Sino-Russian Competition in Mongolia
In recent years China and Russia have presented a solid façade of “strategic partnership,” with leaders emphasizing complementarity of national interests and common approaches to many international problems as reasons they work hand-in-hand. Beijing and Moscow have dismissed suggestions that their relationship is, in fact, plagued by hidden tensions as Western fabrications. Yet, there must be a middle road somewhere between naïve assertions that the relationship is made in heaven and unrealistic claims that this clay colossus is about to come undone. This article looks at policies towards their common neighbor Mongolia in an effort to locate this middle ground. Once a part of the Chinese Empire, later a de facto Soviet satellite, Mongolia has not been shy about asserting its distance from both China and Russia in pursuit of what it calls the “third neighbor” policy. This policy entails active engagement with Mongolia’s virtual “third neighbor”—a collective entity that includes the United States, the EU, countries of the Asia-Pacific rim, India, Turkey, and various international organizations. The “third neighbor” policy adds a layer of complexity to Mongolia’s relations with China and Russia.
Russia has tried to boost its waning influence in Mongolia by leveraging its existing assets—mainly, its stake in the trans-Mongolian railroad—to secure preferential access to the country’s natural resources. China, for its part, has tried to pull Mongolia ever closer into the structural embrace of its giant economy. Russia has had to defend its interests in a much more assertive fashion; China has had the luxury of just waiting for the ripe fruit to fall into its hands. Although the two have been careful not to step on each other’s toes, their economic interests are basically at odds. In this sense, it is appropriate to say that China and Russia have been in “competition” over Mongolia. However, in its current form this competition is mainly commercial and only implicitly geopolitical, and Russia’s declining economic fortunes need not translate into tensions in the broader context of the Sino-Russian relationship. In addition, Mongolia’s “third neighbor” policy offers assurance that one’s loss is not necessarily seen as the other’s gain.
Perhaps, the most interesting aspect of the Sino-Russian-Mongolian relationship is the growing importance of Mongolia’s agency. Ulaanbaatar has learned to keep both neighbors in check by playing one against the other and both against the West. This is not new or unique. Many small states engage in this kind of geopolitical manipulation; in Mongolia’s neighborhood, North Korea is but one example, but the rules of this geopolitical game are complicated by Mongolia’s unique domestic context. Unlike Central Asian states, which have succumbed to authoritarianism (Kyrgyzstan is still to prove that it is an exception), Mongolia has enjoyed a high level of political contestation. Its democratic politics have had a great impact on both China and Russia’s efforts to extend their influence, neither of which has succeeded at the Mongolian poll box.
The Railroad
Nothing better illustrates Russia’s declining fortunes in Mongolia than the row over the upgrade of the trans-Mongolian railroad, known as UBTZ. Russia has maintained a 50 percent stake in the railroad, which connects Russia and China through Mongolia—a privilege dating back to the 1949 Soviet-Mongolian agreement on joint ownership. As its economic presence in Mongolia shrank in the 1990s, the railroad has assumed even greater importance as one of Moscow’s few remaining assets in the country. Although its strategic importance is undeniable, the railroad has suffered from serious economic woes: Russia paid scant attention to its upkeep in the 1990s and the early 2000s; Mongolia, too, had little money to spare to upgrade its crumbling infrastructure, much less to expand the railroad network. This is where matters stood when, on October 22, 2007, President Nambaryn Enkhbayar and George W. Bush signed the Millennium Challenge Compact, committing some US$285 million to Mongolia’s economic development.1
The Compact, disbursed through the Millennium Challenge Corporation (MCC) was widely perceived to be a “reward” for active support of the US “war on terror,” for Mongolia had sent troops to both Iraq and Afghanistan. The money was to come in the form of grants, never to be repaid. The lion’s share of the Compact funds—more than US$188 million—was earmarked for the upgrade of the trans-Mongolian railroad, an effort to remove the bottlenecks that an antiquated rail system posed for Mongolia’s economic development. Enkhbayar deemed this investment “vital,”1 but a major obstacle to successful realization of the plan was Russia’s likely reaction.
Moscow had perceived Enkhbayar as a fairly loyal politician. A fluent Russian speaker with longstanding connections to Russia, Enkhbayar, in Vladimir Putin’s words, “kn[ew] what Russia is like,” which was one reason Moscow delighted in his election as president in 2005. “The Mongolian people elected me to a large extent because I have very good relations with the Russian leadership, with President Putin,” Enkhbayar later told Putin to the latter’s clear satisfaction. Putin had invested himself in a better relationship, in November 2000 becoming the first Russian leader since Leonid Brezhnev to visit Ulaanbaatar, after which he and Enkhbayar developed what the latter called an “intimate” relationship.3 This intimacy was bolstered in 2003 when Putin agreed to write off nearly 98 percent of the Soviet-era Mongolian debt (US$11.4 billion), a generous gesture that bolstered Russia’s standing in the eyes of Mongolian public opinion.
Nevertheless, Moscow and Ulaanbaatar remained at odds over the future of the trans-Mongolian railroad. The existing agreement, which provided for a rotating chairmanship, did not suit Enkhbayar, who resented Russia’s veto over Mongolia’s transport lifeline. Since the early 2000s he unsuccessfully lobbied Putin to change the ratio from 50/50 to 51/49, in Mongolia’s favor. 4 “The Russians said ‘OK, let’s discuss it’ but they would not go beyond talking,” said one Mongolian diplomat involved in the thorny negotiations. After discussing railroad issues at a SCO summit in June of that year, Enkhbayar concluded that Russa’s cooperation was “unlikely” and, in talks with US officials, began to “press ahead with a Mongolian-owned second rail.”5 Such ambitious plans were unrealistic, but he probably hoped that once the rotating chairmanship fell into Mongolia’s hands, he could succeed in bringing in US cash to modernize its infrastructure. Although the two countries battled for months over the appointment, the Russians yielded in the end, allowing for the appointment of a Mongolian citizen, V. Otgondemberel, as the head in 2007.
