Xi and Putin in Ulaanbaatar: Mongolia’s Balancing Act

Chinese President Xi Jinping’s state visit to Mongolia on August 21–22 signaled closer trilateral economic cooperation between China, Russia and Mongolia on their shared vision of a new Silk Road economic corridor. However, this positive forward momentum must be placed in the context of what happened in Ulaanbaatar and Dushanbe in the subsequent three weeks. During this same time Mongolia sought to balance its closer ties to Beijing and Moscow by reassuring its major investment partners, Japan and South Korea, that its outreach to China and Russia would not endanger their political and economic cooperation.

Building a “New Silk Road” Through Mongolia

Commentary on Xi’s trip by the Chinese and Mongolian governments was overwhelmingly positive, with the focus on the Chinese president’s vision of elevating bilateral ties to an invigorated strategic partnership. Xinhua cited unnamed officials and experts who called the results of the trip “fruitful” in two ways: First, the visit had “great practical significance to the further development of bilateral relations,” and second, it infused new vigor into Northeast Asian regional development as the embodiment of the philosophy of “‘amity, sincerity, mutual benefit and inclusiveness’ in China’s diplomacy with its neighbors” (Xinhua, August 23). Mongolia’s state-run Montsame news agency noted Xi’s trip was “praised as a historic visit that will lead bilateral relations and cooperation between Mongolia and China to a new level, and expand and define strategic perspectives from both parties” (Montsame, August 22). This public messaging suggests both sides are eager to improve relations during Xi’s term.

China and Mongolia signed a series of 26 economic agreements, including a Joint Declaration on Relations, which set a bilateral trade target of $10 billion by 2020 (up from $6.2 billion in 2013). Xi proposed a “three-in-one” cooperation model, integrating mineral resources, infrastructure construction and financial cooperation (China Daily, August 22). China agreed to provide Mongolia $260 million in aid within three years for major economic projects and to grant a soft loan worth $162.7 million. However, these agreements have so many conditions that it is possible that Mongolia will never see much of the money—making them rather empty political gestures. The Bank of Mongolia and Bank of China agreed to increase their currency swap exchange from 10 billion RMB ($1.6 billion) to 15 billion RMB ($2.4 billion), which will help provide foreign currency to Mongolia’s domestic market and support repayment in the foreign currency market. Six Chinese seaports, including Tianjin and Dalian, were designated to facilitate Mongolian exports to overseas markets, providing Mongolia easier access to Asian maritime shipping routes. China agreed to border crossing cooperation and to allow Mongolia access to rail capacity within China, while Mongolia opened four new ports (Shiveekhuren, Bichigt, Gashuunsukhait and Nomrog) for rail transport. The two countries established new tariffs and volume limits for Mongolian cargo on Chinese railroads, and China also granted Mongolia a 40-percent discount on current transportation tariffs. A key breakthrough was the agreement that two-thirds of Mongolian goods transported on Chinese rails will be sold in China and one-third will be for third-country export via Chinese seaports. This would answer complaints from third countries that they cannot receive Mongolian exports through the bottleneck of China’s Tianjin port and allow the Mongols to increase trade with these partners. Most of these agreements are subject to ratification by the Mongolian parliament.

Mongolian Reaction

Mongolian officialdom and media were generally pragmatic, if not positive, in their assessment of Xi’s visit. Mongolian President Tsalkhiin Elbegdorj, after his private meeting with Xi, asserted, “We have to strengthen our good neighbors’ relations” (Montsame, August 22). Mongolian Deputy Prime Minister Dendev Terbishdagva, who also co-chairs the Mongolia-China intergovernmental commission, said he was impressed by Xi’s parliamentary speech (Xinhua, August 23). Ulziibayar Ganzorig, President of the Mongolian Financial Markets Association, told Mongolian Eagle TV that, “the visit has clearly sent a message to the world that Mongolia is not dependent upon a single company called Rio Tinto and the country can continue to work with China in many ways” (M.A.D. Mongolian Newswire, September 3). Presidential adviser Bat-Erdene Batbayar emphasized Xi’s pledge to respect Mongolia’s chosen development model and expected that Chinese purchases of Mongolian goods would garner the attention of international investors (UBPost, September 2).

