Russia marvels: China has shot too fast in Mongolia

Standing on a hilltop in Mongolia, he watched a dog-type hydraulic excavator work on what is said to be the largest open-pit coal mine in the world. This may be an unexpected discovery, but China's import growth is closely related to the use of Mongolia's mineral resources.

Mongolia is at an early stage of unprecedented rapid growth. The total volume of the former Soviet Union's satellite country is only 5 billion U.S. dollars - still less than Jersey, England. However, in the next 10 years, Mongolia's GDP may increase to three times the current level. This is because this vast country is the focus of the amazing "enclosure movement."

From the northern mountainous region to the Gobi desert in the south, there is huge mineral wealth under the surface of Mongolia. Mongolia's coal, copper, gold, and natural resources have recently become topics that the world mining industry often talks about.

What is happening in the far landlocked country between Russia and China is a vivid demonstration of how fast Mongolia is influencing the global economic order.

One third of Mongolia’s population is a nomadic or semi-nomadic population—their lives around horses and other livestock. In spite of this, foreign direct investment ignores the influx of the global economic recession. In 2009, it exceeded 700 million U.S. dollars, and billions of U.S. dollars in funds promised to invest in Mongolia. Since 2003, most foreign direct investment has been related to the mining industry, of which more than two-thirds come from China.

Many of the resources China needs will come from Mongolia - despite the current lack of resources in Mongolia. The mine I visited had 200 million tons of coal reserves, only 145 kilometers from the Chinese border. Most of Mongolia's coal is an essential high-quality coking coal for steel production. The low stripping ratio - the amount of waste that must be stripped - means that production costs are as low as $15 per ton.

In contrast, the quality of coal resources in China is generally low and the cost of mining is higher. But the People’s Republic of China, which is in the process of the fastest industrial development in human history, produced about 50% of the world’s steel. This is one of the reasons why Beijing is so interested in Mongolian coal. In addition, 75% of China's electricity comes from coal-fired power plants.

This explains why the Chinese government has become a major investor in the coal companies I visited. Beijing even helped build a new frontier guard open 24 hours, thus minimizing delays in the import of waste rock from Mongolian mines.

China’s investment in Mongolia and Central Asia is indeed incredible. Whether it is the coal mines and copper deposits in Mongolia or the oil fields in Kazakhstan, China’s funds have flowed into every country in this resource-rich region. For example, Beijing has large shares in natural gas fields in Turkmenistan and Uzbekistan. China has also built oil and gas pipelines that have been leading to China and can be considered as the metal version of the ancient Silk Road.

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