Guest Post: China’s Belt and Road Initiative – Mongolia Focus

By Connor Judge and Sanchir Jargalsaikhan

Myriad conferences, expos, forums and articles have recently elevated the profile of acronyms “OBOR” and “BRI” to a par with “blockchain,” the latter being a ground-breaking technology that few fully understand, but which has the potential to fundamentally transform the human experience. The Belt and Road Initiative (BRI) is seen by many to promise the same, but ambiguity remains regarding risks, benefits and wider implications for partnering countries. This article explores Mongolia’s BRI experience and manifestations of its own Third Neighbour policy. We hope to demonstrate the case is useful for framing other global experiences and foreign policy approaches.

China’s Belt and Road

The BRI will operate in more than 66 countries, comprising around 40% of global GDP. The spearhead international organisation for BRI is the Asian Infrastructure Investment Bank (AIIB), composed of 69 members (regional and nonregional) and 24 prospective members.

BRI is premised on the broadest range of global sectoral initiatives. It can and has remained flexible enough to co-opt any situation or geography beyond the Silk Road Economic Belt (SREB) proposed by China’s leader, Xi Jinping, in Kazakhstan in 2013, now extending into the African subcontinent and even Latin America. Central Asia is the historical heartland of the Silk Road, but even today functions as a pivotal alternative to maritime routes riddled with strategic “chokepoints.” BRI thus consists of six proposed “economic corridors” with substantial overland components. Finally, the price-tag for this venture ranges inexplicably from between $1 trillion to $26 trillion over a vague time-frame (from decades to a century).

This level of discourse sums up the BRI as a whole at present. BRI is not incorporated or trademarked in any substantive way other than within the Chinese Communist Party’s (CCP) constitution, amended in concert with the 19th National Congress in 2017. Even BRI’s official website (yidaiyilu.gov.cn) does not comprehensively list projects. It is an unowned process that can mean everything from infrastructure investment to cultural exchange, and by meaning everything, it ultimately means nothing. A social constructivist mindset most appropriately suggests that the Belt and Road is simply what we make of it. While there is no shortage of professionals in business and academia claiming to know what falls within and beyond its scope, they neglect that stakeholders from the provincial to state-owned enterprise (SOE) level have considerable agency in shaping the initiative. Hence Jinghan Zeng has accurately described BRI as an unsealed “policy envelope.”[1]

The China-Mongolia-Russia Economic Corridor

What parts of Mongolia fit into this broad policy envelope? The northernmost of the six BRI routes is the China-Mongolia-Russia Economic Corridor (CMREC), which follows the pre-existing Trans-Mongolian railway and AH-3 Highway Route (1041 km) passing through Irkutsk, Ulan Ude, Altanbulag, Darkhan, Ulaanbaatar, Nalaikh, Choir, Zamiin-uud and finally in Erenhot in China. The primary domestic route within China traverses Zhangjiakou (Hebei Province) en route to the port of Tianjin. This sub-initiative, called the “Prairie Road,” is the only viable route in the medium term which actually involves Mongolia.

In June 2016, Xi, Elbegdorj and Putin signed the “Project Outline for Constructing the China-Mongolia-Russia Economic Corridor.” The document is mainly rhetorical, calling for promotion and simplification of trilateral customs and investment regimes. The international funding organisations were proposed to be comprised of, but not limited to, the AIIB, the BRICS New Development Bank (which only funds projects in BRICS countries), the Shanghai Cooperation Organization (SCO) Interbank Consortium and Silk Road Fund (SRF). The chief executive bodies were also agreed to be China’s National Development and Reform Commission (NDRC) and the Mongolian Ministry of Foreign Affairs.

Remaining proposed routes are wishful visions, with the western sections more likely to be subsumed by the New Eurasia Land Bridge Corridor. The 250 km dedicated railway from Tavan Tolgoi to Gashuun Sukhait/Ganqimaodu, intended to alleviate significant bottlenecks for coking coal crossing the border to Chinese processors, is the only other promising route under construction, but a funding shortfall has forced Erdenes-Tavan Tolgoi toward a significant overseas equity drive. The prospects for the railway being completed even by the projected 2021 are questionable. Therefore, much of what is now being called the CMREC is a trade route that already exists and is merely being paved and modernised for the primary purpose exporting mineral and energy resources from Siberia and Mongolia to global markets via China.

