China wants Mongolia to be North Asia’s Australia

Ulaanbaatar is undergoing a skyscraper makeover as Chinese and foreign investment pour in.

column comment: Chris Devon- Ellis

ULAAN BAATAR, March 2 – China has agreed to provide Mongolia with a soft loan of US$300 million for the construction of a border free trade zone, as well as other major trade and investment projects planned for bilateral trade between the two countries. Chinese Foreign Minister Yang Jiechi visited Ulaanbaatar last week to discuss bilateral trade issues and seek access to and participation in Mongolia’s vast mineral reserves. The new Chinese ambassador to Mongolia, Wang Xiaolong, has also just been appointed as the two countries look to develop economic ties.

Bilateral trade between the two countries currently stands at $3.3 billion, but is expected to increase significantly in the coming years as the economic prosperity promised by Mongolia’s vast mineral resources begins to materialize. Investors will definitely go to great lengths to get in.

With China already the world’s largest coal consumer, Mongolia’s vast reserves are finding ready markets. Most importantly, Mongolia has large deposits of gold, copper, molybdenum, tungsten, nickel, zinc, tungsten, fluorspar, tin, silver, various minerals and rare earths. In addition, Mongolia is known for having rich oil and natural gas reserves. This was apparently acknowledged by Stalin, but never really materialized due to Soviet incompetence. “Stalin’s lost oil” could give another boost to an already wealthy country that suddenly finds itself flooded with mineral riches.

The world’s largest coal mine is in Mongolia, which has the world’s largest copper reserves and is the second-largest producer of rare earths. Given China’s recent decision to limit exports of its own rare earths, Japanese and US companies are bypassing China and turning directly to this alternative source.

Mongolia’s consumption patterns are already changing as newfound wealth begins to trickle down. In the capital, Ulaanbaatar, now home to 50% of the country’s population, consumer opportunities have significantly boosted the market. What was once just a Soviet-era state department store selling boots and essentials is now a sleek modern store stocked with the latest iPads and gadgets, while the likes of Louis Vuitton, Chanel, Salvatore Ferragamo and Cartier are already in New York opened the store’s flagship central tower on Sukhbataar Square, Beijing’s equivalent of Tiananmen Square.

Mongolia has arrived and is now one of 50 countries in the world that rely on natural resources to fuel growth and development. With its heavy reliance on mining and exploration, it’s no surprise that the entire country is being compared to Australia, another economy that relies heavily on natural resources.

How to manage this development has generated much debate, and I will be participating in such discussions at the Mongolian Economic Forum in Ulaanbaatar this week. For the latest news on this, as well as reviews of conferences on developments in Mongolia and opportunities for foreign investors, see our sister site, these articles will be published tomorrow (4 March 2011).

Chris Devonshire-Ellis is principal of Dezan Shira & Associates, Asia’s largest independent foreign direct advisory firm, with 17 offices in Asia. The firm specializes in foreign direct investment due diligence, investment law, taxation and related matters. He is also the Vice-Chairman of the Greater Tumen Initiative Business Advisory Council, an agency of the United Nations Development Program covering North China, Mongolia, Eastern Russia, and North and South Korea, with Japan as an observer country. Chris can be contacted at for advice on investing in the region.

Chris will host the Mongolian Investment Forum on Wednesday, March 23, 2011 at the Capital Club in Beijing. This will detail the investment opportunities and legal/tax regulatory environment in Mongolia. For more information and responses, click here.

Mongolia 2

Lenin watched as Mongolia’s democratic reconstruction gathered pace.

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