Mongolia’s Economic Crossroads
As China’s volatile stock market causes tremors around the world, its neighbor Mongolia is feeling the effects most acutely. This year, Mongolian exports to China have fallen by 17 percent, equivalent to a drop of over $3 billion, a considerable dent in the country’s $12 billion economy. In the face of a 4 percent budget shortfall, Mongolia has resorted to enacting domestic austerity measures and fostering an even closer relationship with China. In 2014, commodities to China composed 88 percent of all Mongolian exports, yet the country has not always relied on exporting raw materials. After achieving economic independence from the Soviet Union, Mongolia established economic ties with the United States, Japan, and Western Europe. Though the government has tried to diversify its exports away from commodities, it has not yet achieved a successful transition to other industries.
In response to China’s slowing demand for minerals, Prime Minister Saikhanbileg Chimed announced the government will “cut salaries and merge agencies … to reduce spending,” as well as sell off state-owned companies. Saikhanbileg narrowly avoided unleashing austerity measures last February by issuing a text-referendum, where 56 percent of Mongolians voted in favor of foreign investment instead of budget cuts. The referendum allowed the government to approve a $6 billion mining project with Rio Tinto, a British-Australian mining company. However, this month, the government looks poised to reconsider domestic changes to make up for the export shortfall.
Dale Choi, the director of a Mongolian metal-works research firm, highlighted the severity of the current situation: “When China sneezes, we get a cold. That is how the situation is. It really affects us in a major way.”
At the same time, politicians continue to rely on the economic strength of its neighbor, albeit in a different form. China, Mongolia, and Russia have planned to construct a “Great Silk Road” to enhance transportation, communication, and trade. Last year, Chinese President Xi Jinping announced a plan to increase trade with Mongolia to $10 billion by 2020.
Chairman of the Mongolian People’s Party Sandag Byambatsogt credits this as an integral part of the country’s future. During a China-Mongolia Expo this October, he said, “Mongolia’s economy is shrinking, and in times when budget revenue is seeing a shortage, Mongolia needs investment like it needs air and water.”
Mongolia plans to benefit from more than just trade: It also expects an increase in tourism from the Great Silk Road. President Xi credits the China-Mongolia Expo held last month as an important first step to enhance cross-cultural exchange.
Wei Gounan, head of the Inner Mongolia Tourism Administration, told Chinese Central Television that “cross-border tourism is an important platform of the China-Mongolia-Russia economic corridor.” Emphasizing this sentiment, China has promised to finance ten new projects worth $220 million to build hotels, resorts, and infrastructure.
As Mongolia faces an economic downturn prompted in large part by China’s erratic stock market, the elite have promised to take new internal and external measures to compensate. However, if the past is any indicator, Mongolian politicians may prefer the quick benefits of more foreign investment, even if that means relying further on its Chinese neighbor.