Mongolia’s economic future uncertain as a result of China’s slowdown

Mongolia’s economic future uncertain as a result of China’s slowdown

Mongolia’s economic development remains strongly correlated to China’s economic performance, as mining operations are threatened by China’s staggering growth.

A negotiator from the landlocked nation announced that a USD 4 billion deal aimed at spurring development of Mongolia’s famous Tavan Tolgoi coal mine is unlikely to go through, as the country is feeling the effects of China’s economic slowdown.

This news could be part of a much deeper issue for the Mongolian economy – one that is currently dealing with decreasing resource prices as a result of the Chinese slowdown, and is feeling the effects of years of disputes between foreign-owned investment in resource companies and the government.

The mines in dispute, Tavan Tolgoi, are one of the largest untapped thermal coal deposits in southern Mongolia, and run by a stated-owned company. The deposits are located about 150 km from Oyu Tolgoi, which is owned by a subsidiary of Rio Tinto, another huge mining operation GRI reported on two years ago.

The high impact of China’s slowdown on the Mongolian issue is no surprise when taking into consideration Mongolia’s reliance on China. The Economic Times reports that 86% of Mongolia’s exports ended up in China in the first months of 2015, while Bloomberg View reports that China accounted for a whopping 90% of Mongolia’s exports in 2013.

As a result, during the first six months of 2015, Mongolia’s economic growth was a mere 3%, about half the rate for the same time period the year prior, when economic growth registered at 7.8%.

However, not all industry experts agree that demand for resources is in trouble. A Rio Tinto spokesperson, speaking on behalf of Oyu Tolgoi to Bloomberg, says that copper orders into China are continuing to go through, fulfilling Chinese demand, which is still existent.

Orders remain positive in the face of Rio Tinto’s 13% share decrease on Sydney’s stock market this year.

Undeniably though, coal and copper prices have fallen 20-30% in the last year due to worldwide falling demand. Falling prices are bound to leave their mark on the resource-dependent nation, whose Prime Minister Chimed Saikhanbileg has set his sights on recapturing investment, both domestic and foreign, for its mining sector.

A recent Reuters interview cited him as stating that mining investment is designed to help boost the Mongolian economy until it hits full capacity in 2021.

As China’s economic future seems uncertain, the country is trying to turn its economy towards consumer-led growth. Regardless of China’s expected positive economic growth rate for the rest of this year, Mongolia will have to decrease its dependence on the world’s global factory, and aim at diversifying their exports in order to guard themselves against raw materials’ volatile prices.

Categories: Asia Pacific, Economics

About Author

Margaux Schreurs

Margaux lives in Beijing and works as an editor at a Beijing-based magazine and website, and writes on a freelance basis for a wide range of publications throughout the world, mainly focusing on East and Southeast Asian current affairs. She is a London School of Economics and Political Science MSc graduate.