Other projects in Mongolia

The criteria for what constitute “BRI” projects in Mongolia are relatively vague. In the broadest definition, the Chinese state or SOEs merely need to be involved, and this could apply to proposed hydroelectric dams, wind power, solar power, UHV grids, port infrastructure, free-trade zones, cultural centres, Confucius Institutes and diplomatic exchanges in and of themselves.

Another possible qualification could be whether or not a project seeks funding from one of China’s “BRI” financial institutions such as the SRF and AIIB, in which case the Sainshand-Ereentsav, Nomrog, Bichil crossrail certainly counts. However, despite Mongolia being a founding member, no proposed projects have received approval from the AIIB and there is public acknowledgement by AIIB’s directors that the institution is not a “policy bank” and does not have an explicit mandate to fund BRI projects.

How then is BRI financed in the rest of the world? Expert Mendee Jargalsaikhan has observed that the PRC ambassador to Mongolia does not prioritise BRI for the coming year, whilst simultaneously observing the People’s Bank of China (PBOC), Industrial and Commercial Bank of China (ICBC) and the Export-Import Bank of China (Exim) have opened offices in Ulaanbaatar. However, as of early 2017, the China Development Bank (CDB) and Exim Bank had started funding in excess of $200 billion worth of projects in BRI countries, whilst the triumvirate of PBOC, ICBC and China Construction Bank (CCB) have offered in excess of $500 billion for more than 1,000 projects. The former are policy banks whilst the latter are commercial lenders, but ICBC is the largest bank in the world by asset value (approximately $4 trillion as of 2018).

There has been a departure from the 2016 outline and perhaps opening local branches in the capitol is a step in the right direction for BRI in Mongolia as a whole. That said, although Exim Bank has more of a government mandate, researchers suggest it will still insist on making profitable investments worldwide regardless of BRI’s status (Hameiri and Jones 2018). One may, therefore, question whether the Mongolian government expects too much.

Mongolia’s BRI receptivity and connectivity

President Battulga suggested CMREC is not being advanced quickly enough, stating in 2018 at the Mongolia-Russia Economic Forum, “we wish to accelerate the implementation of the Trilateral Economic Corridor program, which is no more than a dialogue today. Mongolia, for its part, is ready to put all necessary efforts for this development.” This is not simply support for the CMREC, but strong support. At the fourth annual trilateral China-Mongolia-Russia summit meeting on the SCO summit sidelines in June 2018, Battulga also critically stated that despite the project outline being signed two years prior, the three parties should “commence the implementation of the Economic Corridor program.” This implies that he believes not enough has been done, further prompting an MoU on a “Joint Mechanism to Advance the Development of the Economic Corridor.”

How strong is this degree of receptivity relative to other BRI countries? Indebted to a receptivity index (RI) metric devised by Shaofeng Chen (Chen 2017), degrees of receptivity to BRI can be theorised. Criteria could consist of statements of support, Belt and Road Forum (BRF) summit attendance, comprehensive strategic partnerships and joint declarations, linking to existing development initiatives, special economic zones (SEZs), projects under construction, projects postponed, signing the BRI Financing Guidance Principle, inward foreign direct investment (IFDI) and founding AIIB membership. The results of an independent study by Connor Judge suggest Mongolia (RI: 21) appears highly receptive, similar to Laos (RI: 22), contrasted with a less receptive country such as Vietnam (RI: 14) in Chen’s study. Mongolia’s score is significantly boosted when considering structural IFDI, trade dependence and the number of projects under construction. Another significant point is the symbolic linking of BRI to local development initiatives such as the “Road to Development” (Хөгжлийн зам) and Prairie Road.

The inverse perspective could be the “China Connectivity Index” (CCI), published in 2016 by ICBC Standard Bank and Oxford Economics economists, which places Mongolia at the top of a list of 86 countries to be affected by BRI (CCI: 69), followed by Singapore (CCI: 55.5) and then Cambodia (CCI: 44.1). Mongolia tops the trade component of this index given the sheer volume of exported mineral resources relative to the rest of the economy (32.44%), followed by Turkmenistan (21.69%, given natural gas exports which comprise roughly 40% of China’s total natural gas imports). Mongolia also topped the capital component with portfolio investment from China accounting for 7.32% of GDP, followed by Singapore (1.86%). Mongolia was also second to Singapore only in the “people connectivity” component but ranked highly on counts of visitors to China as a percentage of the total population (11.45%) and visitors to China out of total outbound tourists (48.13%).

