Despite having long-lasting historical ties, the modern state-to-state relationship between Mongolia and China has emerged only after the establishment of the People’s Republic of China (PRC) in 1949. Since then Mongolia-China relations underwent three different stages of development. In the 1950s the two countries developed a friendly relationship driven by ideology and respective realistic calculations on both sides. However, with the deterioration of Sino-Soviet relations, Mongolia-China relations entered a period of hostility. As a small nation situated between two giant powers confronting one another, Mongolia had no other choice but to enter into the protective umbrella of one of them. For Mongolians, historical experience caused them to choose the Soviet umbrella, and the relationship between Mongolia and China would not recover until the end of the Sino-Soviet confrontation. After this main obstacle disappeared, Beijing and Ulaanbaatar each recognized their shared strategic interests, and consequently decided to reengage one another. While Russia, the former ally, still enjoys certain political and economic influence in Mongolia, it is now the PRC which is emerging as the main political and economic partner of Mongolia.
China’s post-Cold War policy toward Mongolia differs much from that of the Mao era, which openly questioned Mongolia’s sovereignty. Beijing’s strategy is to create a peaceful external environment for its development, to strengthen its relationship with neighboring countries, and to build a positive international image as a responsible power adhering to international norms. This approach has thus far succeeded in creating an environment of trust on which to further develop the current Mongolia-China rapprochement. Since reengagement, Chinese leaders have repeatedly pledged to respect Mongolia’s independence and sovereignty. For example in August 1991, during the early stage of normalizing bilateral ties, President Yang Shangkun visited Ulaanbaatar and expressed China’s respect for the “independence and sovereignty of Mongolia.” Later in 1994 while on a visit to Mongolia, Chinese Premier Li Peng signed a new bilateral treaty on friendly relations and cooperation. During the visit, Li Peng also outlined China’s five point policy for Mongolia:
Adherence to the five principles of peaceful coexistence;
Respect for Mongolia’s independence, sovereignty, territorial integrity, and choice of development;
Development of trade and economic cooperation on the basis of equality and mutual benefit;
Support for Mongolia’s nuclear-weapon-free status;
Willingness to see Mongolia develop relations with other countries. 
Although the current state of Sino-Russian relations has substantially diminished Ulaanbaatar’s buffer role in the security policy of its two neighbors, the PRC still sees Mongolia as a country of “crucial geopolitical interest.”  China shares its longest land border with Mongolia. Therefore, maintaining a good Sino-Mongolian relationship is regarded as a significant matter for the security and stability of northern China, including Xinjiang, Inner Mongolia and the northeastern provinces. 
The political relationship between Beijing and Ulaanbaatar has developed quickly. Since the late 1980s, the level and frequency of visits to Mongolia by the Chinese side have been considerably higher than those of Russia. In June 2003 during his first foreign visit as China’s top leader, Hu Jintao paid an official visit to Mongolia, demonstrating that China’s new generation of leaders intended to pay close attention to Ulaanbaatar. While China has expressed respect for Mongolia’s choice of democracy, Beijing has also been paying considerable attention to engaging Mongolia’s major political parties. Besides developing ties with the Mongolian People’s Revolutionary Party (the former communist party), the Chinese Communist Party (CCP) through active efforts has also managed to connect with the new liberal democratic parties of Mongolia, namely the Democratic Party and the Civil Will Republican Party. Beijing has prudently used its development of close ties with these Mongolian political parties as an important component to China’s overall strategy of achieving its international security objectives and sustaining economic growth.
Generally speaking, China’s economic boom has been creating an opportunity for the landlocked Mongolia to grow since it has provided Ulaanbaatar with a favorable external environment. Economically, the PRC emerged as the most influential country for Mongolia within the last ten years. China became the second largest trading partner of Mongolia in 1995 and the largest in 1999. In 2004, 48 percent of Mongolia’s exports were sent to China and 38 percent of the total foreign investment to Mongolia was made by Chinese companies.  China’s offer to allow Mongolia use of its Tianjin port gave Ulaanbaatar a main route to the Asia Pacific in the early 1990s. This created a great opportunity for Mongolia to develop trade relations with the rest of the region.
For its part, China has been paying increased attention to developing economic relations with Mongolia. Besides the fact that close economic ties with Mongolia increase China’s leverage over bilateral relations, it is also important for the economic development of China’s northwestern and northeastern provinces. Due to its geographic proximity and economic complementarities, China is the best positioned country to exploit the opportunities created by Mongolia’s new liberal legislations, which are designed to create a favorable environment for foreign investors.
Mongolia is rich in various natural resources that China needs in its rapidly developing industry, such as coal, gold, iron and some other precious metals. In recent years, with its continued economic growth and reduced natural resources, China’s investment interest in Mongolia’s strategically important mining sector is increasing rapidly. In 2003, Hu Jintao expressed his interest in increasing Chinese large scale investment in Mongolia’s mining sector and pledged to provide Mongolia a $300 million soft loan, mainly directed to improve infrastructure condition in Mongolia’s major mining area close to the Chinese border.  In the following year, during his visit to China, Mongolian President N. Bagabandi pledged to promote Chinese investment in Mongolia’s mining sector. As a result, Chinese investment has increased enormously in the past two years. In 2003 China invested $23 million in Mongolia’s mining sector. In 2004 this number increased approximately 3.7 times, amounting to $86 million. China’s investment in Mongolian mining totals about 30 percent of the foreign investment for this sector. Mining products such as copper, coal and other metals occupy the biggest share of Mongolian exports to China. 
Clearly, China is going to be the biggest potential market for Mongolia’s mineral and livestock products. In addition, the PRC will serve as one of the primary sources of capital feeding the Mongolian economy in the coming decades.
