A Chinatown Rises in Mongolia’s Crown Jewel

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 atruly 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.

– Chuin-Wei Yap

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