Mongolia”s bid to exploit untapped mineral wealth, build
huge infrastructure projects and list its homegrown firms abroad, is hampered
by the unresolved dilemma posed by  the
rise of resource hungry China and its influence as Mongolia”s major customer,
according to a Reuters analysis.

Consultants, bankers and analysts are flocking to
Mongolia, hoping the government values economic priorities more than politics
as it tries to pull the bulk of its 3 million citizens out of poverty. Many are
eager to remind Mongolia that China will remain its dominant resources buyer
and investment partner due to geographic location and insatiable resources
demand in the world”s fastest growing major economy.

“China is the principal market for the majority of
what Mongolia will be producing and, as a result, we expect Chinese investment
interest will be strong in Mongolia because clearly the Chinese companies have
the market linkages inside China,” Graeme Hancock, senior mining
specialist at the World Bank, says. “However, I do recognize and have
observed during my time in Mongolia some concern about Mongolia being dominated
by Chinese investment.  So, while there
will be a lot of investment from China, there will be limits to that
investment. There will need to be a lot of partnership arrangements with
Mongolian companies to facilitate Chinese investment.”

China, for its part, has been clear about its economic
ambitions in its northern neighbor. More than 70 percent of Mongolia”s exports
went to China last year. China”s coal giant Shenhua is pitching for a slice of
Tavantolgoi, and CIC, China”s USD300-billion sovereign wealth fund, has backed
Mongolia-focused miners such as SouthGobi Energy Resources. What”s more, the
bulk of Mongolia”s oil is being produced by Chinese firms and most of the big
projects now being developed, including Ivanhoe Mines” USD5- billion
copper-gold project at Oyutolgoi, are also counting on surging Chinese demand.

These developments continue to sound alarm bells among
Mongolia”s political elite as the government formulates investment agreements
on strategic assets such as Tavantolgoi, and massive rail and infrastructure
projects. Feeding into the debate is Mongolia”s determination to forge its own
path and shed its historical vulnerability as a landlocked country sandwiched
between Russia and China.

“Mongolia has been quite careful about its
sovereignty — we don”t want to be too dependent on one country,”
said  S.Oyun, a lawmaker and former
foreign affairs minister. “Theoretically, we want to have a one-third,
one-third, and one-third balance,” she added, referring to China, Russia
and third countries such as Japan or the United States.

“The
Boston Consulting group has identified there are other market opportunities
besides China, such as Korea, Japan, India, and Taiwan for both coal and
copper,” said C. Ganbat, adviser to the minister for road, transport,
construction and urban development. “The idea is to have multiple export
opportunities and, number two, to not be dependent on one trading
partner,” he added, referring to China. “In addition to Chinese
export hubs via Chinese seaports, we would have export opportunities via
Russian seaports to reach markets in Japan, Korea, and elsewhere.”