East Asian neighbours strengthened ties with Mongolia
After decades of economic dominance by neighbours China and Russia, Mongolia is breaking out by forging new trade ties with East Asian countries. While Korean firms are eyeing construction contracts, Japan is set to enter the field of energy and mining investment.
In August Japanese media reported that consensus had been reached between Tokyo and Ulaanbaatar on a majority of the issues behind an Economic Partnership Agreement (EPA).
The EPA will see Japan given privileges in the mining sector, with the prime minister of Mongolia, N. Altankhuyag, expected to sign the deal during a visit to the country in September. The agreement is also set to exclude Japan from upcoming laws and regulations that will limit foreign investment in the financial and communications sectors.
The move follows remarks by Altankhuyag in March in which he said the Mongolian government wants to develop a strategic partnership with Japan as a foreign policy priority, adding that Ulaanbaatar’s “official negotiations focused on activating this partnership in all social spheres, especially elevating economic ties to a new level”.
“Japan will be a wise choice as partner in Mongolia’s coal and oil shale sectors,” wrote Professor P. Ochirbat in the Mongolian Mining Journal in March. “Japan is clearly the second-biggest [coking coal] market after China, and we should seek Japanese help on operating Tavan Tolgoi.”
Japan’s coal imports are set to hit another record over the next year as utilities led by Tokyo Electric Power Company burn more of the cheaper fuel to cut surging energy bills. Utilities firms bought 4.24m tonnes of coal in May – 22% more year-on-year – as the return of coal-fired plants following the March 2011 earthquake and tsunami causing severe damage to the Fukushima nuclear plant continues to push imports higher.
Other infrastructure and energy deals are getting under way with Korean organisations. On August 17 Ulaanbaatar Mayor E. Bat-Uul met with South Korean parliamentarian Park Jin to discuss a Korean firm’s plans to build the new city administration building, as well as the Korea International Cooperation Agency’s involvement in improving its water supply and heating network.
“I’m thankful that our relations are improving and Korea is becoming a special investor in the education, health and infrastructure sectors. We will collaborate with Korean companies in Ulaanbaatar city’s construction,” said E Bat-Uul. In July the Korea Trade-Investment Promotion Agency (KOTRA), the nation’s trade and investment promotion agency, opened a branch in Ulaanbaatar.
“The value of trade between the two countries, which was only around $1m in 1990 when we first established diplomatic ties, now stands at about $480m,” KOTRA president Oh Young-ho said at the opening. “Our official investment to Mongolia that began at $240,000 in 1994 has also reached $50m in the past 18 years.”
However, recent cancellations also hint that it is not all plain sailing for the major infrastructure contracts being awarded. At a cabinet meeting on August 5, officials confirmed that the government was terminating its deal with South Korea’s Baek Suk Engineering and Construction, which was in the process of building a 253-km road between Ulaanbaatar and Khuvsgul Aimag.
The move came alongside the cancellation of two other road contracts with Chinese firms, with the government saying it was not happy with their performances. “A Korean company which is building the road between Khuvsgul and Ulaanbaatar has reported to the Ministry of Road and Transportation that it cannot open the road within 2013 as planned,” reported the Ulaanbaatar Post in July.
Although a blow to planned road construction projects, surging Korea-Mongolia ties easily outweigh the significance of the cancellation.
Mongolia is also entering into the frontier market of North Korea, with domestic oil trading and refining company HBOil JSC in June acquiring 20% of the state-run entity operating North Korea’s Sungri refinery.
That Ulaanbaatar is playing a mediation role in talks between Japan and North Korea also underlines the diplomatic impact of the country’s manoeuvres into East Asia, while Mongolian President Ts Elbegdorj is set to visit Pyongyang later this year.
The entry of Japan and the Koreas into the Mongolian investment equation is a challenge to the Russian and Chinese dominance over Mongolia’s energy and infrastructure markets. Last year was the 13th straight year in which China maintained its position as both Mongolia’s largest trading partner and investor.
According to a foreign trade review released by Mongolia’s central bank in July, in the past 12 months the trade volume between Mongolia and China ($2.99bn) represented a decrease of 12% and the trade volume between Mongolia and Russia ($893m) fell by 21%.
