuu Tolgoi but also the huge coal deposit in Tavan Tolgoi (approx. 6.5 billion tonnes, 40 percent of which is coking coal). The situation obscured the fact that in the meantime intensive work was being done to change the raw materials and tax legislation with a view to the Oyuu Tolgoi project with correspondingly favourable regulations. Since the conclusion of the contract would in any case take place years later, there was initially no real rush to improve the investment and business climate. However, the passing of the law on the taxation of surplus profits in gold mining meant that the state lost control over the gold trade. The gold flowed off into unknown channels, most of which were destined for China.
In October 2007, the former MPRP general secretary S. Bayar was elected MPRP chairperson and also took over as prime minister shortly afterwards. Bayar's reputation preceded him as a self-confessed representative of the pro-Russian lobby among the Mongolian elite and an excellent strategist. The fact that he made his predecessor in the post of prime minister and MPRP chairman, M. Enkhbold, his deputy prime minister as a quasi "representative of the China lobby" seemed to be a signal toward China. President N. Enkhbayar himself was an active player in this mix of interests. During the SCO meeting in Bishkek, Kyrgyzstan, he spoke with Hu Jintao about the construction of a second railway track along the Trans-Mongolian Railway.
Dependence on world market prices and the Chinese market
The revenues of the Mongolian state flourished thanks to the increased consumption of Mongolian mining products by the insatiable Chinese market. The state budget in 2006 showed a surplus for the first time during the years of the transformation process, and so did the foreign trade and balance of payments. Coal had long since replaced copper as the main export item. Commodity prices and the purchase of coal and copper by the Chinese market were right. The Mongolian public was intoxicated by the growth figures. Some saw Mongolia as the "North-east Asian Kuwait". International media encouraged the Mongolians in this, and with good reason. Insiders, however, viewed the boom with concern. The state budget was more or less formed on the basis of the prices for coal, copper and gold. The rapid growth of revenues inflated the state budget in a short time, but the dependence of the state budget on commodity prices and the Chinese market also grew at a frightening pace. Frightening also because there were still no alternatives to the Chinese market. In Beijing, the "regulatory opportunities" inherent in this circumstance were perceived with a satisfied smile. It was also reassuring for China that they had the longer breath anyway. The problem was discussed heatedly in the inner circles of the Mongolian elite. Some pointed out that cross-party economic links had long existed and that it was therefore time to seek a balance of interests between the economic groupings organised in the MPRP and DP by forming at least a coalition government, if not convert the whole system into a presidential rule.[xiv] But how could such a coalition be brought about when major Western donors insisted on the realisation of their ideas of democracy in Mongolia? Others pointed out that the Oyuu Tolgoi project had to be pushed forward as a major Western investment. Western interests materialized in Mongolia would at least mean that the US and its strategic allies would push for Mongolia's independence and sovereignty which was endangered by its economic dependence towards China. It had long been clear that Rio Tinto would become involved in the Oyuu Tolgoi project. Rio Tinto had already bought a 9.95 per cent stake in Ivanhoe Mines in 2006, and was now considering acquiring up to 33.35 per cent of the company's shares. Others also tried to buy themselves into the project in a indirect way like the Russian oligarch O. Deripaska, who bought Gobi Energy, which held many licenses, from Ivanhoe Mines in 2008.
Western-oriented, cross-party business groups in Ulaanbaatar began to push for the investment contract for Oyuu Tolgoi with Ivanhoe Mines and Rio Tinto to be concluded as quickly as possible. This included influential forces in the MPRP, among them ex-president N. Bagabandi and party leader S. Bayar. But suddenly President N. Enkhbayar interfered in this discussion. He made it clear that as president he would only agree to the Oyuu Tolgoi contract if the Mongolian state held 51 per cent of the shares. His argument was double-edged. After all, Ivanhoe Mines had done all the exploration of the deposit at its own expense. A 51 per cent state share was common when the state itself had financed the exploration which was not the case here. However, the signing of the contract was postponed due to presidential objection.
A few days before the 2008 parliamentary election, China's Vice President Xi Jinping visited Mongolia to meet Prime Minister S. Bayar and place emphasis on Chinese companies' access to Mongolia's large-scale mining and infrastructure projects. Among the 13 documents signed during the visit, the document outlining the changes in the General Agreement on the USD 300-million loan promised by Hu Jintao in 2003 had been assigned the role of a "door opener" for mining and infrastructure projects.
