China Eyes Bite of Mongolia?
Image Credit: Uniphoto Press

China Eyes Bite of Mongolia?


For most of the last several centuries, Mongolia has been controlled by one of its two superpower neighbours. China ruled Mongolia for more than 200 years, a reign that ended only with the collapse of the Manchu empire in 1911. Just a few years later, a communist government, subservient to the Soviet Union, took over.

So when Mongolia achieved true independence in 1990 as the Soviet Union was collapsing, its new leaders were faced with a quandary, one that remains unresolved today: how best to maintain functional independence sandwiched between China and Russia.

Lately, this question has become even more urgent, as miners have started to unlock Mongolia’s vast mineral wealth. In October 2009, the Mongolian government signed a $5 billion agreement—worth as much as the country’s annual gross domestic product—with international mining companies to exploit the Oyu Tolgoi mine in the southern Gobi Desert, expected to yield a billion pounds of copper and 330,000 ounces of gold every year for at least 35 years. The country also has substantial coal and uranium reserves.

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Those prospects have raised the stakes, particularly for China, which is hungry for raw materials to feed its dynamic economy. But it worries Mongolians, who fear that China has irredentist claims on its territory. As a result, Mongolia’s leaders have tried to maintain a delicate balancing act, keeping the Chinese investment they need while staving off political influence from Beijing by courting other international partners.

This is no more in evidence than in a throwback to a key element of 19th-century geopolitical competition: railroads.

The coal mine at Tavan Tolgoi, near the copper-gold Oyu Tolgoi mine in the Gobi near Mongolia’s border with China, is the biggest undeveloped mine in the world, and has drawn the interest of the world’s top mining companies. It’s expected to produce 50 million tons of coal per year when it’s developed.

That will require a new rail line to be built from the mine site to existing railroads and eventually to China, which is expected to consume all, or nearly all, of the coal from Taval Tolgoi. But the nearest existing Mongolian railway is 400 kilometres away.

So a far shorter and cheaper option would be to build a line directly south, to China, about 80 kilometres from the mine. The holding company that now owns Tavan Tolgoi, Energy Resources LLC, plans to build a private rail line along that path and has agreed to a contract with Deutsche Bahn AG, Germany’s state-owned railway, to conduct a feasibility study. Deutsche Bahn has said it plans to start running trains on the line by 2011.

But the Mongolian government has balked at the plans. It worries that connecting the mine to the Chinese rail system and not the Mongolian one would allow China too much effective control over the mine, as well as others in the same area, like Oyu Tolgoi, that are likely to use the rail line if it’s built.

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