If China’s leadership truly believes BRI goes beyond mere infrastructure investment, holding the “Five Connectivities” of policy communication, infrastructure connectivity, smooth trade, capital flows and common popular sentiment in equal regard, then by almost all measures Mongolia has already achieved the ultimate BRI standard. From this perspective, securing the country’s increased participation in the initiative may not be a priority for Beijing. Nonetheless, Mongolia’s top ranking is a distortion given an almost artificial asymmetry. CCI is a macroeconomic snapshot rather than a reasoned attempt to define BRI and measure instances of successful collaboration. The same study also ironically noted that economies of Mongolia, Angola, and Oman were at serious risk as China continues striving for global decarbonisation and investment in renewable energy. Whether Mongolia will be receptive to BRI in a predominantly green connectivity context remains to be seen.

The “Third Neighbour” doctrine and Mongolia’s foreign policy

What then are the implications of this heightened receptivity to BRI in Mongolia in light of the country’s perilous political and economic situation? Could the wave of expectations and disappointments concerning BRI lead to a more active and flexible foreign policy such as the Mongolia Third Neighbor Trade Act or an opposing position that complicates Mongolia’s current foreign policy principles?

One case is the bitter public debate about possible Mongolian accession to permanent membership of the Shanghai Cooperation Organization. Even though the Foreign Minister Tsogtbaatar assuaged the public by declaring that there are no ongoing attempts to push the issue to the State Great Khural (Parliament), seeds of doubt have been planted by successive statements from Mining and Heavy Industry Minister Sumiyabazar and Deputy Foreign Minister Battsetseg. In a recent interview, Battsetseg declared, “if Russia and China wanted to annex Mongolia, they do not have to do it through the SCO framework.” This is tantamount to suggesting that the BRI and SCO are more or less interchangeable and that there are no serious security concerns surrounding the latter.

Similarly, the dominant narrative used by pro-membership actors has mostly revolved around highlighting economic opportunities that the SCO could provide whilst downplaying political and security implications. Given the SCO’s heavy focus on security cooperation and successive Chinese attempts to persuade Mongolia to accede fully, many politicians and experts are protesting vehemently, going so far as to declare entertaining accession as “treasonous.” While the assumptions behind both sides’ of the debate in Mongolia are simplistic on the surface, more alarming is the grave misinterpretation of Mongolia’s “Third Neighbor” doctrine, which it has pursued gradually over two decades.

Rather than a straightforward foreign policy strategy that hedges on opposition between Mongolia’s two neighbours and the West, the Third Neighbour doctrine is a collective identity and “world building” construct fostered since the 1990 democratic revolution. It stems from Mongolia’s unique historic and geographic position between two potential superpowers and is influenced by a desire to reconstruct its identity and place in the globalised world of the 21st century. A prominent Mongolian strategist D. Munkh-Ochir perceptively explicates that this concept is “based on the self-perception of a small state with experience of subservience to neighbouring great powers and an indigenous culture, sometimes seen as the ‘northernmost extension of the Indosphere,’ flanked by three of the world’s great civilisations—Christendom, Islam, and Confucian East Asia.” Third neighbours, therefore, are not only limited to serve defensive functions connected with more realist, hard balancing approaches in international relations.

Constructivist dimensions instead occupy the fore. In this wider observation, modern Mongolia’s neighbourhood is not only spatial but also social. The choice of neighbour is ‘political’ in the sense of Carl Schmitt’s distinction between good and bad (Schmitt 1996). As a result, Mongolia’s post-socialist neighbourhood is composed of neighbours that can bolster the country’s development by investing and assisting its democratic consolidation. This new neighbourhood, according to Bulag (2016), “has a built-in paradox of both the political and the anti-political” and can become both the problem and solution. Basing trade, security and integration initiatives solely on this doctrine or assessing its effectiveness exclusively on its economic (i.e., Oyu Tolgoi) or political merits means negating dynamic ideational features of BRI and other international development ventures.

SCO and BRI: Two sides of the same coin?

How can BRI and SCO be contextualised within Mongolia’s Third Neighbour foreign policy framework? Alternatively put, in what way does the Third Neighbour doctrine inform, constrain or shape Mongolia’s foreign policy in the context of BRI?