At the announcement of the MCC compact, however, the Russians dug in their heels. Bringing in US investments required opening the account books of the joint enterprise. “Why would we do that?” wondered Ambassador V.V. Samoilenko. “Why would we allow outside people to get to the documents of a Russian-Mongolian joint enterprise? This is our and the Mongols’ business, our documents.”7 In addition, there was fear that the upgrade would entail purchases of US-made locomotives at the expense of their Russian-made competitors. Underlying these considerations was Moscow’s resentment at having the United States meddle with one of its key assets in Mongolia. As a result, when the US auditing team arrived in Ulaanbaatar in 2009 to begin implementation of the MCC agreements, they failed to gain access. Moscow found itself in an awkward situation. The Mongolian media, not unjustly, cast it in the role of obstructionist bullies, hanging on obstinately to its strategic assets, undermining Mongolia’s long-term economic potential and effectively holding the Mongols by their throats. In the meantime, Russian observers succumbed to conspiracy theories to the effect that the whole idea of offering US money for the railroad—knowing that it would have to be refused—was hatched up by strategists in the State Department, who had sought to, and succeeded, in embarrassing Russia in the eyes of the Mongolian public.7
Concerned by this loss of face, Russia hurried to appear generous. In 2009, Russia and Mongolia set up a new company, Razvitie Infrastruktury, to invest in the trans-Mongolian railroad; the latter soon advertised tentative plans for a major upgrade at the cost of billions of dollars. At the same time, Moscow offered to add US$250 million to the coffers of the joint enterprise and, when Ulaanbaatar failed to come up with its 50 percent share, underwrote the entire amount. Earlier, Russia agreed to extend US$300 million as an agricultural credit. Gifts were bestowed in rapid succession in an unprecedented display of attention to Mongolia.
With money came honor: Putin and Medvedev both turned up in Ulaanbaatar in 2009, a clear sign of how important Mongolia figured at the time in the general thrust of Russia’s Asian policy. Putin’s visit occurred days before the Mongolian presidential elections, a gesture of support for the incumbent Enkhbayar, whom the Russians still perceived as someone who would look after Moscow’s interests in the region. Medvedev came to celebrate the 70th anniversary of the Khalkin Gol battle, which had pitted the Soviet Union and Mongolia against the Japanese. The intended message was that Russia had always been Mongolia’s most reliable partner, and that, as the Russian saying goes, an old friend is better than two new ones. The message was well received, though it did not prevent Ulaanbaatar from asking the MCC to reassign the forfeited railroad funds to other projects inside Mongolia. In the end, the money was used to build paved roads, proof that Mongolian policy makers managed to have their cake and eat it, too.
Riches
The Russian imperial expansion in Asia in the 19th century arguably pursued three interrelated goals: first, security; second, great power prestige, and, third, economic interests. These goals informed Russian policymaking well into the Soviet era. Certain legacies of this imperial past remain even today, underpinning renewed interest in former clients, not least in Mongolia. If, broadly speaking, prestige was the key motive for Russia’s imperial enterprise in the 19th century, and security in the 20th century, in recent times the economic component has played the most important role in Moscow’s regional policies (though the other two factors are of continued relevance). Moscow is primarily interested in Mongolia’s natural wealth, not only for the investment opportunities that they offer but also because they would allow Russia to maintain a “presence” in the region at a time when the law of economic gravity has pulled Mongolia into China’s orbit.
Whereas until the late 1980s, the Soviet Union dominated Mongolia’s foreign trade, the 1990s witnessed China’s return, as both a purchaser of Mongolia’s natural resources and a seller of all manner of goods. Today, approximately 50 percent of Mongolia’s total foreign trade is with its southern neighbor, and China has practically monopolized Mongolia’s exports.8 Russia continues to supply petroleum—its key export to Mongolia—but even this is under the shadow of the Mongols’ recent attempts to invest in oil exploration and refining, and the potential of oil shale reserves. Russia’s economic position has been slipping, and is sure to slip even further, which makes it all the more eager, for commercial as well as strategic reasons, to secure access to a share of Mongolia’s natural resources.
Russia’s involvement in Mongolia’s mining goes back decades. Soviet geologists did most of the groundwork in identifying key copper, gold, and coal deposits, and the Soviet Union invested heavily in their extraction. The most important investment was the 1973 deal to build the copper and molybdenum mining complex at Erdenetiin Ovoo. Russia owes 49 percent (to Mongolia’s 51 percent) in the joint venture Erdenet, which has been in operation for over thirty years.9 This complex, one of the world’s largest, has not proven to be much of an asset. Until Mongolia repealed its windfall profits tax, over 90 percent of Erdenet’s revenues ended in the government’s coffers, leaving scraps for the Russians. The Russian government–ever since Putin’s rise to power signaled a renewal of interest in Mongolia—has tried to expand its investment in the joint venture and to regain majority control. Leading media outlets have alluded to Russia’s imminent “takeover” of Erdenet, and, to this end, Russian shareholders still make fool-hardy (and a priori unacceptable) proposals to Mongolia about privatizing and floating parts of the venture.10 Investments were, and are, welcomed, but Russia’s efforts to regain control proved futile. Russia thus finds itself in an awkward situation of having invested heavily in a venture that it cannot, and will not control, and that, selling most of its produce to China, does not serve Moscow’s strategic interests in any obvious way. All of this makes Erdenet an uncertain base for extending Russia’s economic influence in the country, which has not deterred the Russians from trying.
Moscow worked hard to secure access to one of the world’s largest undeveloped copper and gold deposits in South Gobi, the Oyu Tolgoi, and proposed connecting the site to the trans-Mongolian mainline as a quid pro quo for its investment. Enkhbayar reassured Putin as late as January 2009 that “we [the Mongols] cannot imagine these big mining projects without Russia’s participation.” The head of Russian Railroads Vladimir Yakunin had reportedly been promised by Prime Minister Sanjaagiin Bayar in 2009 that Russia would be given access in return for building a railroad, which would connect the mining site with the trans-Mongolian line, and, via Russia, with ports in the Far East,11 but Enkhbayar was ousted later that year by the Western-oriented Tsakhiagiin Elbegdorj. In October 2009 the Oyu Tolgoi contract was awarded to the Canadian Ivanhoe Mines (now a subsidiary of the giant multinational Rio Tinto). Russian railroad services were not required: the mining site is only 80 kilometers from the border with China and, since the site became operational in 2013, the copper has been taken to China by trucks.
Having lost out on Oyu Tolgoi, the Russians have tried to gain access to the world’s largest undeveloped coal deposit, nearby Tavan Tolgoi. The key lever has once again been the railroad. In 2010 matters seemed to be heading in Moscow’s direction, when the Mongolian parliament approved a program of infrastructural development, which confirmed adherence to the Russian railway gauge (1520 mm) instead of the narrower Chinese standard. In November 2010, the Russians wrote off 97.8 percent of the US$172 million of recent Mongolian debt (in addition to the massive Soviet-era debt that it had already forgiven), in exchange for reassurances that Russia’s interests would be taken into account in awarding the contract for Tavan Tolgoi. In March of the following year, a consortium headed by the Russian Railroads submitted an official bid to be given access to 50 percent of the Tavan Tolgoi deposit, including a proposal to build a rail line, which would take the coal to Sainshand (along the trans-Mongolian railroad), at which point it could be exported south, to China, or taken north, via Russia. Moscow appeared sure of victory, given that the Russian Railroads’ bid entailed upgrading Mongolia’s rail infrastructure, an on-going concern for the Mongols ever since the unrealized promise of MCC funding.