While the move to diversify markets is to be lauded, Mongolia’s leaders must guard against a geopolitical backlash from its dominant neighbours, which could see them aim for other strategic allies.
In August Japanese media reported that consensus had been reached between Tokyo and Ulaanbaatar on a majority of the issues behind an Economic Partnership Agreement (EPA).
The EPA will see Japan given privileges in the mining sector, with the prime minister of Mongolia, N. Altankhuyag, expected to sign the deal during a visit to the country in September. The agreement is also set to exclude Japan from upcoming laws and regulations that will limit foreign investment in the financial and communications sectors.
The move follows remarks by Altankhuyag in March in which he said the Mongolian government wants to develop a strategic partnership with Japan as a foreign policy priority, adding that Ulaanbaatar’s “official negotiations focused on activating this partnership in all social spheres, especially elevating economic ties to a new level”.
“Japan will be a wise choice as partner in Mongolia’s coal and oil shale sectors,” wrote Professor P. Ochirbat in the Mongolian Mining Journal in March. “Japan is clearly the second-biggest [coking coal] market after China, and we should seek Japanese help on operating Tavan Tolgoi.”
Japan’s coal imports are set to hit another record over the next year as utilities led by Tokyo Electric Power Company burn more of the cheaper fuel to cut surging energy bills. Utilities firms bought 4.24m tonnes of coal in May – 22% more year-on-year – as the return of coal-fired plants following the March 2011 earthquake and tsunami causing severe damage to the Fukushima nuclear plant continues to push imports higher.
Other infrastructure and energy deals are getting under way with Korean organisations. On August 17 Ulaanbaatar Mayor E. Bat-Uul met with South Korean parliamentarian Park Jin to discuss a Korean firm’s plans to build the new city administration building, as well as the Korea International Cooperation Agency’s involvement in improving its water supply and heating network.
“I’m thankful that our relations are improving and Korea is becoming a special investor in the education, health and infrastructure sectors. We will collaborate with Korean companies in Ulaanbaatar city’s construction,” said E Bat-Uul. In July the Korea Trade-Investment Promotion Agency (KOTRA), the nation’s trade and investment promotion agency, opened a branch in Ulaanbaatar.
“The value of trade between the two countries, which was only around $1m in 1990 when we first established diplomatic ties, now stands at about $480m,” KOTRA president Oh Young-ho said at the opening. “Our official investment to Mongolia that began at $240,000 in 1994 has also reached $50m in the past 18 years.”
However, recent cancellations also hint that it is not all plain sailing for the major infrastructure contracts being awarded. At a cabinet meeting on August 5, officials confirmed that the government was terminating its deal with South Korea’s Baek Suk Engineering and Construction, which was in the process of building a 253-km road between Ulaanbaatar and Khuvsgul Aimag.
The move came alongside the cancellation of two other road contracts with Chinese firms, with the government saying it was not happy with their performances. “A Korean company which is building the road between Khuvsgul and Ulaanbaatar has reported to the Ministry of Road and Transportation that it cannot open the road within 2013 as planned,” reported the Ulaanbaatar Post in July.
Although a blow to planned road construction projects, surging Korea-Mongolia ties easily outweigh the significance of the cancellation.
Mongolia is also entering into the frontier market of North Korea, with domestic oil trading and refining company HBOil JSC in June acquiring 20% of the state-run entity operating North Korea’s Sungri refinery.
That Ulaanbaatar is playing a mediation role in talks between Japan and North Korea also underlines the diplomatic impact of the country’s manoeuvres into East Asia, while Mongolian President Ts Elbegdorj is set to visit Pyongyang later this year.
The entry of Japan and the Koreas into the Mongolian investment equation is a challenge to the Russian and Chinese dominance over Mongolia’s energy and infrastructure markets. Last year was the 13th straight year in which China maintained its position as both Mongolia’s largest trading partner and investor.
According to a foreign trade review released by Mongolia’s central bank in July, in the past 12 months the trade volume between Mongolia and China ($2.99bn) represented a decrease of 12% and the trade volume between Mongolia and Russia ($893m) fell by 21%.
While the move to diversify markets is to be lauded, Mongolia’s leaders must guard against a geopolitical backlash from its dominant neighbours, which could see them aim for other strategic allies.
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