Mine-golia

A boom in demand for minerals, mainly from China, has transformed Mongolia from a impoverished basket case to a confident nation with one of the world's fastest-growing economies. Yet all the wealth and mutually-beneficial trade hasn't warmed relations between the longtime adversaries of China and Mongolia.

IN THE HARSH TERRAIN OF SOUTHERN MONGOLIA,  wind whipping around massive dunes creates a hypnotic melody uplifting in the desolate Gobi Desert. Rapt listeners long ago dubbed this “the singing sands.” But the sound reverberating through the Gobi these days is a great sucking - Mongolia’s mineral wealth being dug up, than carted away.

  To Alex Molyneux’s ears, it’s an incessant, pleasurable roar. CEO of mining company SouthGobi Resources, his view from Ovoot Tolgoi coal mine is equally impressive: a line of trucks on dirt track, snaking to the horizon.

 “Sometimes it’s bumper to bumper all the way to China,” boasts Molyneux, who sees commerce rather than inconvenience in the traffic. Trucks roll 24/7 from China, 25 miles away, arriving empty, but return packed with coal, much of it from his mine.

  Mongolia has some of the world’s largest coalfields, meaning Molyneux sits on a veritable gold mine, thanks to Ovoot Tolgoi’s proximity to China, and its soaring hunger for coal to stoke the fires of its industrial growth. There is another trump card for SouthGobi, a Canadian company also listed on Hong Kong’s stock exchange: a pervasive backlash against looming Chinese influence in Mongolia.

  China’s rising affluence is a story around the globe, but nowhere does it play out with greater consequences than in the Saudi Arabia of Coal, as SouthGobi calls this stretch of the world’s northernmost desert. It’s rich in other minerals: gold, copper, uranium and rare-earth. To the northeast in the Gobi is Oyu Tolgoi, the world’s largest copper mine, which may provide a third of Mongolian GDP, thanks to booming Chinese demand for transmission lines and vehicle batteries. Mongolia, which still bristles at mention of its time as a colony of China, is increasingly buoyed by the prosperity of its southern neighbor, which claims the vast majority of Mongolian exports and investment. Yet, rather than embrace this windfall, the government is looking for ways to limit its exposure to, and dependence upon China.

  Across the Gobi, countless dirt tracks run due south, linking the vast but mostly untapped mineral reserves of Mongolia to insatiable markets in northern China. Just across the border are massive camps, railheads, and machines that can pack entire train compartments in minutes. While much of the world was fixated by reports of the world’s largest traffic jam into Beijing a few months back, the real story here is about an epic Gold Rush in Mongolian mining, and how it is not only reshaping one of the oldest surviving empires, but politics throughout Central Asia, and far beyond.

  Long one of the world’s poorest countries, Mongolia is suddenly awash in cash, with a Hummer Club and new BMW dealership in the capital of Ulaanbaatar. Its tiny stock market was amongst the world’s best performers last year, along with its long-maligned currency, the Tugrik. GDP grew over six percent last year, and analysts predict a near double-digit rate pace for at least 5-10 years. The impact is already seen in high-rises and shopping malls that stand in stark contrast to vast camps of tent-like gers around the fringes of Ulaanbaatar, heated by coal or wood, in winters that reach -45 degrees Celsius in the world’s coldest capital city.

  Incomes are expected to quadruple within the next few years, according to Renaissance Capital, one of the numerous investment banks sprouting up these days in Mongolia. “The boom is on, there is no longer any doubt about that,” says John Finigan, CEO of Golomt Bank, who compares Mongolia’s mining wealth to the oil of Gulf states. “It’s like a Klondike Gold Rush,” adds Simon Morris, CEO of banking leader Kahn Bank. Last summer, hotels turned away business because of all the investment and mining conferences. “It’s a bit like Mongolia-dot-com,” concedes Molyneux.

  A chorus of international aid groups and local watchdogs are already chirping about the need for tight reins on the inflows. Corruption is a constant concern in a country that has seen governments toppled with alarming regularity. But of greater worry to many are some of the nasty social issues resurfacing with the windfall, namely a storm of Sinophobia sweeping the steppes.

  Neo-Nazi gangs increasingly target Chinese and businesses that deal with them. Authorities downplay the influence and size of such groups, but anti-Chinese sentiment is strong and pervasive throughout society. You can hear anti-Chinese messages in much of the music at local hip hop shows, and on Youtube postings. Streets in the capital are dabbed with anti-Chinese graffiti and swastikas. At rallies in Ulaanbaatar’s central square, Mongolians have hoisted banners with hate slogans: “Shoot the Chinese” and “All Chinese Must Die.”