Domestic political "upheavals”
But the parliamentary election changed the balance of power. The MPRP won a clear victory, but the opposition accused it of electoral fraud. Protesters stormed the MPRP party headquarters and burned it down. To the immediate observer, however, the "riots" made a strangely "orderly" impression. MPRP leader S. Bayar decided in this situation to form a coalition government together with the DP. A grand coalition meant that there was no longer an opposition in parliament. The government was thus more than capable of acting. It could basically do whatever it wanted. Nevertheless, the "upheaval" paralysed the state administration for quite a long period of time, as each of the parties tried in the usual manner to provide its activists with posts and sinecures in the state apparatus. Therefore, really important decisions could not be taken for quite a long period of time. Only the preparatory work to finalize the investment contract for the Oyuu Tolgoi project continued feverishly in the background. The U.S.-American advisor Robert G. Shapiro, who had also made himself a name in American domestic politics, along with several other, mostly U.S.-American personalities, provided the necessary argumentation for this in the daily newspapers with the largest circulation. One of Mongolia's leading foreign policy analysts, L. Khaisandai, wrote:
"From the point of view of foreign policy and security, this is a very correct step. As for our bitter lesson of having been heavily dependent on a single country in the past, the economy and the market, under the conditions when it is increasingly felt that we are becoming considerably dependent on both neighbours, especially the southern neighbour, it is of great importance to create and settle objective interests of the countries we call our third neighbours in our state. All these are ultimately objective factors arising from the objective of balancing the interests of the great powers aligned with the direction of Mongolia and the interests of our national security."[xv]
The Beijing Olympics (2008) provided the Mongolian leadership with important opportunities for talks with the Chinese side. President N. Enkhbayar was placed right next to Vice President Xi Jinping at various events. President Hu Jintao, despite an extremely tight schedule, did not miss the opportunity to have a substantial discussion with N. Enkhbayar. He made it clear that China was keen to quickly conclude agreements on 1. economic cooperation, 2. cooperation in the mining sector and 3. the provision of Chinese labour for use in Mongolia.
It was obvious that the Chinese side expected N. Enkhbayar to get a second term in office like his predecessors. But President N. Enkhbayar lost the presidential election in May 2009 to his rival from the DP, Ts. Elbegdorj, and was later not even nominated by his party in the by-election for the parliamentary mandate in constituency 24. Some insiders contributed his "bad luck", among other things, to his demand for 51 per cent government shares in the Oyuu Tolgoi project. The victory of the democrat Ts. Elbegdorj was elected to the presidency had, according to the assessment of the renowned journalist A. Baatarkhuyag, mainly external reasons. He wrote:
"The president is a representative of the U.S. orientation. He had to be elected. In the MPRP leadership, after Enkhbayar, politicians with a clear China orientation began to occupy an increasingly firm place."[xvi]
If this was the case, it was indeed basically a matter of consolidating the U.S.-oriented policy networks in Mongolia. But Ts. Elbegdorj, himself one of the activists of the democratic movement in Mongolia and a graduate of Harvard University's J. F. Kennedy School of Government Administration, also seemed to focus on shaping relations with the two geographical neighbours from the very beginning. This was also supported by the fact that he sent the former MPRP Secretary General, D. Idevkhten, and his personal advisor, C. Sukhbaatar, as ambassadors to Moscow and Beijing respectively as recently as 2009.
Prime Minister S. Bayar had gone to China to attend the Boao Forum while the presidential election campaign was still full swing. He met Vice President Xi Jinping and had an in-depth discussion with his counterpart Wen Jiabao on how to give a qualitative new input to the bilateral relations. Premier Wen Jiabao made four proposals: 1. improve the mechanisms of cooperation aimed at intensifying relations; 2. support the participation of Chinese companies in major projects in the fields of raw materials and infrastructure in Mongolia; 3. intensify bilateral financial cooperation; 4. intensify multilateral cooperation.