Despite the positive messaging by both sides, Xi appeared to cause some controversy during his visit. The Chinese media played up the fact that Xi made a rare stand-alone state visit to Mongolia and was granted the privilege of addressing a special session of the Mongolian parliament, which was called back from its summer recess (Xinhua, August 21; China Daily, August 23). In parliament, he reassured Mongols that, “We will respect Mongolia’s independence, sovereignty, immunity and its chosen path according to the China-Mongolia Friendship and Cooperation Treaty…Bilateral strategic partnership relations between the two countries will be maintained whatever changes come in international relations” (Montsame, August 22). However, the Chinese and Mongolian state-run press made no mention of the nearly universal grimaces on the faces of the listening parliamentarians and high-ranking officials or the lack of applause, which were caught by China’s CCTV cameras but not Mongol TV coverage. This negative reaction may have been due to Xi’s opening recital of a famous Mongolian nationalist poem, “My Native Land,” in which he incongruously said, “This is my native land. The lovely country. My Mongolia.” After Xi’s speech, Mongolian blogs erupted with criticism of this strange gesture, which seemed to overwhelm Xi’s attempted outreach to the Mongolian public through the release of an article to the major Mongolian newspapers, timed to coincide with his arrival. In this article, Xi noted that visiting Mongolia was more like visiting one’s relatives and “China hopes that both countries can push cooperation on building inter-connecting railways and roads, [as well as] the development of mines and processing” (?n??d?r, Odriin Sonin, August 21).

Back-to-Back Visits Suggest Coordination

Russian President Vladimir Putin’s visit to Mongolia on September 3 suggests China and Russia coordinated the timing of their visits. According to discussions with Mongolian diplomats, the Mongolian Ministry of Foreign Affairs (MMFA) worked all spring to schedule Xi’s and Putin’s visits. Putin’s timing was locked into the 75th anniversary of the Soviet-Mongolian victory over a Japanese invasion force in late August 1939. While the Mongols in March originally wanted Xi to visit in early August to avoid overlapping with Putin, the MMFA said publicly in June that Xi and Putin had agreed to meet in Mongolia in late August for a “trilateral summit” (see also China Brief, July 11; Author’s interviews, Ulaanbaatar, March 12–14). This change in timing was likely discussed in Shanghai during May meetings between Xi and Putin at the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia (see China Brief, July 31). However, the Russians retreated from this idea seemingly because Putin decided to package his Mongolia visit into a several-day swing through the Russian Far East.

The five transportation-related Sino-Mongolian agreements signed during Xi’s visit suggest his willingness to cooperate with Russia on their separate rail projects (see also China Brief, January 24). Mongolian policymakers believe that while Putin was in China, he agreed to not oppose Chinese proposals for deeper investment and economic ties with Mongolia in exchange for China’s support for Russian plans on modernizing and developing rail links with Mongolia (Author’s interviews, Ulaanbaatar, August 7–8). When comparing these rail agreements to those signed with Russia ten days later, a pattern of trilateral cooperation is evident. Mongolia has been seeking to become an international transportation hub and diversify its customers for mineral exports. This concept meshes with Xi and Putin’s plans for a new Silk Road rail artery across Eurasia. Several of the rail projects covered in the Russo-Mongolian agreements directly impact Sino-Russian rail cooperation. This includes electrification and construction of a second track for the 1,100-kilometer (684-mile) rail from Mongolia’s northern border with Russia through the planned Sainshand minerals processing industrial zone in the Gobi to Zamyn Uud on the Chinese border. The cooperation also includes potentially exploring development of a western Mongolian railway line joining Russia and China for Russian exports to China, India and Pakistan, as well as researching the possibility of using the 230-kilometer (143-mile) Choibalsan-Erentsav eastern railway to transit via Bichigt to China (see Eurasian Daily Monitor, September 12).

