Mongolia's railway to China turns into national security threat

By bne IntelliNews July 30, 2014

Jacopo Dettoni in Ulaanbaatar -

 

It may be a difference of less than 10 centimetres, but it's proving enough to revive Mongolians' darkest feelings of suspicion about their giant southern neighbour China.

The difference in question is the 85mm between Mongolia's 1,520mm rail gauge – a legacy from the Soviet era, and called the "Russian gauge" – and China's narrower 1,435mm gauge, a more widely used track width across the globe that's known as the "Standard gauge."

This minor detail represents a huge technical barrier between the two countries, since each train crossing the border is forced to make long stops to change the wheels. But while Mongolia's growing army of mining companies consider it a logistics bottleneck, Mongolians themeslves see it as a matter of national sovereignty – a necessary shield protecting their sparsely populated homeland and its vast mineral resources from the ever-present “Chinese threat.”

The Mongolian authorities have debated the issue for years, all to no avail. But it has become front-page news again after the government's recent attempt to pursue the construction of a standard gauge railway stretching from Tavan Tolgoi, the country's largest coal mine, to the Chinese border turned into a political quarrel fuelled by the powerful and controversial politician, businessman and judo hero, Khaltmaa Battulga.

“Tanks can easily penetrate into Mongolia in no time if we build a railway with a [narrower] gauge track, the same used in China,” a TV show produced by Battulga claimed a few days ahead a key parliamentary discussion on the project in June.

The TV show triggered a wave of anti-Chinese sentiment right at a time when the Mongolian government is trying to increase commercial ties with China. In an attempt to rebut the criticism, the government labelled the televised content as “damaging to national security, economic sovereignty, and diplomatic relations with China.” President Tsakhiagiin Elbegdorj himself summoned Battulga and accused him of “wrecking a good culture being formed and shaped in politics.” Even so, the deliberations over the bill for the railway project was delayed until the fall session.

Godfather politics

Battulga is one of the most controversial figures in Mongolia's political and business arena. A former judo champion with the nickname Genco, recalling a character from Martin Scorsese's "The Godfather," Battulga started off trading electronic appliances with China in the 1990s and ended up building an empire ranging from meat processing to land development.

His political career has been as successful as his business ventures. After serving as roads, transportation, construction and urban development minister in the previous government, he became industry and agriculture minister and was even touted to be close to replacing Prime Minister Norovyn Altankhuyag in April. Instead, he ended up leaving the government in May in protest at a bill prohibiting the simultaneous holding of offices as a minister and a member of parliament.

Battulga has continued his dark warnings about supposed threats to national security. “The war and conquest of any country starts with transportation, banking system and communications,” Battulga said during a TV show. “We have to protect these fields – some nations fight for it, die for it, but unfortunately Mongolians just give away these fields.”

If it is arguable that a railway to China, or a TV show against it, represent a threat to Mongolia's national security, there is little doubt that the country's logistics bottlenecks are a much more concrete threat to its economic ambitions.

The present cost of trucking coal across the 20-kilometre border is $10 per tonne. This will come down to  $0.1 once the coal is moved by rail, with transportation times reduced to three hours from three days and the overall transport capacity increased to 50m tonnes a year from 20m tonnes, according to government figures. If such estimates materialize, the narrower gauge railway project will improve the competitiveness of Mongolia's coal, which gets often outpriced by China's other coal suppliers like Australia. Mongolia exported to China 18.2m tonnes of coal in 2013 and this is planned to reach 50m tonnes by 2015.

On the other hand, the railway will also increase the Mongolia's economic dependence on China, which is already the only buyer of its coal, raising concerns over the country's economical and political sovereignty. Those same concerns had already emerged in 2012, when China’s state-owned Aluminium Corporation of China (Chalco) was about to acquire a coal mine operator, SouthGobi Resources, from a Canadian company. Ulaanbaatar reacted by passing a new law requiring government approval for foreign investment in strategic industries. More recently, a Chinese blogger caused outrage in Mongolia when he redrew a map of China and asked: “Is Mongolia the next Crimea?”

China's poor track record in dealing with border disputes and neighbouring countries proves to be fertile ground for such worries to proliferate. Nonetheless, Mongolia's government has little room to pursue other alternatives to feed its slowing economic growth. Despite recurring announcements, work has yet to kick off at the Sainshand industrial park project, a multi-billion project aimed to process locally Mongolian minerals and connected via railway to Russian ports. On the other hand, Chinese state firm Shenhua Group has already agreed to bear 70% of the cost of the 267km railway connecting Tavan Tolgoi and the Chinese border, making it a more realistic short-term option.

Besides, the government hopes it can gain access to third markets through Chinese ports, giving Mongolia the chance to become the “Panama” of Eurasian transit trade, to put it in the words of local columnist Dambadarjaa Jargalsaikhan. “By making use of a mere difference of 85mm, we can turn Mongolia into a big player in terms of international trade,” Jargalsaikhan wrote in 2013, referring to the country's chance to become a regional hub for goods in transit towards China.

However, for as long as Mongolia's relationship with China remains one of ambivalence, such ambitions remain vulnerable to sudden bursts of anti-Chinese sentiment and, ultimately, will not be fulfilled.

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