For Mongolia, a country marked by opacity in any political decision-making, it is difficult to decode reasons behind foreign policy decisions. Where, how, and from whom different policy initiatives come is equally ambiguous. In certain cases, especially where the establishment does not have a consensus on certain policies, answers to these questions come from public performances of politicians or high-ranking officials. Protests against amendments to Mongolia’s Land Law in 2013 and the recent wave of adverse reaction to the SME scandal demonstrate that public discourse can have an immediate and powerful effect on these politicians’ decisions. The political debate surrounding the SCO similarly attests to the existence of political and public discourses specific to Mongolia.

Mongolia’s diplomatic protocol of seeking inclusion in as many neighbourhoods[2] (e.g., ASEAN, APEC, OSCE, East Asian Community) as possible, as well as maximising investment projects is believed to aid its transformation from a landlocked state to a more connected and vibrant spatial community. However, this approach leads to confusion and dissatisfaction about tangible benefits emanating from the same initiatives. On one side, Mongolia’s foreign policy is in line with strategies of other small powers in terms of maximising influence through the platforms of supranational institutions (Melakopides 2010; Pantev 2010). On the other side, many of these supranational institutions, which sprang from the Washington consensus, come with neoliberal conditionality that has led to deep socio-economic inequality, deindustrialisation, and rentier extractive capitalism in Mongolia since the 1990s (Reinert 2004).

This is the arena in which China’s foreign policy, the SCO and BRI by extension complicate the public discourse in Mongolia. Aid and concessional loans from China are often offered relatively condition-free (Yue & Wong 2011), which makes those extremely attractive to many Mongolian politicians. However, some experts observe that (with perhaps the exception of Kazakhstan) other Central Asian states have not gained much tangible benefit from BRI. A layer of complexity is added due to the intricacy of Mongolia’s relationship with China. Mierzejewski et al. (2019) describe how China adopts different kinds of “self” conditional on with whom it is relating:

To its immediate neighbours, China presents itself as a state that needs clear-cut borders. In relation to the developing world (Global South), the PRC narrates “self” as an ideology with the banner of materialism, equality and justice. To its third “audience,” the developed world (mainly Europe), China presents itself as a peaceful, innocent cultural construct based primarily on Confucius’ passive approach. By bringing these three identities into “one Chinese body” (sanwei yiti 三位一体,), China’s policymakers skilfully manoeuvre and build the country’s position in the arena of global affairs.

In this sense, both BRI and SCO cooperation enjoy doctrinal similarities along the second dimension where the “spirit of peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit permeate both frameworks” (Mierzejewski et al. 2019). Still, for many Mongolian experts and commentators, the first security-related face of China (that is the main preoccupation of the SCO) is seen as a straitjacket that could constrain the country’s options. The last face of a peaceful and innocent actor is not widely accepted in Mongolia for historical reasons. The second face provokes more ambiguous reactions as the country’s recent economic difficulties and isolated geography make it unusually receptive as well as vulnerable to BRI. A justified concern thus arises that Mongolia is creeping towards China’s sphere of influence and SCO accession is seen as a precipice.

A neorealist analytical approach to Ulaanbaatar’s foreign policy accentuates both structural and material variables. Emphasis should nonetheless be placed on sub-state level variables, types of political settlement (Khan 2006), the nature of main patron-client networks, and constraints and incentives they face under conditions of international anarchy. The rentier and neo-patrimonial nature of Mongolia’s political settlement has been partially responsible for some foreign policy rhetoric and goals. To cultivate domestic legitimacy, Mongolian elites have at intervals utilised foreign policy to legitimate their aspirations. Individual politicians thus turned outward to construct a self-image that is democratic and international and this pervasive proclivity partially explains motives behind Former President Elbegdorj’s declaration on Mongolia’s permanent neutrality.

In our interpretation, the divisiveness surrounding Mongolia’s permanent SCO membership is derived from a strict technocratic reading of the “Third Neighbour” doctrine that is not designed to frame or guide intricate policy decisions. The debate is emblematic of Mongolia’s fragmented foreign policy-making wherein individual politicians and experts’ desire for greater legitimacy results in actions that are high profile, subjectively low cost, and filled with symbolism. It should be recognised that, as with many similar initiatives in Mongolia, the discourse surrounding the SCO and BRI has coasted away from original narratives to become part of a public discourse geared toward fundamentally pondering Mongolia’s identity and place in the world.