Due to China’s post-Cold War policy toward the international community and the rapid expansion of Sino-Mongolian relations, the Mongolian attitude toward China has been changing over the years. While Mongolians had viewed China as a hostile revisionist country before the late 1980s, now it is generally regarded as a major power able to generate regional and world economic development. It also possesses great influence over Mongolian politicians and scholars thus affecting Ulaanbaatar’s regional and international relations.  However, certain challenges still exist for the two countries.
As Jiang Zeming has emphasized, there are no unsettled political, legal or historical problems between the two sides. Yet, deep-rooted distrust of China caused by historical experience is still persistent among Mongolians. The Mongolian press is frequently suspicious of Chinese ambitions, particularly fearing Chinese expansion. Chinese who reside in Mongolia complain about such negativity.  Not surprisingly, during his visit to Ulaanbaatar in 2003, Hu Jintao emphasized the importance of mutual understanding and trust between the two nations.
While Mongolians recognize that the country’s growing economic dependency on China is unavoidable, they are nevertheless concerned about the detrimental impact Chinese influence is having at home. Mongolia’s landlocked position and lack of economic regionalism are the two main obstacles impeding Mongolia’s integration with the rest of Northeast Asia. Unequal competition between China and Mongolia on the world cashmere market will be a headache for Ulaanbaatar in coming years. Mongolia produces 20 percent of the cashmere on the world market. Beginning in the late 1990s, Chinese traders started to buy raw cashmere from Mongolia’s domestic market and export it to China for domestic processing; this has consequently drained Mongolia of its cashmere supply and weakened its processing plants. As Mr. Sedvanchig, CEO of Mongolia’s largest cashmere factory “Gobi” told the media, Mongolia’s domestic cashmere manufacturers are using only about 40 percent of their production capability and Mongolia is loosing huge export revenue.  When Ulaanbaatar increased the export tax on raw cashmere, smuggling to China became yet another issue which needed to be addressed. China’s cashmere manufacturers and exporters clearly have an ambition to increase their respective shares in the world market.
Competing with China’s low cost industry is a tough challenge for Mongolians, even in the domestic market. Removal of the textile export quota has created a big challenge for Mongolia. In 2004, Ulaanbaatar’s textile industry produced about 16 percent of total export revenues to compete with the Chinese one. In order to save on high transportation costs caused by Mongolia’s location, some companies are even preparing to move their factories to China. Recent reporting by the Mongolian media on Chinese smuggling has raised public concern in the country. 
If both sides fail to handle these issues effectively, then it is possible that an upsurge in Mongolian nationalism would greatly harm Sino-Mongolian relations. Mongolians and Chinese each have different historical viewpoints in this regard. While Mongolians see themselves as one of Asia’s oldest ethnic nations like Han Chinese, Chinese regard Mongolia as a former part of the Middle Kingdom and view Mongolians as their ethnic minority. This is a deep-rooted disagreement that could have explosive effects for future relations between Ulaanbaatar and Beijing.
Since the normalization of bilateral relations, political issues including so-called “Pan Mongolism,” the Dalai Lama, and Taiwan have most concerned the leaders in Beijing. In recent years China has also become increasingly concerned about Mongolia–U.S. relations. Instead of balancing between China and Russia, Mongolia is now tasked with maintaining relations with two new geopolitical competitors, China and the U.S. In addition, Ulaanbaatar seeks to develop ties with other developed nations under its multi–pillar foreign policy. These two realities may pose challenges for Mongolians in the future.
Migeddorj Batchimeg is a senior researcher at the Institute for Strategic Studies of Mongolia.
1.Tsedendamba Batbayar, Mongolia’s Foreign Policy in the 1990’s: New Identity and New Challenges, Institute for Strategic Studies, Ulaanbaatar, 2002, p 130.
2. Li Dongyan, “The Interaction between Northeast Asian Cooperation and Chinese Development Strategy,” Ed. Lhamsurengiin Nyamtseren, Political, Security, Economic and Infrastructure Factors of Economic Cooperation in the Northeast Asia, Mongolian Development Research Center, Ulaanbaatar, 2002. p.30.
3. Yang Fan and Zhu Ning, “The Strategic Significance of West Development,” Economic Selections, No.32, June 2000, Chinese Financial Economy Press, p.15.
4. Statistics from Foreign Investment and Foreign Trade Agency and Ministry of Industry and Trade of Mongolia.
5. Information available at http://gate1.pmis.gov.mn/president/2003-06-04e.htm
6. Statistics from Foreign Investment and Foreign Trade Agency and Ministry of Industry and Trade of Mongolia.
7. D.Shurhuu, “Hyatadyn Shine Diplomat Bodlogo ba Mongol-Hyatadyn Hariltsaa” (China’s New Diplomacy and Mongolia – China Relations), Unuugiin Hyatad (China Today), Institute for International Studies, Ulaanbaatar, Vol.1, 2005, pp 12-17.
8. Many articles can be found. “Chinese Desire to Master Mongolian Gobi,” Notstoi Medee, March 02, 2005; “China’s All-front Offensive,” Unuudur(Today), October 13, 2004.
9. Unuudur (Today) Mongolian newspaper, April 08, 2005
10. Plenty of materials can be found from reliable Mongolian media sources. For instance: “A hundred thousand marmot fur has been confiscated in one investigation,” Udriin Sonin (Daily News), October 15, 2004; “Law does not apply to Chinese traders,” Udriin Sonin (Daily News), February 08, 2005; “A gang coveting Mongolia’s treasury chest is revealed,” Zuuny Medee (Century News), March 05, 2005.