Once again, however, the Russians misread the situation. Only weeks after the Tavan Tolgoi bid had been submitted, it transpired that Mongolia had secretly conducted negotiations with South Korea’s Lotte Group for construction of the railroad from the mine to Sainshand.12 Moscow was outraged and, later, puzzled, when in July 2011 Mongolia announced that the winning bid for Tavan Tolgoi would be awarded not just to the Russian Railroads or to its Chinese competitor Shenhua or the American Peabody Energy, but to all three. Yakunin aired his frustration: “The Mongolian side still maneuvers… between us, the Americans, the Chinese, the Japanese, and all the others; the options that are being offered are not causing us great enthusiasm.”13 He was later heard complaining that he could not understand how the crawfish, the swan, and the pike (three characters of a Russian fable) would move the cart of Tavan Tolgoi.
The cart, to be sure, remained where it was, because Ulaanbaatar failed to endorse the results of the bid it had announced in July 2011. The Tavan Tolgoi discussions soon ground to a halt, partly because of a sharp decline in the price of coal on the international market. In the meantime, the Mongolian government has decided to construct a railroad directly from Tavan Tolgoi to neighboring China, and has offered Russia a chance to participate as an investor on the condition that Mongolia would own 51 percent of the railroad. These efforts were rebuffed by Yakunin who, in March 2013, sent a letter to Mongolian Prime Minister Norovyn Altankhuyag, complaining about Mongolia having broken the promises it had made to Russia.14 “You know, we are fairly serious people, and we can count our money. It is understandable that such a scenario does not suit us,” noted the Russian ambassador to Mongolia. There is reason to be disappointed. After all, in spite of the capital (political, as well as financial) expended on “coming back” to Mongolia since 2000, and even more since 2009, and in spite of the personal commitment of both Putin and Medvedev to upgrading ties with a country that Russia still considers to lie within its immediate sphere of influence, Moscow has not attained even a fraction of the results on which it counted.
The question is why. Part of the answer is Moscow’s poor understanding of the political landscape in Mongolia. In recent years, policymakers consistently misread the political situation, placing their bids on the wrong players. Putin’s support for Enkhbayar, for instance, proved a costly mistake; Enkhbayar was not only ousted from power but ended up in jail on charges of corruption and embezzlement of funds. His replacement Elbegdorj, whom Putin neglected to meet when he visited Ulaanbaatar in May 2009, proved much less inclined to make compromises with Russia. Prime Minister and former Ambassador in Moscow Sanjaagiin Bayar, who reportedly promised to deliver mining licenses to Russia, resigned in October 2009, ostensibly due to ill health. What Moscow failed to realized was that Bayar had not been speaking for Mongolia but for his party and, specifically, for himself. Lacking friends across Mongolia’s political spectrum, the Russians invested themselves heavily into a relationship with just one end of this spectrum, as it turned out, the weaker end. The Mongolian People’s Revolutionary Party (MPRP), which Putin’s United Russia had seen as its partner, split into two factions, which benefited the more-Western leaning Democratic Party. The People’s Party (a successor to MPRP) was unable to dislodge Elbegdorj, who was reelected in July 2013, which guarantees that Russia will be kept at arm’s length at least for the following four years.
It is striking to what extent Putin had allowed his personal sympathies and antipathies get in the way of his policymaking. Unlike Barak Obama, who recently honored Elbegdorj by co-hosting with him a civil society conference in New York and Abe Shinzo who, quite without precedent, invited Elbegdorj to a meal at his residence, and to the latter’s astonishment, had his wife serve dishes to the Mongolian president in a display of intimacy and respect, Putin has basically ignored Elbegdorj, counting perhaps on better luck with the next Mongolian leader. If so, Putin is badly miscalculating. For Russia’s difficulties are not so much a function of Putin’s relations with specific politicians, and more a result of a policy consensus in Ulaanbaatar. Since the 1990s, Mongolian political elites have internalized the policy of maneuvering between China, Russia, and the “third neighbor,” so that even the idea of being “pro-Russian” in orientation has been discredited. No politician can afford to appear in the role of defender of Moscow’s interests, just as no one can plausibly defend a one-sided orientation towards China, or towards the West. Over the last twenty years Ulaanbaatar has perfected the skill of playing their neighbors against one another, something that the Russians—with their mindsets still partially rooted in the colonial past—have been unable to fully grasp.
The Chinese
If Russia has suffered from Mongolia’s changing political circumstances, China has taken a hit as well. On the one hand, Mongolia’s hopes of economic growth are rooted in recognition that, China, as the main buyer of its resources, has been the engine behind its spectacular economic performance in recent years. On the other hand, hopes are counterbalanced by apprehension of China’s penetration of the economy and the long-term economic and political consequences of such penetration for the fiercely independent nation. The potency of the China threat theory in the Mongolian political context has given rise to a number of counterproductive policies, which have taken a toll on Mongolia’s international reputation as a reliable investment partner. At the same time, however, these policies have, to some extent, frustrated China’s efforts to turn its economic leverage to political advantage.
One characteristic example of China’s setbacks in Mongolia has been the experience of Chalco, the Chinese aluminum giant. Like the Russian Railroads, Chalco has long eyed the coal of South Gobi. In July 2011 it signed a contract with Mongolia’s state-owned Erdenes Tavan Tolgoi worth US$250 million for supplying coal from the Tavan Tolgoi deposit, which set it up as the key customer at a time when Yakunin and others were just dreaming of gaining access. Separately, in April 2012, Chalco made a takeover bid for South Gobi Resources, then majority owned by the Canadian Ivanoe Mines, whose main asset is a coal field just 45 kilometers on Mongolia’s side of the Sino-Mongolian border. Describing negotiations with Chalco to international media, the overly confident South Gobi CEO Alexander Molyneux claimed the deal was basically done and did not even mention the possible reaction of Mongolia’s authorities. This was a fatal mistake.
The Mongolian media was outraged. It was one thing that a Canadian company owned an important coal deposit in the country, and quite another to have this sold to a Chinese state-owned company without any consultation with Ulaanbaatar at a time when the same company was also buying coal from Tavan Tolgoi for what many Mongolian pundits believed was a very low price in comparison with the world market price. Fears of real economic loss from China’s ability to dictate prices were augmented by nationalist sentiments at having been completely ignored in such a major transaction. “They are insulting us,” fumed one editorial.15 “Which is more powerful, Chalco’s money or the Mongolian law?” ran another headline.16 The political controversy caused by the proposed takeover happened at the worst possible time for Mongolian policymakers—just ahead of the parliamentary elections of June 2012. “Selling out” to China was just the kind of publicity that could ruin its chances at the polls, the ruling party recognized. As a result, the parliament hurried to pass a law, which required Mongolia’s official approval for any acquisition of controlling stakes in the “strategic” sectors of the economy by foreign entities. South Gobi’s mining permits were suspended. The company promptly fired Molyneux in a bid to appease public sentiment and restart production. Chalco had to beat retreat.