On 6 October 2009, the investment contract for Oyuu Tolgoi was signed on behalf of the government by the ministers of finance, mineral wealth and energy, and environment and tourism, and on the company side by Ivanhoe Mines Mongolia Inc LLC, Ivanhoe Mines Ltd and Rio Tinto International Holdings Limited. The Mongolian state was granted 34 per cent of the ownership shares. The state in turn guaranteed the companies "stabilized taxes" in all important taxes, and this against the background of the world financial crisis. The first major Western project was in place. Now it was time to think more strongly about infrastructural development.
Foreign Minister Su. Batbold, meanwhile, travelled to Beijing on 12 October 2009 for an official visit. Su. Batbold and his colleague Yang Jiechi wanted to use the 60th anniversary of the establishment of diplomatic relations in Beijing as an opportunity to raise their relations to a qualitatively new level. They therefore followed up on the results of the meeting between S. Bayar and Wen Jiabao. It was obvious that both sides wanted to achieve concrete results. Batbold expressed that Mongolia was interested in,
"increasing investment from the Chinese side and developing concrete projects and programmes in Mongolia's mining, infrastructure, energy and agriculture based on the principle of mutual benefit".[xvii]
He justified these wishes with the government's intention to process the extracted raw materials into value-added products in its own country. This required a complex infrastructure that did not yet exist in Mongolia. This point was of particular interest to China. After all, China intended not only to participate in the development of Mongolia's infrastructure, but also to connect it to its own. To this end, it had already had railway lines and roads laid right up to the common border and demanded the opening of border crossings. What were Mongolia's options? From Mongolia's point of view, no further large-scale investments from the West were to be expected in the near future, as the world financial crisis severely limited both interests and its investment opportunities. Mongolia, however, was faced with the major problem of creating the most necessary infrastructural conditions (power supply, water, transport, etc.) at least for the Oyuu Tolgoi project. And China stood ready, smiling and with an inviting gesture. It had money, engineering, technology and manpower.
Prime Minister S. Bayar resigned as prime minister on 28 October 2009 "for health reasons". The press published not very convincing reports about a "riding accident". Insiders said that he resigned in order to prevent damage to himself and his party in the face of some discussions about the unrest after the 2008 general election and the Oyuu Tolgoi project. He was succeeded as prime minister (later also as MPRP chairman) by Foreign Minister Su. Batbold on 29 October 2009 who kept the cabinet as it was with the exception of foreign minister and head of the government chancellery. China saw the new prime minister as someone with whom it could reshape bilateral relations. Batbold was a businessman, one of the country's oligarchs, had the negotiating skills of a diplomat and was not overly sympathetic to either Russia or the West. China's services had, after all, registered over a long period of time that Batbold tried to avoid stopovers in Moscow when traveling to Europe. So every step of the "new" prime minister and his cabinet had to be watched carefully.
China Threatens to Withdraw Love
On 21 October 2009, the Mongolian government adopted a "Programme for the Economisation of Foreign Relations". According to its name, the programme gave the impression that if the economy was prioritized, the political content of foreign relations, such as the common values that linked Mongolia to the West, might take a back seat. The programme seemed to be well adopted to the financial crisis which was forcing states to make pragmatic decisions. But when people in Beijing read the whole text of the programme, they became sceptical because the authors of the programme particularly sought to follow the principles laid down in the foreign policy and security concept and which demanded to conduct a "policy of balancing foreign economic interests in Mongolia".[xviii] That the Mongolian government was in the process of drafting a new security and foreign policy doctrine was well known. It was therefore necessary to wait and see how these would turn out. The experience with the 1994 concepts at least meant that Mongolia although it was flexible in decision-making, tended to adhere to these codified basic principles. China felt compelled to express its anger about the development of bilateral relations so far. As Mongolia's largest foreign trade and investment partner, which Ulaanbaatar had approached only in April of this year with a demand for about a billion USD loan, China had wisely refrained from making official comments on the Oyuu Tolgoi investment contract, for example. But an article in the “Global Times” was to depart from the restraint exercised so far. The author stressed that no Chinese company had yet succeeded in concluding a major mining project with Mongolia and that a "high wall" existed that would block Chinese investment. The article further stated:
"Mongolia’s skepticism toward China has gone too far with its plans to bar China from developing the copper and gold mine of Oyu Tolgoi… An unnamed Mongolian official was quoted by the Sidney Morning Herald as saying that ‘We have something in our blood about China…’ Due to its past history and tenuous geographical position between Russia and China, it’s understandable that Mongolia looks to balance its relationship with the major powers. Its diplomatic policy of looking for a “third neighbor” has brought it closer to the US, Japan, South Korea and Europe. But Mongolia should not forget the economic boom it has derived from trade with China… But busy business exchanges have not brought the closeness they should. Anti-Chinese feeling is still strong in Mongolia, and this is clearly reflected in government policy on natural resources. China is the closest and largest market of Mongolian mining products... Despite this, China is intentionally and consistently excluded from normal business opportunities in developing Mongolian mineral wealth… Ironically, much of this mining development would have been impossible without Chinese companies’ participation in building infrastructure and providing logistical support. Chinese companies are unfairly sacrificed for Mongolia’s strategic concerns."[xix]
In Ulaanbaatar, people read this article several times. Memories of historical experiences with China came back. Articles like this reinforced the consensus in some parts of the Mongolian elite that Mongolia had to do all it could to avoid becoming totally dependent on China. Time seemed to be pressing. For example, the Mongolian government had to deal repeatedly with attempts by China to register elements of Mongolian culture with UNESCO as China's national cultural heritage. The fact that China could also point to a rather large Mongolian minority played no role at all in this heated discussion in Ulaanbaatar.