  Mistrust between these neighbors goes back thousands of years, notes author and cultural anthropologist Jack Weatherford, who spends half of each year in Mongolia. China built the Great Wall to keep out Mongolians, while some of the oldest carved stones in Mongolia, he says, “basically warn against going to China.” The friction is practically a defining feature of the difficult relationship, he adds. “From the Mongolian point of view, the Chinese live in cities, they eat grass, or vegetables. Real humans eat meat,” he says. “Part of the Mongolian lifestyle has always been defined by what you are not – and that’s not Chinese.” He adds that a common local insult is “you’re not Mongolian. It can be worse, like, you are not human, you are Chinese.”

  Many say Mongolian relations with China resemble that of Russia, two powerful neighbors that have long held this nation’s development in sway. While the Cold War played out in much of the world as a battle for global influence between the USSR and the western allies, in Mongolia, the contest was between China and the USSR. Both countries sent advisers and a steady stream of aid to Mongolia. Yet studies consistently show that, since independence in 1991, relations with Russia have improved remarkably following seven decades under the socialist mantle. In comparison, nearly 90 percent of Mongolians have a negative attitude about China, according to polls by Mongolia’s Sant Maral Foundation.

  And it’s little wonder, as all Mongolians seem to fret the expansionist aims of China. About six million Mongolian’s live in China’s Inner Mongolia, double the population of Mongolia itself. But they are vastly outnumbered in Inner Mongolia, and parts of Xinjiang that once were part of the Mongolian nation, by ethnic Han Chinese, further fueling tensions and cross-border Mongolian nationalism.

  Lately, the Mongolian government has acknowledged the friction, as well as rising violence targeting Chinese over the past few years. In September, Minister of Foreign Affairs G. Zandanshatar appealed for calm after a clash between some Chinese workers and an ultranationalist Mongolian group escalated into a riot that injured many police. In the Gobi last summer, there were several clashes between locals and Chinese workers at mining camps.

  Part of the problem, according to many in the mining industry, is that the Chinese keep largely to themselves. “They ship in all their workers, and materials, they don’t hire or buy anything local,” says one mining veteran, who requested anonymity. “The foreign outfits invest heavily in local training, and build schools and do other local service to maintain good will.”

  Capping the animosity between the neighbors is an official government policy that many believe is anti-Chinese. Called the Third Neighbor Policy, it is intended to broaden trade from beyond Russia, the main source of business throughout the 1900s, and China, which took more than 70 per cent of Mongolian exports and provided over 60 percent of investment in the country in 2009. President Tsakhia Elbegdorj insists that Mongolia maintains good relations with both its neighbors, but seeks increased links to other countries to not only expand its economy but also support its democratic development.

  Yet Chinese companies have complained in the past about official hurdles obstructing their participation in major projects, including the $5 billion Oyu Tolgoi copper mine being developed jointly by Canadian company Ivanhoe and Australia’s Rio Tinto. Recently the entire Mongolian mining industry was stunned by a government announcement that it planned to put on hold all railway projects with tracks heading to China, favoring instead a major west-east line across the Gobi Desert that would link mines to the existing – and outdated – tracks from Mongolia to Moscow.

  “Its absurd,” says Graeme Hancock, senior mining specialist with the World Bank in Mongolia. “The feeling is this is totally motivated by politics and not wanting to be beholden to China, but it makes no sense.” He points out that there are 4,500 kilometers of track to the nearest port along the route, in Russia’s Vladivostok. “If Mongolia wants to diversify, they could build two lines, to Russia and China. But the customer really is China.”

  Already such politicking has had huge impacts on the mining industry. At Ovoot Tolgoi, Molyneux’s SouthGobi has had to put plans for its own railway to China on hold. In a part of the world desperate for infrastructure, all the funding was already approved. “But we’ve been told to hold off for now on the railroad.” Instead, he says, SouthGobi will shell out for a road to the Chinese border. “It’s difficult, because we realize the road might be useless in a few years.”

  Still, he’s already committed the tens of millions of dollars to build the road. In this booming desert, and throughout what many are calling Minegolia, all roads lead to China.

Ron Gluckman is an American journalist who has been roaming widely around Asia - and visiting Mongolia - since 1991, for a variety of publications, including the Wall Street Journal, which ran this story in July 2012.

Banana Monkey pictures courtesy of Brian Offenther
Graffiti in UB photo by Ron Gluckman

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