The
plan to construct 1,100 km of railroad to connect Dalanzadgad, capital of the
southernmost Omnogovi province to Choibalsan in Dornod province in northeastern
Mongolia, is an entirely mixed political puzzle, writes Munkh-Ochir Dorjjugder
in The Jamestown Foundation. Southern Mongolia is home to
massive deposits of copper, gold and coking coal, conveniently located only 80
kilometers from its border with China, which is the largest consumer of these
commodities. Northeastern Mongolia possesses large reserves of uranium and oil,
which are still being estimated, but are strategically located close to both
China and Russia.

This
represents a mixed blessing for the contemporary geo-economics of
Mongolia.  At first glance, constructing
a railroad directly to China makes much more sense – it is economically
feasible, cost- and time-effective in terms of transportation expenditure and
immediate revenue. However, Mongolia leaves this option for the future and
meanwhile it will concentrate on expanding its domestic railroad infrastructure
and connecting it to the Russian system. This decision seems to reflect a
cohort of other-than-economic considerations – geopolitical calculations,
aspirations for sustainable industrialization, and finally public opinion,
which matters as the new electoral cycle unfolds.

Moscow”s
influence and leverage in Mongolia”s railroad industry cannot be
underestimated. Russia controls 50% of the state-owned Ulaanbaatar Tomor Zam
(Railway) Company and used it to practically block an unrelated project to
renovate the existing Trans-Mongolia railroad using the large portion of a
USD285-million grant provided by the Millennium Challenge Account signed with
the US.

This
fact alone shows that the railroad remains a Russian strategic asset in
Mongolia and a source of potential leverage. Yet, this alone cannot be used as
a single interpretation of the Mongolian overture. It is a strategic ambiguity
that along with its existing dependence on Chinese imports, and even greater
dependence upon the export market for its mineral resources Mongolia may be
more vulnerable politically in making concessions to Moscow.

Accepting
Russia as the dominant partner in its infrastructure sector is rationalized by
the need for geo-economic balance, which means that in the absence of a direct
land route to other major economies Mongolia should seek an equal distribution
of commodity export and transit.

This is
partly based on the temporary closure of the border post in Zamyn-Uud
(Mongolia) – Erlian (China) in 2002, ostensibly for “technical
reasons” that also “coincidentally” occurred during the visit of
the Dalai Lama to Mongolia. Moreover, Beijing”s recent decision to halt the
export of rare earth elements to Japan prompted the latter to seek suppliers
elsewhere; and Mongolia, as Asahi Shimbun reported on October 4, “has agreed
to work with Japan to loosen China”s stranglehold on vital rare earth
elements”.

Even if
Mongolia were to foster such cooperation, it would have to recognize that its
hypothetical exports of rare earth elements could be similarly blockaded and
that this may not result from any mistake by Ulaanbaatar. Putting skeptical
scenarios aside, there is also willingness to develop long-term, sustainable
industrial growth in order to avoid becoming an economy based on mineral
extraction. En route from Dalanzadgad to Choibalsan is the town of Sainshand,
where the Mongolian authorities plan to build a processing plant for coal and
other minerals in anticipation that it could bring value added production into
the nation”s export basket.

The
ideal destination for these finished commodities would be the Asia Pacific
markets of Japan and South Korea. Russia has, according to Amarjargal Gansukh,
Mongolia”s Deputy Minister for Roads, Transportation and Urban Development,
offered three of its seaports provided that Mongolia connects its railroad to
their system. By adding uranium and rare earth elements to copper and gold to
its exports, Mongolia will secure what it has always sought: stable export
markets that complement the domestic industrial output and job creation.

Finally,
few in Mongolia underestimate the importance of public opinion: the country
remains, after all, a participatory democracy and the major parties now
unwillingly look forward to the 2012 elections. Mongolian society has a sense
of cultural alienation from China and fears that growing economic dependence on
its powerful neighbor might evolve into political subservience; the Mongolian
electorate is not sympathetic to any political force even vaguely perceived as
“promoting a Chinese agenda”.

This
outweighs all rational calculations of the immediate economic benefit and
dwarfs any advice or opinion of Western experts otherwise welcomed and
respected in that society. In other words, for Mongolia, Russia remains what it
has always been – an unavoidable partner crucial in balancing China. This has
been true since Tsarist times, It was true, albeit at a high cost, with the
Soviets, and this also seems to continue with contemporary Russia.