The Research Centre of the National Intelligence Academy conducted a survey on "National Security and Foreign Policy" among 4,500 citizens in 20 aimags of Mongolia in early 2010. 70 percent answered that the influence of the great powers as well as the danger of dependence on only one state were foreign factors that negatively influenced national security. 61.5 per cent saw Chinese influence in Mongolia as particularly great. 72.2 per cent of respondents were in favour of Chinese being subject to visa requirements as before. In a representative survey conducted by the Sant Maral Foundation in 2009, only 2.4 per cent of respondents answered that China would be the best partner country for Mongolia. Russia, on the other hand, received 50.6 per cent of the votes and the USA 12.3 per cent. In China, too, these polls were read very carefully.
Ulaanbaatar decides pragmatically
But the effects of the world financial crisis, the ambitious plan of the Mongolian leadership to produce value-added products on the basis of raw materials, but also the need to create a Chinese counterpart to the Mongolian-Russian joint ventures and the western Oyuu Tolgoi project, prompted the Mongolian government to approach China more strongly. It was no surprise that this was met with a great readiness for cooperation in Beijing. From the point of view of Chinese security and economic interests, strategic cooperation with Mongolia, as broad as possible, was a "must". Anything else would have meant leaving this strategic terrain to the Russians, Americans, Japanese and Koreans. In Beijing, for example, they used to read very carefully all publications on the question of the "third neighbourhood" published in Mongolia and the USA. The USA associated this concept with the idea of building an alliance system based on "third neighbourhoods" in the Asia-Pacific region in addition to the existing system of alliances and military bases in Asia (“hub-and-spoke model”). Which states came into play for this? In any case, states like Mongolia, which felt pressured by large neighbours and wanted to open up room for manoeuvre through appropriate relations with the USA. Like Mongolia, they should be semi-democratic (common values as the basis of relations) and have a certain strategic importance in Asia due to their geographical location, raw materials or other factors.[xx]
China saw its chances in view of these patterns. While the West had provided Mongolia with broad assistance in its transformation process over the years, it had not really gained a foothold economically, despite the Oyuu Tolgoi project. The Mongolians themselves had even begun to criticize this fact to their Western partners because o this lack of economic engagement. As a rule, they were then told that further democratization, the strengthening of the rule of law, the further implementation of laws recommended by the West were necessary. The Western partners often acted in a strangely autistic manner and therefore no longer noticed that their remarks were increasingly falling on deaf ears. They had simply overlooked the fact that some of their demands had begun to affect the Mongolian elite's understanding of itself and its security, as their economic activities were primarily linked to the Chinese market. From this point of view, too, there was an interest on both the Mongolian and the Chinese sides in moving towards each other. Each side had a clearly defined pragmatic interest. Not everything was based on trust, but much was based on solid business relations. On the Mongolian side, at least, there was a much greater willingness to simply test how far one could go with China without really giving up oneself. It played no small role in this that the pro-Chinese wing, present above all in the MPRP (later MPP), had long since begun to dominate important political decisions due to its close ties with the Chinese economy. Empirical studies on the structure and networking of the Mongolian elite clearly prove this. But the statistics also made clear statements. In 2009, 4,927 Chinese companies or companies with Chinese capital participation were registered in Mongolia with a total investment volume of 2.2 billion USD. Exports to China accounted for 73.9 per cent and imports for 25.2 of Mongolia's total exports and imports respectively. Russia and China together accounted for 78.9 per cent of Mongolia's foreign trade. And the trend is upwards.
