Seeing the moonlight from a waterfront pavilion

President Xi Jinping of the People’s Republic of China, the second largest economy in the world and Mongolia’s biggest trade partner and investor, paid a two-day visit to Mongolia. The visit was broadly reported by media around the world. During this visit, dozens of agreements and memorandums between Mongolia and China were signed in areas such as economics and politics. President Xi Jinping noted in his speech to the Mongolian parliament that Sino-Mongolian relations will be brought to a higher level. If every agreement and document that agreed to is fully implemented, such higher level relations will be achieved. President Xi Jinping said, “Chinese people insist that a promise must be kept and actions must be resolute. Chinese people will deliver what is promised.” This implies that the same resolve is expected from Mongolia. In order to keep our promises and become a good partner that works for “mutual benefits and win-win visions”, Mongolia needs to overcome several challenges.
President Xi Jinping shared the Chinese saying: “A water-front pavilion gets the moonlight first.”

Negotiations on transit transportation and access to the sea

Landlocked countries worry a great deal about finding access to the sea through the territory of their bordering nations. The relative parties from Mongolia and China worked fast and efficiently in this regard and established certain agreements, which was the most significant achievement of the visit in terms of economic relations between the two countries. It was agreed that Mongolia would use another six new ports in the northeastern region of China, besides the port of Tianjin. Following this decision, an agreement was established for developing railway cooperation in transit transportation and cross-border transport to and back through Chinese territory. Furthermore, there is likely to be an increased number of border crossings between the two countries, and some of them will start working 24 hours a day.
Since there is an opportunity for Mongolia to have transit transportation and access to the sea through the territory of our neighbor to the south, we have a chance to build international gauge railway to China and deliver our products to third neighbor countries without the cargo being opened along its transportation route. It will help Mongolia’s exports, especially coking coal, have prices adjusted for shipping by sea, which will boost our competitiveness.
In order to increase the freight turnover of transit railway transportation to 100 million tons by 2020, Mongolia should become a trade and transport hub that offers a large canal for Russia-China-Eurasia trade and provide excellent transshipment services that are known for superb efficiency. If excellent services of payment, information, and communication are successfully introduced, many new businesses will emerge and develop. Furthermore, it could even increase the interests of our two neighboring countries to do more cross-border transport through Mongolia.
MoU on coal gasification and transport via pipelines

In terms of its economic significance, the second biggest progress made during the visit is the memorandum of understanding signed on coal processing and transportation. It looks like this memorandum reinforced the memorandum of understanding that our prime minister signed last year, when he visited China. Our officials should know that this kind of high-level visit is supposed to produce agreements rather than memorandums of understanding.
Introducing coal gasification and building pipelines to supply Beijing and Ulaanbaatar with coal gas will not only help the two capital cities combat air pollution, but also help Mongolia establish a chemical industry. This project is worth 30 billion USD, which is three times larger than our economy today. A very important decision for democratic Mongolia to make is whether the Mongolian partner on this huge project should be a private company or a state-owned one. If it is a private company, what criteria will be used for selection? If it is a state-owned company, how will it be funded? Such questions will be raised in great numbers. Regardless of which company is to be selected, the company is required by the law to receive a special permit from the Government of Mongolia.
The agreement established between Erdenes Tavan Tolgoi and China’s Chalco provides good insight into what happens when political parties in ruling power play with a project managed by a state-owned company. The debt of 350 million USD, still not paid back after two years, shows that there is a great risk that any memorandum of understanding could remain nothing more than a piece of paper if state-owned companies take part in such a huge project. If private companies are to be selected, any risks that are associated will not be carried by taxpayers. Relevant parties should take careful note that the only problem is making sure that the private company does not make big donations to political parties or bribe government officials.
Infrastructure projects

When we are talking about the agreements and memorandums signed around industrial development, energy, and railroad, it should be taken into account that all goods and services produced in Mongolia are dependent on a single market. Mongolia will partner with Chinese state-owned companies in most of the projects. Therefore, having private companies instead of state-owned ones will reduce any political influence that could come from Mongolia on those projects. As China will probably be making the bigger part of the investment, we will need to establish a take-or-pay type of contract that is broadly used internationally.
On the other hand, when Mongolia starts implementing such huge projects with a big, powerful partner like China, the business space for third neighbor countries will dramatically shrink and there will be fewer options for Mongolian companies. Therefore, we need to calculate the opportunity cost. In any case, Mongolia must have internationally qualified experts take part in the process and establish good agreements.
Although Mongolia has “limitless” natural resources, we have a very limited amount of cash available. There is no need to spell the situation out when our national currency has entered its biggest decline. Instead of meeting the social demand, the government used all available cash along with more foreign loans on numerous plants and infrastructure projects without guaranteed returns. It is hoped that the relevant parties are aware of this display of irresponsible actions. If a less-developed country like Mongolia is not able to make social investments, such as hospitals and schools, the gap between rich and poor will keep expanding and the crime rate will increase. It could create social instability. Therefore, there is no option for Mongolia other than establishing take-or-pay contracts where an investor is required to buy the products that he invested in, or pay if they are not purchasing. Mongolians hope that China, our great neighbor, understands this situation of ours.
Mongolia has chosen the path to a market economy where private property prevails, whereas China has chosen the path to “a strong, prosperous, democratic, civilized, harmonious, and modern socialist country.” As President Xi Jinping pointed out, a new era for Sino-Mongolian relations is beginning. Mongolia and China will respect each other’s development path and work hand in hand. There is great opportunity for the two eternal neighbors to take advantage of our inter-complementary economic opportunities, truly assess what is different and what should be noted about each other’s development paths, and become partners who have mutual benefits and win-win visions.

Translated by B.AMAR

Short URL: http://ubpost.mongolnews.mn/?p=11700

Posted by on Aug 31 2014. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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