Genghis (Khan) Choose: Russia or China?

Via Stratfor (subscription required), an interesting analysis of Mongolia’s regional status and the ongoing struggle between Russia and China to lure the resource-rich country closer into a closer relationship.  As the article notes:

“…Russia and Mongolia signed several agreements on Aug. 25 covering rail links and development, joint exploration and exploitation of Mongolian uranium deposits, and a declaration on developing a strategic partnership. Russia is Mongolia’s second-largest trading partner after China, and the two geographic giants continue a low-grade competition for influence in the country that lies squeezed between them. At the same time, Mongolia seeks to balance relations with its two neighbors, exploiting them for investment and development money while trying to temper their influence by seeking a third country with which to partner — a difficult task given Mongolia’s geographical isolation.

During Russian President Dmitri Medvedev’s Aug. 25 meeting with Mongolian President Tsakhiagiin Elbegdorj, Moscow agreed to resolve an outstanding debt of $150 million owed by Ulan Bator, thus freeing Russia to offer a $300 million loan for agriculture development and to increase investment in Mongolia’s rail sector. The Atomic Energy Department of Mongolia (AED) and Russia’s state-owned atomic energy corporation, Rosatom, also created a joint venture to explore and exploit the Dornod uranium deposit, the first national-level joint venture between Mongolia and another country on a uranium project.

The deal with Rosatom was made possible in part by the July passage by the Mongolian parliament of new nuclear energy legislation, which allows the state to claim a majority in domestic uranium projects. The new law triggered the suspension of foreign uranium operations in Mongolia, including those of Toronto-based Khan Resources, which holds a 58 percent stake in the Dornod deposit – a number that now may be technically in violation of the new law. Mongolia’s AtomMon company and Russia’s AtomRedMedZoloto (an arm of Rosatom) each held 21 percent stakes in the deposit. It is unclear if their stakes will rise with the new joint venture and the legal change.

The uranium, rail and loan agreements are seen as a revival of Russian influence in Mongolia. Mongolia is a large, sparsely populated, landlocked nation squeezed between China and Russia — two countries that have at one time or another dominated the Mongolian state. As such, its geopolitical imperative is to preserve its relative territorial and political independence. It does so by trying to carefully balance Chinese and Russian interests, investments and access to raw materials while exploiting the two for loans, investments and infrastructure development.

There are rumors that the new law was not only a repeat of the cycles of nationalization and privatization that have taken place in the country over the past several years, but also a way to counter the growing Chinese involvement in the Mongolian uranium and mining sector. Just a few months before the change, the China National Nuclear Corporation (CNNC) expanded its share of Canadian-based Western Prospector, one of the companies whose uranium operations in Mongolia was suspended by the July legal change.

Over the past decade, Chinese involvement in Mongolia has grown while Russian interest has seemed to wane. This left Ulan Bator increasingly concerned that the Chinese were not only gaining too much influence in the critical mining sector, but that the rising number of Chinese in Mongolia could begin to shift the balance of the population, particularly in the south. Mongolia is turning to Russia to counteract China’s growing presence. But Ulan Bator is also seeking a third country to counter any expanded rivalry between China and Russia in Mongolia.

The problem with the third-power idea is that because Mongolia is landlocked, the only way to reach the country is via either China or Russia. Mongolia has tried to lure the United States into becoming that third power (at one point giving then-U.S. Secretary of Defense Donald Rumsfeld a Mongolian horse during a visit), but Washington thus far has been reluctant to commit, due both to Mongolia’s geographic isolation and limited interest in raising tensions with Russia and China in their backyards.

Other countries have become involved, but not necessarily to the extent or breadth Mongolia desires. Canada is heavily involved in the mining sector, but not much beyond that. India has made a few inroads as a way to exert some psychological pressure on China, but the distance and isolation make this of limited value to either New Delhi or Ulan Bator. Japan has taken a more active approach to strengthening its position in Mongolia economically and culturally (through extensive language and job training in Mongolia and Japan for Mongolian workers). South Korea is beginning similar programs.

However, neither Japan nor South Korea (nor any other state aside, perhaps, from the reticent United States) offers a real balance to Russia and China. So Mongolia is left to try to play off Russian and Chinese interests through contracts, trade links and the occasional military drill. The Russians and Chinese, for their part, are not really in a hurry to “lock down” their influence in Mongolia — it is already fairly pervasive. Chinese and Russian competition over Mongolia is rather small, and barring a sudden and drastic gain by one, it will remain more of a lingering, quiet competition than a major source of tension, as opposed to the much more active and potentially destabilizing competition the two states have undertaken in Central Asia.”

This entry was posted on Tuesday, August 25th, 2009 at 12:35 pm and is filed under China, Mongolia, Russia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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