SIM Report: Northeast Asia - Issue 2
On 12 October, Mongolia and nearby Kazakhstan signed eight agreements worth USD200 million, including a project to construct a silver and gold refinery, in a bid to boost investment co-operation. This is after the ministry of finance on 10 October established a bilateral agreement with the United States Agency for International Development (USAID), a US government agency that administers foreign aid and development assistance, which granted Mongolia a further MNT17 billion (USD6.4 million) in financing for local development. The pact is aimed at diversifying the country’s economy, supporting the growth of small- and medium-sized enterprises (SMEs), and promoting clean energy.
The agreements follow state visits by Mongolian President Khaltmaagiin Battulga to Russian President Vladimir Putin and Indian Prime Minister Narendra Modi in mid-September. Both the agreements and state visits signal the Mongolian government’s increasing efforts to strengthen allegiances with neighbouring states in an effort to counter China’s expansive regional economic and military influence. This is despite existing cooperation with China, including via the China-Mongolia-Russia Economic Corridor of Beijing’s flagship Belt and Road Initiative. However, these agreements are also occurring against the backdrop of rising anti-China sentiments, and there is a credible assumption the accords are aimed at tempering these attitudes.
Anti-Chinese sentiment has historically run deep, propagated in an uneven terrain where China has held the dominant position in terms of security, geopolitics and economics. Even today, there is a considerable trade dependence; the Mongolian economy is heavily reliant on the extractives industry, and over 90 per cent of copper and coal exports go to China. Any blockages of exports into China, which may be politically motivated, will likely adversely impact the country’s economy. Following Battulga’s 2017 election victory, a slowdown in customs clearances – due to an upgrade in monitoring equipment, according to China’s customs authority – at the Chinese border caused a blockage of 100km of coal lorries, which severely cut export earnings. The slowdown was potentially in retaliation to Battulga’s election win, as his campaign was marked by anti-Chinese rhetoric. Scepticism of Chinese investments has also risen since a 2018 military operation to remove Chinese investors from a silver mine in Salkhit in the country’s north, following allegations of corrupting local courts. Dependence on China has also instigated the rise of far-right groups such as Tsagaan Khas and Bosoo Khukh Mongol, which are driven by ideological notions of racial purity and a staunch anti-Chinese agenda.
Although the Mongolian government has taken actions to diversify its international ties, rising anti-China sentiment and widespread economic woes are likely to increase protest and violent unrest risks – including by far-right groups – in at least the three- to six-month outlook. This is especially as the country’s 2020 parliamentary election is looming, and the president remains in a gridlock with the parliament-appointed government, severely impeding his ability to address economic issues, which have fomented anti-government unrest. Protests attended by thousands occurred in December 2018 and in May 2019 over the state of the economy, including the government’s perceived failure to tackle poverty, pollution, corruption, and a public health crisis. Demonstrators also pointed to the government’s apparent reneging on promises to improve infrastructure, social services, and housing.
These issues are almost certainly linked to the country’s ongoing economic problems. Mongolia was deeply affected by the 2007-2008 global financial crisis, due to a significant decrease in metal prices and a reliance on trade with China, as well as a subsequent dzud – which is a particularly harsh winter that depletes large quantities of essential livestock – in 2009-2010. Another dzud would significantly compound existing strains on the government and increase the likelihood of anti-government demonstrations. The World Bank predicts that metal and energy commodity prices will continue to fall in 2020 due to an expected lower demand amid slowing global growth. Lower demand is also likely by China, where growth is slumping, including due to the ongoing US-China trade war. This is likely to exacerbate economic grievances, and extractives firms are a likely target for mounting discontent, due to the perceived discrepancy between overall poverty levels and the country’s abundance in extractive resources.
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