Mongolia began to send certain signals. It hosted (as an observer country in the SCO) the Shanghai Cooperation Organisation Business Council meeting in Ulaanbaatar on 23 January 2010. This meeting focused the advantages of cooperation between SCO member and observer countries, the directions of socio-economic cooperation, and information on energy, mining and investment.
However, it was not only signals that mattered, but qualitative changes. It was the Mongolian President Ts. Elbegdorj who, during his state visit to China from 28 April- 2 May 2010, was able to give the first important impulses for a qualitative change in bilateral relations. During his meetings with Premier Wen Jiabao and President Hu Jintao, Ts. Elbegdorj emphasized that Mongolia would seek long-term cooperation with China on an equal and mutually beneficial basis. He identified the production of finished mining and livestock products, transit transport and financial cooperation, such as opening a trade credit line for Mongolian enterprises, as the main possible areas of cooperation. His Chinese business partners were open to these proposals, but stressed that they would prefer above all long-term cooperation in large-scale projects. On his return trip, President Ts. Elbegdorj also held talks with the leadership of the Inner Mongolia Autonomous Region, in which he emphasized the special role of Inner Mongolia, which after all handled 80 per cent of China's economic relations with Mongolia.
"Actio = Reactio" = strategic Partnership
How seriously Beijing took the Mongolian president's offers became apparent when China's Premier Wen Jiabao came to Ulaanbaatar for negotiations just one month later. In his talks with Premier Su. Batbold about the geographical proximity, the cultural affinity of the two countries and the fact that they complemented each other economically. The advantages arising from this should be used. Wen Jiabao referred to China's willingness to cooperate with Mongolia in the fields of raw materials, infrastructure and financial services. Both sides should also envisage a free trade agreement based on a feasibility study, Wen Jiabao recommended. To also give a boost to "humanitarian relations", Wen Jiabao offered the prospect of 2,000 government scholarships for Mongolian youth to study at Chinese universities. The Chinese premier extended the credit line of the so far unused 300 million USD (promised by Hu Jintao in 2003) by another 500 million USD, of which, according to Chinese ideas, 300 million USD should be used for infrastructure development and 200 million USD for agriculture. In political circles in Ulaanbaatar, Beijing's "generosity" was viewed with concern. After all, Chinese investments already accounted for 70-80 percent of foreign direct investments in Mongolia. In Ulaanbaatar, however, there was consensus that the Chinese share should rather be reduced to 30 percent for reasons of national security.
In October 2010, the head of the International Liaison Department of the CC of the CP of China, Wang Jiarui, visited Mongolia to learn about "how the bilateral major economic development projects are developing and what development opportunities exist" at state and party level.Wang's meeting with the chairman of the (actually Western-oriented) Democratic Party, N. Altankhuyag, was particularly cordial. Altankhuyag welcomed the delegation members as "our old companions and comrades" and Wang Jiarui spoke of the DP as "a party that plays an important role not only in Mongolia but also in the world arena". The chemistry seemed to be right, at least both sides were trying hard.Some observers got the strange impression that the Chinese in the Mongolian coalition government were not counting on the MPRP of Prime Minister Su. Batbold, but on the junior partner DP.
In September 2010, Vice Premier M. Enkhbold had a detailed exchange with Vice President Xi Jinping on the sidelines of an investors' meeting in China about cooperation opportunities in the fields of infrastructure, mining and transport. Enkhbold made it clear that Mongolia's main motive for intensifying its cooperation with China was to overcome, among other development projects with China's help, the limitations resulting from a land-locked country.