Chalco suffered another unexpected setback in January 2013 when Erdenes Tavan Tolgoi announced that it would stop delivery of coal to the Chinese because Mongolia did not like the price the Chinese were paying and, moreover, the company was facing transportation hurdles in the absence of a railroad. Prime Minister Altanhuyag suggested that the contract with Chalco should be “cancelled,” so that the Mongols could get a better price. The Chinese, who, unlike the Russians, had been usually tight-lipped about their dealings with Ulaanbaatar, openly voiced their frustration, threatening to sue. Ulaanbaatar tried to play Chalco against China’s biggest coal producer Shenhua, but the ploy did not work. In the end, Chalco agreed to a small increase in the price of exported coal, and the supplies resumed, proving, perhaps, that there were strict limits to Mongolia’s ability to alter the rules of the game that China had set.
The quarrel with Chalco, which coincided with the government’s efforts to revisit the 2009 investment agreement with Rio Tinto for the development of Oyu Tolgoi and also overlapped with continued wrangling with the Russians over the railroad, tarnished Mongolia’s international reputation, amid accusations of the dangers of “resource nationalism.” Mongolia experienced a severe drop in foreign investment and a decline in the rate of economic growth in 2012-2013. To allay these concerns, Parliament passed a new foreign investment law, which promised to offer equal treatment to foreign and domestic investors. Ulaanbaatar has also tried to appear friendlier to Beijing. To this end, in October 2013 Altanhuyag, on an official visit, called on the Chinese businessmen to invest in Mongolia and promised that the legal environment, “changeable” in the past, would now be “stable.” In what must have pleased Beijing, he also pledged active participation in Xi Jinping’s proposed “Silk Road Economic Belt” and voiced support for Chinese companies’ involvement in the construction of Mongolian infrastructure, including railroads, so that Mongolia may connect Europe with China.17
Conclusion
Ironically, Altanhuyag’s visit to Beijing coincided with the visit there by the Prime Minister Medvedev. Just as Altanhuyag carried away an agreement to supply China with coal for twenty years, so Medvedev, too, signed a deal to increase supplies of oil to China. In a strange way, then, Mongolia and Russia were indirectly competing for a share of China’s favors. This does not bode well for Russia’s position. In fact, these relationships are more and more reminiscent of the sort of relationships the Qing Empire had with vassal states before China’s encounter with the West.
China first encountered Russia’s presence along the line that roughly corresponds to today’s northern Mongolian frontier in the 17th century. The Qing were strong back then and easily checked Russian encroachments through the treaties of Nerchinsk (1689) and Khyakhta (1721). But in the late 19th-early 20th centuries, imperial Russia moved aggressively to secure its position in Mongolia at China’s expense. China’s ouster from Outer Mongolia in 1921 determined the outcome of that competition in Russia’s favor, allowing Russia to dominate Mongolia politically, economically, and militarily. There was a brief period in the 1950s, at the height of the Sino-Soviet alliance, when China and the Soviet Union cooperated in Mongolia, investing funds, building the infrastructure (including the railroad), not at all in competition with each other but as partners, helping a junior ally. But the collapse of Sino-Soviet relationship obliged Mongolia to choose friends; its leadership sided with the Soviets.
One-sided reliance on the Soviet Union ended with the Soviet collapse and Russian retrenchment from Asia. In its place, Ulaanbaatar developed a fresh approach to international relations, which emphasizes balancing Russia, China, and the “third neighbor.” When Putin attempted to reassert Russia’s influence, he found it much more challenging than his Soviet predecessors had. The Russians would have to compete fiercely with other players for Mongolia’s loyalties. Russia has performed quite poorly in this competition.
In view of the “strategic partnership” between Moscow and Beijing, both the Russians and the Chinese have been very careful with respect to each other’s positions in Mongolia; neither is openly calling the other a “competitor.” The Russians, for instance, have been much more vocal in their criticism of US activities in Mongolia, as the MCC railroad funding debacle revealed. Instead, the Sino-Russian competition is more like shadow boxing, with each trying to undercut the other’s interests but only indirectly. Unfortunately for Russia, it is almost certain to lose this match, simply because it is in the wrong weight category. The Sino-Russian relationship today is a throwback to Nerchinsk and Kyakhta, and will certainly not change in Russia’s favor.
Russia’s method for advancing its interests has been to use the leverage afforded by its stake in the trans-Mongolian railroad backed by the belief that Mongolia needs Russia’s cooperation in checking China’s growing influence. Moscow’s strategy backfired, however. First, it created the impression that Russia was holding Mongolia hostage, using its veto over the railway to sabotage projects deemed unsuitable for Russia, even when such obstructionism also retarded Mongolia’s economic development. At a time of rising nationalism in Mongolia, Russia’s bulldozer tactics certainly hampered its image as a self-proclaimed friend of the Mongolian people. Second, the Russians were unwise to place all their eggs in one basket—that of the defunct MPRP—which fell apart in the morass of Mongolian factional politics, leaving Moscow scrambling to understand who its allies were. And third, Moscow does not seem to fully grasp that Mongolia’s “third neighbor” policy and its constant maneuvering between different players are not so much an evil ploy of Western-oriented Mongolian politicians, but a product of elite consensus that transcends party division. Russia, moreover, is not just Mongolia’s neighbor—it is an “issue” of domestic importance, an issue that matters at the polls to such an extent that it can often trump all other issues, except for one: China.
Unlike Russia, which has had to pursue an active policy, bestow gifts (in the form of loan forgiveness), and apply naked pressure, just to stay in the game, China has not had to do much of anything, certain as it is that it will ultimately win. In spite of its relatively passive position, it has come to control Mongolia’s external trade. Only in recent years has Beijing shown interest in pushing its agenda more forcefully. Its policy towards Mongolia is part and parcel of what China has also tried to accomplish with many other countries, notably in Central and Southeast Asia, in Africa, and in Latin America. Takeover bids, hard-bargained purchase of raw materials through state-owned companies, and like assertiveness are relatively new tools in China’s arsenal of economic diplomacy. The fact that it is now more willing than ever to deploy these instruments not just half-the-world away but in Russia’s immediate neighborhood, raises further questions about the future of the Russia-Mongolia-China triangle. But Mongolia’s ever-closer connection to the Chinese market will not necessarily translate into Beijing’s increasing political influence.
