Beijing’s Belt and Road Forum (BRF) means business for neighbors Russia and Mongolia, both of which are always looking to boost economic activities with China. This year, the meeting between the three heads of state – Mongolian President Khurelsukh Ukhnaa, Russian President Vladimir Putin, and Chinese President Xi Jinping – on the sidelines of the third Belt and Road Forum, although constructive, showed minor shifts in trilateral priorities. Meanwhile, bilateral engagements on all three legs of the triangle remain stable, despite growing geopolitical competition involving China and Russia.
During his speech, Khurelsukh emphasized Mongolia’s support for China’s Belt and Road Initiative, particularly the infrastructure aspect, which heavily mirrors the growth in Mongolia’s infrastructure and investment needs. The current administration has been vocal about the potential of “parallel growth” between Beijing and Ulaanbaatar. China’s colossal infrastructure investment is an incentive for Mongolia to build roads and railways for improved connectivity between the two states.
With that in mind, the sideline meetings between the three Northeast Asian leaders play a crucial role in the development and the connectivity of the region. These meetings also place great emphasis on the ways in which trilateral relations can triumph. The bilateral economic agendas involved in China-Mongolia talks versus Mongolia-Russia talks are different, but trilateral projects such as the Power of Siberia 2 pipeline concern all three parties equally.
The Power of Siberia 2 pipeline envisions sending natural gas from western Siberia to northeastern China, with the pipeline transiting Mongolia. For observers of the region, it is important to understand that the Siberia 2 Pipeline would bring different economic outcomes to Russia, Mongolia, and China, as all three countries are seeking something different from the project.
Russia’s strategic goal is to have China as a major – and permanent – buyer of its energy exports. Mongolia is interested in being involved in the process as a transit country, so as not to get left behind from major economic development. China, on the other hand, with its own global-level economic agenda, has shown more hesitancy. Energy experts speculate that the growing production of green and renewable energy in China is the main reason why Beijing may take its time on the trilateral mega-project.
Construction is supposed to start in early 2024 on the Mongolian section of the Power of Siberia 2 pipeline. The feasibility study was completed in January. During the Belt and Road Forum, Khurelsukh emphasized the progress that Moscow and Ulaanbaatar have made and expressed hope that Beijing will still continue to pursue the Power of Siberia 2.
To Mongolia, the development of the Siberia 2 is inspired by the success of Khorgos in Kazakhstan – the largest dry port in the world. Mongolia too is keen to rake in economic benefits as a transit hub for trade involving its giant neighbors. During the heads-of-state meeting, Xi pointed out the importance of Mongolia as an integral point in connecting China to Russia, and the short route to Eurasian connectivity.
What Mongolia can gain from this trilateral mega-project is taxation, and the geoeconomic benefits of becoming an important transit country. That, in turn, can lead to the establishment of satellite cities and towns to support transit activities.
In addition to the trilateral summit, the BRF also provided opportunities for Khurelsukh to hold separate bilateral meetings with both Putin and Xi.
During Khurelsukh-Putin summit, the two leaders discussed Mongolia-Russia trade, particularly reducing taxes on Mongolian exports of meat, meat products, wool, cashmere, leather, and other agricultural products. Putin also stated that Russia would continue to supply Mongolia with fuel without interruption.
Following the presidential meeting, delegations from Mongolia and Russia met in Irkutsk, Russia, and agreed to increase trade between the two countries via the Sukhbaatar-Naushki and Ereentsev-Solovjovsk border ports, which have already seen an increase in trade post-pandemic.
During the Khurelsukh-Xi summit, Mongolia and China signed several cooperation documents. The government of Mongolia and the Ministry of Finance and Export-Import Bank of China signed a deal that will see Beijing issue a soft loan of over $250 million to finance the Erdeneburen hydropower plant in Mongolia. The loan is part of a larger agreement, signed in 2015, under which China offered $1 billion in concessional loans for Mongolian infrastructure projects.
Minister of Energy Choijilsuren Battogtokh stated that, under the latest agreement, a “loan of $253 million, 95 percent of the total cost of the Erdeneburen hydropower plant construction project, will be received from China. The loan term is for 20 years, and the interest rate is 2 percent. The loan repayment will start after seven years.”
The Erdeneburen hydropower plan is viewed as Mongolia’s approach to diversifying its energy sources. While Mongolia’s economic relations with both China and Russia have long been defined by the trade of fossil fuels, with increasing global demand for renewable energy and green initiatives, Mongolia is open to other avenues of cooperation.
Moreover, Mongolia and China signed several MOUs on establishing an economic corridor, which includes the construction of additional railways to further connect trade ports between the two countries. In particular, the Shiveekhuren-Sekhe railroad trade port was finalized. The construction of the 7.1 km Shiveekhuren-Sekhe railroad began in May and is expected to be completed in November.
The minister of Mongolia’s Ministry of Road and Transport Development commented on the significance of the the new economic corridor MOU signed between Mongolia and China: “In the 70-year period [since Mongolia and China established diplomatic relations], Mongolia utilized only one railway system for its export, [linking] Zamiin Uud and Er-lian [also called Erenhot]. With the current Memorandum of Understanding and railway construction underway, we are able to export between 100,000-200,000 tons of natural resources.”
Mongolia’s inclusion in the Asian Highway Network, Trans-Asian Railway Network, and Intergovernmental Agreement on Dry Ports, initiated by the U.N. Economic and Social Commission for Asia and the Pacific (ESCAP) reinforces the administration’s activities regarding transit logistics. The Mongolian delegation also participated in the Global Sustainable Transport Forum and signed multiple MOUs to boost business and tourism between provinces.
To Mongolia, the Belt and Road Forum was an opportunity to assess and engage China and Russia on both the bilateral and trilateral levels. At the same time, Ulaanbaatar fully understands the geopolitical and economic circumstances that both neighbors are in. As Beijing chooses its investments carefully, Ulaanbaatar, too, must allocate these funds to important sectors that can improve the lives of the Mongolian people.
With several mega-projects looming with different partners – from oil refineries and uranium exploration to hydropower plants – the possibilities and the potential for Mongolia are becoming clear. On the Mongolian government’s part, what is equally important is the allocation of financial resources, accountability, and transparency.