When President Ts. Elbegdorj received China's new ambassador, Wang Xiaolong, in February 2011 to hand over his credentials, he emphasised in a personal conversation with the ambassador that bilateral relations should now be "enriched and developed with new content".[xxi] He referred to his last conversation with Hu Jintao and urged the ambassador to engage in the speedy implementation of the agreements made with Hu Jintao. A few days later, China's Foreign Minister Yang Jiechi came to Ulaanbaatar for an official visit. The content of the foreign ministers' negotiations focused on establishing relations of a strategic partnership between the two countries. The Mongolian Foreign Ministry registered that China was also taking vigorous steps to accelerate the development of humanitarian relations. Prime Minister Su. Batbold in conversation with Yang Jiechi stressed that Mongolia would stick to its "third neighbour" policy. This policy would rather give impetus to the further enrichment and expansion of commercial and economic relations with China, the Premier stressed. During an audience for the Chinese Foreign Minister, President Ts. Elbegdorj defined
"enhancing mutual understanding through greater deepening of political and military trust, raising commercial and economic cooperation to a qualitatively new level, and intensifying humanitarian exchanges, as well as expanding multilateral cooperation"[xxii]
as the main objectives of the strategic partnership relations.
Cooperation with China became closer. China consumed 22 million tonnes of coal per year, of which 12 million tonnes came from Mongolia alone. 80 percent of the cashmere extracted in Mongolia flowed to the Chinese market. In early May 2011, the People's Bank of China and the Mongolbank concluded a currency swap agreement with a financial framework of 5 billion yuan. It mainly promoted bilateral trade and provided liquidity. China's share of Mongolia's export was 84.8 per cent and of Mongolia's import 30.3 per cent in 2010, showing rapid growth compared to 2009. The 5,304 Chinese and Chinese-owned enterprises registered in Mongolia had invested about USD 2.5 billion in the period 1990-2010.
In June 2011, Prime Minister Su. Batbold made an official visit to Beijing. Su. Batbold and Wen Jiabao agreed to elevate the "good neighbourly, mutually trusting, partnership relations" established in 2003 to the level of a strategic partnership. The core of this strategic partnership was above all the mutual recognition of the security interests of both states. The "Joint Statement" says:
"The sides reaffirmed their mutual respect for each other's independence, sovereignty, territorial integrity and chosen path of development. The sides shall not enter into any military and political alliances against each other, shall not enter into any treaties and agreements with third countries that cause harm to the state sovereignty and security of the other sides, and shall not allow their own territory to be used by a third country to harm the sovereignty and security of the other side.
The Mongolian side believes that the Government of the People's Republic of China is the only legitimate government representing China, and reiterated its consistent support for the principled positions of the Chinese side on the Taiwan issue and issues related to Tibet and Xinjiang. The Chinese side reiterated its support for Mongolia's nuclear-free status and for the Mongolian side's efforts and endeavours to safeguard its national security and key interests through political and diplomatic methods."[xxiii]
The fact that Mongolia and China recognized each other's security interests in this way was a clear win for Mongolia, also judging by the previous history of Mongolian-Chinese relations. A few days before concluding the strategic partnership with China, it had also concluded a partnership with NATO. The fact that it was the first country in Asia ever to become a partner in this new form of NATO alliance policy was to be seen as an expression of NATO's appreciation for Mongolia's achievements in international peacekeeping operations. However, it was evident that this partnership was also intended to strengthen Mongolia's position in its relations with China. In addition, Mongolia was integrated into various systems of the democratic community of values, such as the Community of Democratic Countries, the OSCE, and so on. And even in Russia, some people used to say that they would defend Kazakhstan and Mongolia as if they were their own territory. It was this interconnected security that gave Mongolia the self-confidence to enter into the strategic partnership with China, with whom Mongolia is linked not only by "mountains and waters" but also by 426 treaties and agreements.
© Udo B. Barkmann
[i] Монгол Улсын үндэсний аюулгүй байдлын үзэл баримтлал, Ардын Эрх, 26.07.1994.
[iii] Монгол, Хятадын хамтарсан мэдэгдэл, Зууны Мэдээ, 07.06.2003.
[iv] The relevant passage in the Basic Law read: "Stationing foreign military forces in the territory of Mongolia or admitting over the state border to traverse shall be prohibited without enactment of a law." https://www.constituteproject.org/constitution/Mongolia_2001.pdf?lang=en
Look also Монгол Улсын Үндсэн Хууль, Монголын Хууль Тогтоомжийн Түүхэн Эмхтгэл, том 7 (1985-1992), Улаанбаатар 2010, p. 489.
