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Silver, Silk Roads and RMB internationalisation Silver, Silk Roads and RMB internationalisation(0)

STUDENTS of Renminbi (RMB) internationalisation tend to forget that the globalisation of Chinese currency happened much earlier with copper coins, which were first standardised and minted in the Qin Dynasty (260 to 210 BC). My old Chinese art historian teacher used to tell me that Chinese coins and ceramic shards were the first durable global debris, easily found around the rubble sites from Sri Lankan temples to Egyptian pyramids.

Money followed trade
Because China was short of silver and gold, common coins were minted mostly in copper. Silver in China was used as an official storage of value as early as 1,000 AD, when it was recorded that ingots weighing a tael each became official payment for taxes, but it was rarely minted as coin. Having invented paper, China was also the first to experiment with fiat or printed money. The Song Dynasty (960-1270 AD) encouraged exports in order to finance their losing war against the Huns, which the succeeding Yuan Dynasty (1271-1368 AD) also encouraged. Unfortunately, printing more paper money led to inflation.

Both dynasties encouraged trade with the West through two key channels, the land Silk Road across Central Asia to Egypt and Rome and the Maritime Silk Road via the Malacca Straits and India. Chinese exports of silk, porcelain, crafts and spices were traded for gold, silver and copper coins, as Europe had few products at that time that China wanted. This imbalance in trade, plus the need to defend against the Huns and the Ottomans, forced Europe to embark on its industrialisation path.

It was the fall of Constantinople (Istanbul today) to the Ottoman Empire in 1453 that cut off the land trade. This blockage spurred the Spanish to go westwards to reach China, discovering America instead in 1492. Similarly, the Portuguese sailor Vasco da Gama raced to reach China via the African Cape of Good Hope in 1492. By 1453, the Ming Empire had passed its peak in outward exploration, having abandoned the Zhenghe voyages twenty years earlier.

The discovery of the Americas and the conquest of Mexico (1519-1521) and Peru (1532-1572) made Spain very rich. But it was the opening up of new silver mines in these two countries and its shipment to China via Manila in 1571 that circumnavigated global trade. Silver and food like chillies, corn, peanuts, potatoes and tomatoes came to Asia from the Mexico-Manila route, avoiding the English pirates that were waiting for the Spanish galleons in the Caribbean.

It was the availability of large quantities of silver that enabled the Ming reformer Zhang Juzheng, minister under Emperor Wan Li (1583-1620 AD), to unify the Chinese tax system in 1581 to enable taxes to be paid in silver.

Why did China need so much silver? It was partly due to the sharp rise in population, which rose from 59 million to 160 million by late Ming, as well as the rise in overall prosperity, supported by political stability and growth in foreign trade. It was estimated that one quarter to half of the South American production of silver ended up in China, with the Mexican silver dollar widely used as currency. Silver, and later opium, became the settlement currency for the first global trade imbalance.

In short, it was the Chinese use of silver, produced by the West in South America, that anchored the globalisation of trade. Europeans competing for that trade through development of maritime industry and science sparked off the Industrial Revolution and ended up with the conquest of large parts of Asia.

China only abandoned silver as its standard in 1935, ending over 900 years of monetary history. Silver is so ingrained in Chinese finance that banks are literally named as silver business-houses.

Currency still follows trade
President Xi Jinping’s announcement of the New Silk Road and the 21st Maritime Silk Road are a reformulation of the East-West land trade routes for both rail and road, whilst the Maritime Silk Road expands the westward trade through Southeast Asia, Southern Asia and thence to Africa and beyond. The land route branches two ways:   One is the rail link from China, Kazakhstan, Mongolia and Russia, which opened in July 2011, linking Chongqing in Western China to Germany and reducing the shipment time from 36 days by sea to 13 days by freight train. The other is the future road and rail link from Yunnan to Myanmar and eventually to India.

Today, there are actually two Maritime Silk Roads—the historical Southern route via the Malacca Straits and the newer Arctic route, which, thanks to global warming, may be open four months a year to enable ships from China to travel via the Arctic to Northern Europe 30% faster than the Suez route.

All these suggest that China has a grand strategy to develop global infrastructure and trade via the new Silk Roads, financed through the BRICS Bank, the Silk Road Fund and the Asian Infrastructure Investment Bank. RMB internationalisation becomes real trade and hard investment driven, rather than through the capital account. These would aid not only global recovery but also Chinese structural reforms.

Rather than trying to compensate for the lack of global demand from increasing domestic consumption, which will take time, China realises that there are still many opportunities for opening up new trade and investing in hard infrastructure, not just in China, but with its trading partners. This would shift production away from the coastal areas to inland provinces with direct land and rail routes to neighbouring countries that had weak infrastructure and less access to global markets.

Furthermore, the historic US-China climate change deal to limit carbon emissions was not only a right step forward out of the current deadlock in global negotiations, but also a breakthrough for the stimulus of the domestic carbon trading market, already under pilot trading in a few key cities.

There is a pattern forming on RMB internationalisation. History suggests that global currencies have to be founded on real trade and business, supported by liquid financial markets, efficient institutions and robust infrastructure.