Mongolia Reassures “Third Neighbors”

Mongolia also sought to balance its increased cooperation with China and Russia by reassuring its democratic partners and foreign investors. After Xi’s and Putin’s trips were announced in July, President Elbegdorj met with Japanese Prime Minister Shinzo Abe in Tokyo to sign an economic partnership agreement (EPA) and discuss security and regional issues (Japanese Ministry of Foreign Affairs, July 22). Afterwards, while Xi was in Ulaanbaatar, a delegation from the Japanese-Mongolian Friendship Group of Japan’s Liberal Democratic Party visited the Mongolian parliament. Parliament Speaker Zandaakhu Enkhbold told them that “developing cooperation and friendly relations with Japan is one of the major goals of the foreign policy of Mongolia and it places high priority on developing strategic partnership relations with ‘Third neighbor’—Japan” (Mongolian Parliament, August 20). The day Xi arrived, Mongolia announced that South Korean Foreign Minister Yun Byung-se would travel to Ulaanbaatar on August 26–27. During his visit the next week, Yun met with Elbegdorj, Mongolian Prime Minister Norov Altankhuyag and Foreign Minister Lu Bold and explained that South Korea welcomed cooperation with Mongolia in the rail and sea transport sectors and in economic and investment collaboration (see also China Brief, March 30; InfoMongolia, August 26).

Follow up Meeting at SCO Signals Closer Trilateral Cooperation

China and Russia’s deepening relationship, especially regarding Mongolia and greater Eurasia, was reaffirmed at the Shanghai Cooperation Organization (SCO) summit in Dushanbe on September 11–12. Xi stated that China’s Silk Road Economic Belt initiative could be coordinated with Russia’s transcontinental rail plan and Mongolia’s Prairie Road program to build a China-Mongolia-Russia economic corridor. He asked the three sides to achieve this goal by strengthening traffic interconnectivity, facilitating cargo clearance and transportation and studying the feasibility of building a transnational power grid (The Mongol Messenger, September 19; Mongolian President’s Office, September 11). At the SCO meeting, President Elbegdorj announced there would be a meeting in Ulaanbaatar on implementing the Railway Transit Transportation agreements just signed among the three governments and a working group established to study opportunities to stretch the “Western Corridor of Natural Gas,” Elbegdorj’s concept for linking Central Asia’s natural gas fields to China and South Korea, through Mongolia (Mongolian President’s Office, September 11).

Prior to the opening of the SCO, Xi and Putin held trilateral talks with Elbegdorj to discuss his proposal to hold an official trilateral summit every three years in Ulaanbaatar. Elbegdorj trumpeted the historical significance of his discussions with the two others as “unique in terms of content and format of the summit in that it was held for the first time in the history of the three countries, except for a three-partite meeting held almost a century ago at the level of vice foreign ministers” (The Mongol Messenger, September 19). Xi and Putin both indicated interest in this idea but each proposed other possible venues and timing. Putin stated that: “Things discussed at this meeting create the appropriate mechanism to discuss and resolve the largest projects to be implemented by us in the future, and we agreed to promote our cooperation in this regard” (The Mongol Messenger, September 19).

Xi’s trip to Mongolia and offer to the Mongols to participate in his “China Dream” initiative was seen in Mongolia as a positive attempt to polish China’s image as a peaceful and generous neighbor interested in working to improve economic and political relations with Mongolia and in the entire Northeast Asian region. The Xi summit, followed by the Putin summit and Dushanbe trilateral summit, raised the profile of President Elbegdorj, who has been increasingly criticized for the drop in his nation’s growth rate from 12.3 percent in 2012 to 7.4 percent in the first quarter of 2014 a precipitous falloff in foreign investment. The plethora of agreements with both China and Russia to improve Eurasian transportation connections through Mongolia also could benefit “third neighbors,” especially Japan and South Korea, and meet Mongolia’s goal to diversify its trade partners. Yet, it is not clear that closer Sino-Russian-Mongolian economic and political ties will reassure Mongolia’s restless foreign investor community.