China, like Russia, cannot escape being a domestic issue on Mongolia’s heated political landscape. This issue can and will be exploited during elections, as exemplified by the Chalco case. “Unchangeable” foreign investment laws are certain to change when political expediency so requires. Previous agreements may be breached or denounced as selling-out by unpatriotic politicians. Mongolia is thus both an object of a geopolitical competition and an important player in its own right, whose motivations are often hard to discern, because they are a product not only of successful strategic triangulation but also of a complicated domestic political environment, which allows Mongolia neither permanent friends nor permanent enemies, nor, indeed, permanent interests, but supports unstable coalitions with unstable policies, as Mongolia’s three proverbial neighbors have found out all too often to their frustration and dismay.
Sergey Radchenko, Woodrow Wilson Center for International Scholars/Aberystwyth University
Russia has tried to boost its waning influence in Mongolia by leveraging its existing assets—mainly, its stake in the trans-Mongolian railroad—to secure preferential access to the country’s natural resources. China, for its part, has tried to pull Mongolia ever closer into the structural embrace of its giant economy. Russia has had to defend its interests in a much more assertive fashion; China has had the luxury of just waiting for the ripe fruit to fall into its hands. Although the two have been careful not to step on each other’s toes, their economic interests are basically at odds. In this sense, it is appropriate to say that China and Russia have been in “competition” over Mongolia. However, in its current form this competition is mainly commercial and only implicitly geopolitical, and Russia’s declining economic fortunes need not translate into tensions in the broader context of the Sino-Russian relationship. In addition, Mongolia’s “third neighbor” policy offers assurance that one’s loss is not necessarily seen as the other’s gain.
Perhaps, the most interesting aspect of the Sino-Russian-Mongolian relationship is the growing importance of Mongolia’s agency. Ulaanbaatar has learned to keep both neighbors in check by playing one against the other and both against the West. This is not new or unique. Many small states engage in this kind of geopolitical manipulation; in Mongolia’s neighborhood, North Korea is but one example, but the rules of this geopolitical game are complicated by Mongolia’s unique domestic context. Unlike Central Asian states, which have succumbed to authoritarianism (Kyrgyzstan is still to prove that it is an exception), Mongolia has enjoyed a high level of political contestation. Its democratic politics have had a great impact on both China and Russia’s efforts to extend their influence, neither of which has succeeded at the Mongolian poll box.
The Railroad
Nothing better illustrates Russia’s declining fortunes in Mongolia than the row over the upgrade of the trans-Mongolian railroad, known as UBTZ. Russia has maintained a 50 percent stake in the railroad, which connects Russia and China through Mongolia—a privilege dating back to the 1949 Soviet-Mongolian agreement on joint ownership. As its economic presence in Mongolia shrank in the 1990s, the railroad has assumed even greater importance as one of Moscow’s few remaining assets in the country. Although its strategic importance is undeniable, the railroad has suffered from serious economic woes: Russia paid scant attention to its upkeep in the 1990s and the early 2000s; Mongolia, too, had little money to spare to upgrade its crumbling infrastructure, much less to expand the railroad network. This is where matters stood when, on October 22, 2007, President Nambaryn Enkhbayar and George W. Bush signed the Millennium Challenge Compact, committing some US$285 million to Mongolia’s economic development.1
The Compact, disbursed through the Millennium Challenge Corporation (MCC) was widely perceived to be a “reward” for active support of the US “war on terror,” for Mongolia had sent troops to both Iraq and Afghanistan. The money was to come in the form of grants, never to be repaid. The lion’s share of the Compact funds—more than US$188 million—was earmarked for the upgrade of the trans-Mongolian railroad, an effort to remove the bottlenecks that an antiquated rail system posed for Mongolia’s economic development. Enkhbayar deemed this investment “vital,”1 but a major obstacle to successful realization of the plan was Russia’s likely reaction.
Moscow had perceived Enkhbayar as a fairly loyal politician. A fluent Russian speaker with longstanding connections to Russia, Enkhbayar, in Vladimir Putin’s words, “kn[ew] what Russia is like,” which was one reason Moscow delighted in his election as president in 2005. “The Mongolian people elected me to a large extent because I have very good relations with the Russian leadership, with President Putin,” Enkhbayar later told Putin to the latter’s clear satisfaction. Putin had invested himself in a better relationship, in November 2000 becoming the first Russian leader since Leonid Brezhnev to visit Ulaanbaatar, after which he and Enkhbayar developed what the latter called an “intimate” relationship.3 This intimacy was bolstered in 2003 when Putin agreed to write off nearly 98 percent of the Soviet-era Mongolian debt (US$11.4 billion), a generous gesture that bolstered Russia’s standing in the eyes of Mongolian public opinion.
Nevertheless, Moscow and Ulaanbaatar remained at odds over the future of the trans-Mongolian railroad. The existing agreement, which provided for a rotating chairmanship, did not suit Enkhbayar, who resented Russia’s veto over Mongolia’s transport lifeline. Since the early 2000s he unsuccessfully lobbied Putin to change the ratio from 50/50 to 51/49, in Mongolia’s favor. 4 “The Russians said ‘OK, let’s discuss it’ but they would not go beyond talking,” said one Mongolian diplomat involved in the thorny negotiations. After discussing railroad issues at a SCO summit in June of that year, Enkhbayar concluded that Russa’s cooperation was “unlikely” and, in talks with US officials, began to “press ahead with a Mongolian-owned second rail.”5 Such ambitious plans were unrealistic, but he probably hoped that once the rotating chairmanship fell into Mongolia’s hands, he could succeed in bringing in US cash to modernize its infrastructure. Although the two countries battled for months over the appointment, the Russians yielded in the end, allowing for the appointment of a Mongolian citizen, V. Otgondemberel, as the head in 2007.
At the announcement of the MCC compact, however, the Russians dug in their heels. Bringing in US investments required opening the account books of the joint enterprise. “Why would we do that?” wondered Ambassador V.V. Samoilenko. “Why would we allow outside people to get to the documents of a Russian-Mongolian joint enterprise? This is our and the Mongols’ business, our documents.”7 In addition, there was fear that the upgrade would entail purchases of US-made locomotives at the expense of their Russian-made competitors. Underlying these considerations was Moscow’s resentment at having the United States meddle with one of its key assets in Mongolia. As a result, when the US auditing team arrived in Ulaanbaatar in 2009 to begin implementation of the MCC agreements, they failed to gain access. Moscow found itself in an awkward situation. The Mongolian media, not unjustly, cast it in the role of obstructionist bullies, hanging on obstinately to its strategic assets, undermining Mongolia’s long-term economic potential and effectively holding the Mongols by their throats. In the meantime, Russian observers succumbed to conspiracy theories to the effect that the whole idea of offering US money for the railroad—knowing that it would have to be refused—was hatched up by strategists in the State Department, who had sought to, and succeeded, in embarrassing Russia in the eyes of the Mongolian public.7
Concerned by this loss of face, Russia hurried to appear generous. In 2009, Russia and Mongolia set up a new company, Razvitie Infrastruktury, to invest in the trans-Mongolian railroad; the latter soon advertised tentative plans for a major upgrade at the cost of billions of dollars. At the same time, Moscow offered to add US$250 million to the coffers of the joint enterprise and, when Ulaanbaatar failed to come up with its 50 percent share, underwrote the entire amount. Earlier, Russia agreed to extend US$300 million as an agricultural credit. Gifts were bestowed in rapid succession in an unprecedented display of attention to Mongolia.