[v] У Зайжэн, Монголын Аюулгүй Байдлын Стратеги ба Их Гүрнүүдийн Харилцаа, quoted in Орчуулгын Түүвэр, Бээжин 2009, p. 162.
[vi] Joint Statement on U.S.-Mongolian Relations, Ulaanbaatar, Mongolia, May 2,1998, https://1997-2001.state.gov/statements/1998/980502.html; Монгол Улс, Америкийн Нэгдсэн Улсын харилцааны тухай хамтарсан мэдэгдэл, Засгийн Газрын Мэдээ, 05.05.1998.
[vii] The United States Security Strategy for the East Asia-Pacific Region 1998, Pentagon, Washington, P. 35.
[viii] Монгол, Хятадын хамтарсан мэдэгдэл, Зууны Мэдээ, 07.06.2003.
[ix] Монгол Улсын Ерөнхий сайд Н. Энхбаяр Оросын Холбооны Улсад албан ёсоор айлчилсан дүнгийн тухай хамтарсан албан мэдээ, Гадаад Харилцаа, Монгол Улсын Гадаад Харилцааны яамны мэдээллийн товхимол, 10(134) 7-сар 2003.
[x] Joint Statement on Bilateral and Regional Cooperation between Mongolia and the United States of America January 31, 2004, The Mongolian Journal of International Affairs 12(2005), P. 104. Монгол Улс, Америкийн Нэгдсэн Улсын хооронд хоёр талын болон бүс нутгийн хамтын ажиллагааны тухай хамтарсан мэдэгдэл, Үнэн, 03.02.2004.
[xii] Ж. Буш, Ард түмнийхээ итгэлийг даадаг байх нь ямар ч төрийн оршин тогтнохүндэс, Ардын Эрх, 10.11.2005.
[xiii] Н. Энхбаяр, Монгол Улс эдийн засгийн интеграцийг урагшуулахын тулд хамтран ажиллахын төлөө байна, Шанхайн хамтын ажиллагааны байгуулагын гишүүн орнуудын төрийн тэргүүн нарын зөвлөлийн уулзалтад Монгол улсын Ерөнхийлөгч Н. Энхбаярын хэлсэн үг, Үнэн, 16.06.2006.
[xiv] Л. Мөнхбаясгалан, Шашин төрийг хослон баригч нь Н. Энхбаяр, М. Энхсайхан гишүүн ээ, Өдрийн Сонин, 29.02.2008; Б. Дэлгэрмаа, Ерөнхийлөгчийн оролцдоггүй салбар гэж байхгүй болсон, Өнөөдөр, 27.05.2008; Монгол Улс de facto Ерөнхийлөгчийн засаглалтай боллоо, Улс төрийн Сонин 027(135)2008; Бат-Үүл Н. Энбаяраас айж байна, Өнөөдөр, 21.08.2008.
[xv] Л. Хайсандай, Оюу Толгойн Орд ба Үндэсний Аюулгүй Байдал, Өнөөдөр, 18.08.2009.
[xvi] А. Баатархуяг, Тэсч үлдэх үү?, Өдрийн Сонин, 09.03.2010.
[xvii] Монгол Улсын Гадаад Харилцааны сайд С. Батболд БНХАУ-ад албан ёсны айлчлал хийж байна, www.mfat.gov.mn/13.10.2009.
[xviii] Монгол Улсын Гадаад Харилцааг эдийн засагжуулах хөтөлбөр, 21.10.2009, www.legalinfo.mn/law/showPrint/3251.
[xix] Mongolia's aloofness only hinders itself, http://opinion.globaltimes.cn/editorial/2009-11/481735_2.html
[xx] M. Auslin, A “Third Neighbor” Strategy for Asia, American Enterprise for Public Policy Research, No. 3, October 2008.
[xxi]Хятадын элчин сайд итгэмжлэх жуухаа өргөн барив, www.sonin.mn/24.02.2011.
[xxii] Дээд хэмжээний айлчлалын тохиролцоог урагшлуулахад түлхэц болно гэж үзэж байна, www.president.mn, 26.02.2011.
[xxiii] Монгол Улс, Бүгд Найрамдах Хятад Ард Улсын хооронд стратегийн түншлэлийн харилцаа тогтоох тухай хамтарсан мэдэгдэл, www.mfat.gov.mn/21.06.2011