Wider implications

The 18th SCO summit in Qingdao reaffirmed that BRI is a fluid concept that can be used practically in any context. However, the summit also highlighted how different countries perceive the relationship between the BRI and SCO. The final product of the two-day summit, the 17-page Qingdao Declaration listed countries who have supported BRI with a notable exception of India, the organisation’s newest full member:

Reaffirming their support for the Belt and Road Initiative (BRI) of the People’s Republic of China, the Republic of Kazakhstan, the Kyrgyz Republic, the Islamic Republic of Pakistan, the Russian Federation, the Republic of Tajikistan and the Republic of Uzbekistan express appreciation for the joint efforts taken towards its implementation, including efforts to coordinate the development of the Eurasian Economic Union and the BRI and call for using the potential of the regional countries, international organisations and multilateral associations to create a broad, open, mutually beneficial and equal partnership in the SCO space.

At this juncture, Indian Prime Minister Modi objected to BRI on grounds that it does not “respect the sovereignty and territorial integrity of nations,” emphasising India’s opposition to the China-Pakistan Economic Corridor (CPEC). Therefore, for a regional power like India, BRI and not the SCO presents a potential threat. Contrasting the Mongolian public discourse on SCO and BRI is thus a stimulating exercise.

The Third Neighbour doctrine, seen from a narrow foreign policy perspective, is at risk of becoming irrelevant in a new strategic environment where small powers are at the mercy of either Moscow or Beijing since Washington has de facto indicated a decline of interest in Central Asia and Mongolia by extension. So far, Ulaanbaatar has dealt with its security concerns through Democratisation (early- to mid-1990s), Proactive Diplomacy (mid- to late-1990s), and Peacekeeping Commitments (the 21st century). However, the current “Security through Vested Interests” stage, pre-occupied with unilaterally opening the domestic economy to multinational capital predominantly into the mining sector, raises concerns that can undermine other security dimensions. The doctrine’s state-centredness is ill equipped to deal with a world dominated by multinational corporations and private capital flows and where China through its initiatives such as BRI is creatively co-constructing a liberal order with its “market-based networked transactions across a transnational space in Eurasia without necessarily promoting the liberalist values” (Cheng 2016).

Change is on the horizon and the potential dominance of the region by Mongolia’s two neighbours threatens to constrain Ulaanbaatar’s foreign policy options. Mongolia has no other choice than to engage with them creatively and pragmatically. Therefore, it is paramount to remember “that the nation’s perception and pursuit of security was successful up to now only because each of its stages, from geo-political to geo-strategic, were logically consecutive and evolutionary” (Dorjjugder 2009).

Regional structural changes are already in strident motion and unlikely to stall. If Mongolia’s BRI experience is tailored through close civil society engagement and multilateral diplomatic consultation, then it need not be regarded with negative suspicion. The BRI is what China and Mongolia make of it with the caveat that Mongolia is a small cog in a vast machine which must be more efficient than it is perhaps prepared to be. Of equal importance are South-South dialogues and consolidation of initiatives and organisations such as the Third Neighbour Act and International Think Tank for Landlocked Developing Countries (established in Ulaanbaatar by the UN). Mongolia’s neighbourhood strategy of assembling as many neighbours as possible (Bulag 2016) also needs to be seriously considered. In our view, a more multi-level approach is warranted and Mongolia may work to establish meaningful connections with Chinese provinces such as neighbouring Gansu. In any event, it should be hoped that Mongolia’s foreign policy in the age of BRI is proactive, sustainable, development-oriented and more attuned to today’s realities.

About Connor Judge and Sanchir Jargalsaikhan

Guest contribution by Connor Judge and Sanchir Jargalsaikhan. Connor is a PhD Candidate at SOAS, University of London specialising in Chinese history. His research output is supported by the Wolfson Foundation. Sanchir is a political scientist and director at the Sustainable Development Strategy Institute.

[1] Jinghan, Zeng, “Beijing’s limits in telling a good story of One Belt One Road” (BACS paper, Kings College, London, September 14, 2018).

[2] Mongolia engaged with NATO, via the Partnership for Peace Program (PfP) and Organization for Security and Cooperation in Europe (OSCE).

This entry was posted in China, Connor Judge, Foreign Policy, Infrastructure, International Relations, Mongolia and ..., Policy, Russia, Sanchir Jargalsaikhan, SCO. Bookmark the permalink.

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