With money came honor: Putin and Medvedev both turned up in Ulaanbaatar in 2009, a clear sign of how important Mongolia figured at the time in the general thrust of Russia’s Asian policy. Putin’s visit occurred days before the Mongolian presidential elections, a gesture of support for the incumbent Enkhbayar, whom the Russians still perceived as someone who would look after Moscow’s interests in the region. Medvedev came to celebrate the 70th anniversary of the Khalkin Gol battle, which had pitted the Soviet Union and Mongolia against the Japanese. The intended message was that Russia had always been Mongolia’s most reliable partner, and that, as the Russian saying goes, an old friend is better than two new ones. The message was well received, though it did not prevent Ulaanbaatar from asking the MCC to reassign the forfeited railroad funds to other projects inside Mongolia. In the end, the money was used to build paved roads, proof that Mongolian policy makers managed to have their cake and eat it, too.
Riches
The Russian imperial expansion in Asia in the 19th century arguably pursued three interrelated goals: first, security; second, great power prestige, and, third, economic interests. These goals informed Russian policymaking well into the Soviet era. Certain legacies of this imperial past remain even today, underpinning renewed interest in former clients, not least in Mongolia. If, broadly speaking, prestige was the key motive for Russia’s imperial enterprise in the 19th century, and security in the 20th century, in recent times the economic component has played the most important role in Moscow’s regional policies (though the other two factors are of continued relevance). Moscow is primarily interested in Mongolia’s natural wealth, not only for the investment opportunities that they offer but also because they would allow Russia to maintain a “presence” in the region at a time when the law of economic gravity has pulled Mongolia into China’s orbit.
Whereas until the late 1980s, the Soviet Union dominated Mongolia’s foreign trade, the 1990s witnessed China’s return, as both a purchaser of Mongolia’s natural resources and a seller of all manner of goods. Today, approximately 50 percent of Mongolia’s total foreign trade is with its southern neighbor, and China has practically monopolized Mongolia’s exports.8 Russia continues to supply petroleum—its key export to Mongolia—but even this is under the shadow of the Mongols’ recent attempts to invest in oil exploration and refining, and the potential of oil shale reserves. Russia’s economic position has been slipping, and is sure to slip even further, which makes it all the more eager, for commercial as well as strategic reasons, to secure access to a share of Mongolia’s natural resources.
Russia’s involvement in Mongolia’s mining goes back decades. Soviet geologists did most of the groundwork in identifying key copper, gold, and coal deposits, and the Soviet Union invested heavily in their extraction. The most important investment was the 1973 deal to build the copper and molybdenum mining complex at Erdenetiin Ovoo. Russia owes 49 percent (to Mongolia’s 51 percent) in the joint venture Erdenet, which has been in operation for over thirty years.9 This complex, one of the world’s largest, has not proven to be much of an asset. Until Mongolia repealed its windfall profits tax, over 90 percent of Erdenet’s revenues ended in the government’s coffers, leaving scraps for the Russians. The Russian government–ever since Putin’s rise to power signaled a renewal of interest in Mongolia—has tried to expand its investment in the joint venture and to regain majority control. Leading media outlets have alluded to Russia’s imminent “takeover” of Erdenet, and, to this end, Russian shareholders still make fool-hardy (and a priori unacceptable) proposals to Mongolia about privatizing and floating parts of the venture.10 Investments were, and are, welcomed, but Russia’s efforts to regain control proved futile. Russia thus finds itself in an awkward situation of having invested heavily in a venture that it cannot, and will not control, and that, selling most of its produce to China, does not serve Moscow’s strategic interests in any obvious way. All of this makes Erdenet an uncertain base for extending Russia’s economic influence in the country, which has not deterred the Russians from trying.
Moscow worked hard to secure access to one of the world’s largest undeveloped copper and gold deposits in South Gobi, the Oyu Tolgoi, and proposed connecting the site to the trans-Mongolian mainline as a quid pro quo for its investment. Enkhbayar reassured Putin as late as January 2009 that “we [the Mongols] cannot imagine these big mining projects without Russia’s participation.” The head of Russian Railroads Vladimir Yakunin had reportedly been promised by Prime Minister Sanjaagiin Bayar in 2009 that Russia would be given access in return for building a railroad, which would connect the mining site with the trans-Mongolian line, and, via Russia, with ports in the Far East,11 but Enkhbayar was ousted later that year by the Western-oriented Tsakhiagiin Elbegdorj. In October 2009 the Oyu Tolgoi contract was awarded to the Canadian Ivanhoe Mines (now a subsidiary of the giant multinational Rio Tinto). Russian railroad services were not required: the mining site is only 80 kilometers from the border with China and, since the site became operational in 2013, the copper has been taken to China by trucks.
Having lost out on Oyu Tolgoi, the Russians have tried to gain access to the world’s largest undeveloped coal deposit, nearby Tavan Tolgoi. The key lever has once again been the railroad. In 2010 matters seemed to be heading in Moscow’s direction, when the Mongolian parliament approved a program of infrastructural development, which confirmed adherence to the Russian railway gauge (1520 mm) instead of the narrower Chinese standard. In November 2010, the Russians wrote off 97.8 percent of the US$172 million of recent Mongolian debt (in addition to the massive Soviet-era debt that it had already forgiven), in exchange for reassurances that Russia’s interests would be taken into account in awarding the contract for Tavan Tolgoi. In March of the following year, a consortium headed by the Russian Railroads submitted an official bid to be given access to 50 percent of the Tavan Tolgoi deposit, including a proposal to build a rail line, which would take the coal to Sainshand (along the trans-Mongolian railroad), at which point it could be exported south, to China, or taken north, via Russia. Moscow appeared sure of victory, given that the Russian Railroads’ bid entailed upgrading Mongolia’s rail infrastructure, an on-going concern for the Mongols ever since the unrealized promise of MCC funding.
Once again, however, the Russians misread the situation. Only weeks after the Tavan Tolgoi bid had been submitted, it transpired that Mongolia had secretly conducted negotiations with South Korea’s Lotte Group for construction of the railroad from the mine to Sainshand.12 Moscow was outraged and, later, puzzled, when in July 2011 Mongolia announced that the winning bid for Tavan Tolgoi would be awarded not just to the Russian Railroads or to its Chinese competitor Shenhua or the American Peabody Energy, but to all three. Yakunin aired his frustration: “The Mongolian side still maneuvers… between us, the Americans, the Chinese, the Japanese, and all the others; the options that are being offered are not causing us great enthusiasm.”13 He was later heard complaining that he could not understand how the crawfish, the swan, and the pike (three characters of a Russian fable) would move the cart of Tavan Tolgoi.
