In resource-rich, landlocked Mongolia, nationalism has often meant a
wariness of its uncomfortably large neighbor to the south. Now, news that one
of Mongolia’s crown jewels — the copper-gold mining project known as Oyu Tolgoi
— employs more than a third of its work force from China could set the stage
for a surge in tensions between the two countries.

Oyu Tolgoi, the world’s largest undeveloped copper-gold deposit, is in the
final stages of preparations for production due next year. It represents for
Mongolia not just the hope of leapfrogging the national-development ladder but
also the chance to create a truly Mongolian cash
cow. Trouble is: Out of the roughly 15,000 employees and contract workers
currently on site, around a third are Chinese, Masa Igata, the chief executive
of Ulaanbaatar-based investment firm Frontier Securities, told China Real Time
Wednesday.

Mongolian media, who latched on to the story last
month, have said that closer to half the work force is Chinese. Their
reports prompted a government investigation in late May, but it’s not clear if
the probe has yielded firm results.

The high Chinese profile at one of Mongolia’s most cherished emblems of
national pride isn’t coming at a particularly opportune moment. In April,
Ulaanbaatar reacted
badly to a Chinese bid for Mongolian coal producer SouthGobi Resources Ltd.
Sensitive to encroachment and playing to a nationalistic gallery, the
government suspended some of SouthGobi’s mining licenses and moved to restrict
foreign ownership of “strategic industries” — including mining, banking and
telecommunications — to 49 percent for deals worth more than $75 million,
unless parliament grants an exception.

Rising resource nationalism isn’t anything new, and the expectation in
industry circles is that Ulaabaatar may pull back on the foreign-ownership rule
after national parliamentary elections next week, Mr. Igata said. But the
Chinese presence at Oyu Tolgoi may be a longer-lasting bugbear for the
Mongolians if the mine fails to meet targets for a much higher ratio of native
workers.

China’s increasing economic might, and the growing presence of Chinese
businessmen and workers in Mongolia – some of whom inevitably start up
relationships with Mongolian women – has led to a surge of anti-Chinese
sentiment in the country in recent years, particularly among young,
unemployed men. Chinese people are the chief targets of an neo-Nazi movement in
Ulanbataar that made headlines in 2009 after the leader of ultranationalist
group Blue Mongol, known to shave the heads of Mongolian women who slept with
Chinese men, was convicted of murdering
his daughter’s Mongolian boyfriend, reportedly because he had studied in
China.

Chinese involvement in mining operations has occasionally led to flare ups
in other countries, most notably in Zambia, where Chinese managers of one mine
elected to try to contain labor
unrest by shooting local employees last year.

Nothing quite so dire appears to be in the works in Mongolia. Mr. Igata said
Chinese workers generally aren’t the managers at Oyu Tolgoi, which is owned by
global mining conglomerate Rio Tinto and Ivanhoe Mines.

Reached by China Real Time, Rio Tinto spokesman David Luff said Oyu Tolgoi
employs 12,921 Mongolians, or 63 percent of the current work force. He said
this was slightly more than the 60-percent required by the company’s agreement
with the Mongolian government. When the mine is fully operational, the local
work force requirement will be bumped up to 90 percent, in accordance with the
investment agreement with the government, he said.

Rio Tinto is working to reduce its reliance on foreign workers to meet the
stiffer requirements, Mr. Luff said, adding the company out “the largest
training program ever undertaken in Mongolia.”

Still, the involvement of so many Chinese workers in a project of such
national importance has the potential to turn ugly given the mood in Mongolia.
Mr. Igata said it would behoove the Mongolians to realize that it can’t do
without Chinese business, and the Chinese to understand that they may well need
a lower profile to share in Mongolia’s wealth of resources.

In an uneasy courtship, Oyu Tolgoi may be the canary in the mineshaft.

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