The cart, to be sure, remained where it was, because Ulaanbaatar failed to endorse the results of the bid it had announced in July 2011. The Tavan Tolgoi discussions soon ground to a halt, partly because of a sharp decline in the price of coal on the international market. In the meantime, the Mongolian government has decided to construct a railroad directly from Tavan Tolgoi to neighboring China, and has offered Russia a chance to participate as an investor on the condition that Mongolia would own 51 percent of the railroad. These efforts were rebuffed by Yakunin who, in March 2013, sent a letter to Mongolian Prime Minister Norovyn Altankhuyag, complaining about Mongolia having broken the promises it had made to Russia.14 “You know, we are fairly serious people, and we can count our money. It is understandable that such a scenario does not suit us,” noted the Russian ambassador to Mongolia. There is reason to be disappointed. After all, in spite of the capital (political, as well as financial) expended on “coming back” to Mongolia since 2000, and even more since 2009, and in spite of the personal commitment of both Putin and Medvedev to upgrading ties with a country that Russia still considers to lie within its immediate sphere of influence, Moscow has not attained even a fraction of the results on which it counted.
The question is why. Part of the answer is Moscow’s poor understanding of the political landscape in Mongolia. In recent years, policymakers consistently misread the political situation, placing their bids on the wrong players. Putin’s support for Enkhbayar, for instance, proved a costly mistake; Enkhbayar was not only ousted from power but ended up in jail on charges of corruption and embezzlement of funds. His replacement Elbegdorj, whom Putin neglected to meet when he visited Ulaanbaatar in May 2009, proved much less inclined to make compromises with Russia. Prime Minister and former Ambassador in Moscow Sanjaagiin Bayar, who reportedly promised to deliver mining licenses to Russia, resigned in October 2009, ostensibly due to ill health. What Moscow failed to realized was that Bayar had not been speaking for Mongolia but for his party and, specifically, for himself. Lacking friends across Mongolia’s political spectrum, the Russians invested themselves heavily into a relationship with just one end of this spectrum, as it turned out, the weaker end. The Mongolian People’s Revolutionary Party (MPRP), which Putin’s United Russia had seen as its partner, split into two factions, which benefited the more-Western leaning Democratic Party. The People’s Party (a successor to MPRP) was unable to dislodge Elbegdorj, who was reelected in July 2013, which guarantees that Russia will be kept at arm’s length at least for the following four years.
It is striking to what extent Putin had allowed his personal sympathies and antipathies get in the way of his policymaking. Unlike Barak Obama, who recently honored Elbegdorj by co-hosting with him a civil society conference in New York and Abe Shinzo who, quite without precedent, invited Elbegdorj to a meal at his residence, and to the latter’s astonishment, had his wife serve dishes to the Mongolian president in a display of intimacy and respect, Putin has basically ignored Elbegdorj, counting perhaps on better luck with the next Mongolian leader. If so, Putin is badly miscalculating. For Russia’s difficulties are not so much a function of Putin’s relations with specific politicians, and more a result of a policy consensus in Ulaanbaatar. Since the 1990s, Mongolian political elites have internalized the policy of maneuvering between China, Russia, and the “third neighbor,” so that even the idea of being “pro-Russian” in orientation has been discredited. No politician can afford to appear in the role of defender of Moscow’s interests, just as no one can plausibly defend a one-sided orientation towards China, or towards the West. Over the last twenty years Ulaanbaatar has perfected the skill of playing their neighbors against one another, something that the Russians—with their mindsets still partially rooted in the colonial past—have been unable to fully grasp.
The Chinese
If Russia has suffered from Mongolia’s changing political circumstances, China has taken a hit as well. On the one hand, Mongolia’s hopes of economic growth are rooted in recognition that, China, as the main buyer of its resources, has been the engine behind its spectacular economic performance in recent years. On the other hand, hopes are counterbalanced by apprehension of China’s penetration of the economy and the long-term economic and political consequences of such penetration for the fiercely independent nation. The potency of the China threat theory in the Mongolian political context has given rise to a number of counterproductive policies, which have taken a toll on Mongolia’s international reputation as a reliable investment partner. At the same time, however, these policies have, to some extent, frustrated China’s efforts to turn its economic leverage to political advantage.
One characteristic example of China’s setbacks in Mongolia has been the experience of Chalco, the Chinese aluminum giant. Like the Russian Railroads, Chalco has long eyed the coal of South Gobi. In July 2011 it signed a contract with Mongolia’s state-owned Erdenes Tavan Tolgoi worth US$250 million for supplying coal from the Tavan Tolgoi deposit, which set it up as the key customer at a time when Yakunin and others were just dreaming of gaining access. Separately, in April 2012, Chalco made a takeover bid for South Gobi Resources, then majority owned by the Canadian Ivanoe Mines, whose main asset is a coal field just 45 kilometers on Mongolia’s side of the Sino-Mongolian border. Describing negotiations with Chalco to international media, the overly confident South Gobi CEO Alexander Molyneux claimed the deal was basically done and did not even mention the possible reaction of Mongolia’s authorities. This was a fatal mistake.
The Mongolian media was outraged. It was one thing that a Canadian company owned an important coal deposit in the country, and quite another to have this sold to a Chinese state-owned company without any consultation with Ulaanbaatar at a time when the same company was also buying coal from Tavan Tolgoi for what many Mongolian pundits believed was a very low price in comparison with the world market price. Fears of real economic loss from China’s ability to dictate prices were augmented by nationalist sentiments at having been completely ignored in such a major transaction. “They are insulting us,” fumed one editorial.15 “Which is more powerful, Chalco’s money or the Mongolian law?” ran another headline.16 The political controversy caused by the proposed takeover happened at the worst possible time for Mongolian policymakers—just ahead of the parliamentary elections of June 2012. “Selling out” to China was just the kind of publicity that could ruin its chances at the polls, the ruling party recognized. As a result, the parliament hurried to pass a law, which required Mongolia’s official approval for any acquisition of controlling stakes in the “strategic” sectors of the economy by foreign entities. South Gobi’s mining permits were suspended. The company promptly fired Molyneux in a bid to appease public sentiment and restart production. Chalco had to beat retreat.
Chalco suffered another unexpected setback in January 2013 when Erdenes Tavan Tolgoi announced that it would stop delivery of coal to the Chinese because Mongolia did not like the price the Chinese were paying and, moreover, the company was facing transportation hurdles in the absence of a railroad. Prime Minister Altanhuyag suggested that the contract with Chalco should be “cancelled,” so that the Mongols could get a better price. The Chinese, who, unlike the Russians, had been usually tight-lipped about their dealings with Ulaanbaatar, openly voiced their frustration, threatening to sue. Ulaanbaatar tried to play Chalco against China’s biggest coal producer Shenhua, but the ploy did not work. In the end, Chalco agreed to a small increase in the price of exported coal, and the supplies resumed, proving, perhaps, that there were strict limits to Mongolia’s ability to alter the rules of the game that China had set.
The quarrel with Chalco, which coincided with the government’s efforts to revisit the 2009 investment agreement with Rio Tinto for the development of Oyu Tolgoi and also overlapped with continued wrangling with the Russians over the railroad, tarnished Mongolia’s international reputation, amid accusations of the dangers of “resource nationalism.” Mongolia experienced a severe drop in foreign investment and a decline in the rate of economic growth in 2012-2013. To allay these concerns, Parliament passed a new foreign investment law, which promised to offer equal treatment to foreign and domestic investors. Ulaanbaatar has also tried to appear friendlier to Beijing. To this end, in October 2013 Altanhuyag, on an official visit, called on the Chinese businessmen to invest in Mongolia and promised that the legal environment, “changeable” in the past, would now be “stable.” In what must have pleased Beijing, he also pledged active participation in Xi Jinping’s proposed “Silk Road Economic Belt” and voiced support for Chinese companies’ involvement in the construction of Mongolian infrastructure, including railroads, so that Mongolia may connect Europe with China.17
Conclusion
Ironically, Altanhuyag’s visit to Beijing coincided with the visit there by the Prime Minister Medvedev. Just as Altanhuyag carried away an agreement to supply China with coal for twenty years, so Medvedev, too, signed a deal to increase supplies of oil to China. In a strange way, then, Mongolia and Russia were indirectly competing for a share of China’s favors. This does not bode well for Russia’s position. In fact, these relationships are more and more reminiscent of the sort of relationships the Qing Empire had with vassal states before China’s encounter with the West.
China first encountered Russia’s presence along the line that roughly corresponds to today’s northern Mongolian frontier in the 17th century. The Qing were strong back then and easily checked Russian encroachments through the treaties of Nerchinsk (1689) and Khyakhta (1721). But in the late 19th-early 20th centuries, imperial Russia moved aggressively to secure its position in Mongolia at China’s expense. China’s ouster from Outer Mongolia in 1921 determined the outcome of that competition in Russia’s favor, allowing Russia to dominate Mongolia politically, economically, and militarily. There was a brief period in the 1950s, at the height of the Sino-Soviet alliance, when China and the Soviet Union cooperated in Mongolia, investing funds, building the infrastructure (including the railroad), not at all in competition with each other but as partners, helping a junior ally. But the collapse of Sino-Soviet relationship obliged Mongolia to choose friends; its leadership sided with the Soviets.
One-sided reliance on the Soviet Union ended with the Soviet collapse and Russian retrenchment from Asia. In its place, Ulaanbaatar developed a fresh approach to international relations, which emphasizes balancing Russia, China, and the “third neighbor.” When Putin attempted to reassert Russia’s influence, he found it much more challenging than his Soviet predecessors had. The Russians would have to compete fiercely with other players for Mongolia’s loyalties. Russia has performed quite poorly in this competition.
In view of the “strategic partnership” between Moscow and Beijing, both the Russians and the Chinese have been very careful with respect to each other’s positions in Mongolia; neither is openly calling the other a “competitor.” The Russians, for instance, have been much more vocal in their criticism of US activities in Mongolia, as the MCC railroad funding debacle revealed. Instead, the Sino-Russian competition is more like shadow boxing, with each trying to undercut the other’s interests but only indirectly. Unfortunately for Russia, it is almost certain to lose this match, simply because it is in the wrong weight category. The Sino-Russian relationship today is a throwback to Nerchinsk and Kyakhta, and will certainly not change in Russia’s favor.
Russia’s method for advancing its interests has been to use the leverage afforded by its stake in the trans-Mongolian railroad backed by the belief that Mongolia needs Russia’s cooperation in checking China’s growing influence. Moscow’s strategy backfired, however. First, it created the impression that Russia was holding Mongolia hostage, using its veto over the railway to sabotage projects deemed unsuitable for Russia, even when such obstructionism also retarded Mongolia’s economic development. At a time of rising nationalism in Mongolia, Russia’s bulldozer tactics certainly hampered its image as a self-proclaimed friend of the Mongolian people. Second, the Russians were unwise to place all their eggs in one basket—that of the defunct MPRP—which fell apart in the morass of Mongolian factional politics, leaving Moscow scrambling to understand who its allies were. And third, Moscow does not seem to fully grasp that Mongolia’s “third neighbor” policy and its constant maneuvering between different players are not so much an evil ploy of Western-oriented Mongolian politicians, but a product of elite consensus that transcends party division. Russia, moreover, is not just Mongolia’s neighbor—it is an “issue” of domestic importance, an issue that matters at the polls to such an extent that it can often trump all other issues, except for one: China.
Unlike Russia, which has had to pursue an active policy, bestow gifts (in the form of loan forgiveness), and apply naked pressure, just to stay in the game, China has not had to do much of anything, certain as it is that it will ultimately win. In spite of its relatively passive position, it has come to control Mongolia’s external trade. Only in recent years has Beijing shown interest in pushing its agenda more forcefully. Its policy towards Mongolia is part and parcel of what China has also tried to accomplish with many other countries, notably in Central and Southeast Asia, in Africa, and in Latin America. Takeover bids, hard-bargained purchase of raw materials through state-owned companies, and like assertiveness are relatively new tools in China’s arsenal of economic diplomacy. The fact that it is now more willing than ever to deploy these instruments not just half-the-world away but in Russia’s immediate neighborhood, raises further questions about the future of the Russia-Mongolia-China triangle. But Mongolia’s ever-closer connection to the Chinese market will not necessarily translate into Beijing’s increasing political influence.
China, like Russia, cannot escape being a domestic issue on Mongolia’s heated political landscape. This issue can and will be exploited during elections, as exemplified by the Chalco case. “Unchangeable” foreign investment laws are certain to change when political expediency so requires. Previous agreements may be breached or denounced as selling-out by unpatriotic politicians. Mongolia is thus both an object of a geopolitical competition and an important player in its own right, whose motivations are often hard to discern, because they are a product not only of successful strategic triangulation but also of a complicated domestic political environment, which allows Mongolia neither permanent friends nor permanent enemies, nor, indeed, permanent interests, but supports unstable coalitions with unstable policies, as Mongolia’s three proverbial neighbors have found out all too often to their frustration and dismay.
Sergey Radchenko, Woodrow Wilson Center for International Scholars/Aberystwyth University
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