The last Chinese global currency standard served China for over half a millennium.  Creating the next global currency will not, therefore, be a short-term journey.

The writer is a distinguished Fellow, Fung Global Institute.

Mongolia hosts international workshop to work towards joining APEC Mongolia hosts international workshop to work towards joining APEC(0)

A two-day international workshop themed “Strengthening Mongolian National Capacity Building to join Asia-Pacific Economic Cooperation” was cooperatively organized by the Academy of Diplomacy under the Mongolian Ministry of Foreign Affairs and Economic Cooperation, the Research Center for General Coordination of Foreign Policy, and Konrad Adenauer Foundation, in Ulaanbaatar, on December 2 to 3.
The workshop was organized to study the experiences of other countries that have been cooperating with Asia-Pacific Economic Cooperation (APEC), to compare and evaluate the policies and activities Mongolia has so far implemented to join APEC, and to develop guidelines encompassing the suggestions of internationally renowned scholars and researchers on further policies and measures to adhere to.
Director of the Research Center for General Coordination of Foreign Policy L.Galbadrakh delivered a keynote speech on “Policies and measures Mongolia has implemented to date on joining APEC”. The speech was followed by extensive discussions on key topics, including evaluating the policies Mongolia has implemented, future policies, and the pros and cons of joining APEC. Following the discussions, guidelines on future policies and measures were developed.
Opening the workshop, Director of the Academy of Diplomacy Kh.Bekhbat remarked, “Mongolia fully supports the objectives and principles of APEC and has been conveying its willingness to join the organization since 1993. We are organizing this workshop on the assumption that now is the proper time to evaluate the policies and measures we have implemented so far, discuss our progress, and appropriate means to proceed.” He added, “In addition to wishing this two-day event does not resemble a regular research conference, in respect to the involvement of attendees – where some deliver speeches and some listen, we entreat all of you to freely share your analyses and opinions. Furthermore, we expect this workshop to be a prolific one that will identify priority measures that ought to be taken in order to strengthen Mongolia’s capacity building to join APEC and accurately evaluate the pros and cons of joining APEC.”
Attendees and organizers noted that the workshop had practical value for the attending scholars and researchers from six APEC member countries, who shared their countries’ experiences with joining APEC, evaluated Mongolia’s policies, and provided suggestions on developing guidelines for future policies.
The workshop was attended by experts specializing in APEC-related research from Australia, the United States, Russia, Singapore, South Korea, and China; and representatives, economists, scholars and researchers from national research institutes, universities, the Ministry of Finance, Asian Development Bank, Ministry of Foreign Affairs and Economic Cooperation (MFAEC), General Customs Office, and General Department of Taxation. The workshop was held at the Consensus Meeting Hall of the MFAEC building.

Short URL: http://ubpost.mongolnews.mn/?p=12744

MONGOLIA: THE RETURN OF THE EMPIRE AS ASIA’S NEW NEXUS MONGOLIA: THE RETURN OF THE EMPIRE AS ASIA’S NEW NEXUS(0)

Astonishing rates of economic growth, ambitious infrastructure development plans, untapped investment opportunities and a thriving democracy combine to put Mongolia in the global spotlight.

There are some places on earth that only a few of us have ever visited or even seen in pictures but whose mere names have captivated generations of would-be adventurers. Mongolia is one of them.

This huge country sprawling between Russia and China on the arid plains of central-eastern Asia is a very old nation, but also a very young one.

The oldest empire that ruled this land and its tribes of nomadic herdsmen dates back to the second century before Christ, but its mightiest and most revered emperor is Genghis Khan (1162-1227), as evidenced by the truly awesome, 131-foot high equestrian statue of Khan erected in 2008 on the steppes outside of the capital.

However, Mongolia as we know it today was born only in 1990 in the wake of the fall of the Soviet Union, and half of its scarce population of 2.9 million is of the same age: just under 25. For a 20-something, landlocked nation squeezed between two of the planet’s most formidable modern empires, Mongolia has achieved a lot: a multi-party democracy and unprecedented prosperity.

Indeed, the country sits on an estimated $1.3 trillion of natural resources, to which it owes in large part its phenomenal growth of recent years: 17% in 2011, 12.4% in 2012, and 11.7% in 2013.

“Our achievements have been noticed and people are interested: Mongolia is seen as a future economic power and a very important connection point in northeast Asia’s economic prosperity,” says Minister of Foreign Affairs, Luvsanvandan Bold.

Mongolia’s large mineral and precious metal deposits have attracted foreign investors and enabled it to transform itself from a state-controlled, socialist economy into a booming free market, thanks in large part to mining, which represents about a third of its GDP and 90% of its exports. According to the World Bank, this growth has translated into benefits for the people and poverty has receded over the past 10 years, although it was still at 27.4% in 2012.

Substantial progress has also been made in regard to several Millennium Development Goals at the national level.

Nowhere is this more visible than in the capital, Ulaanbaatar, where most of the population lives. Long a dusty trading post for nomad merchants, it is now a vibrant (albeit still dusty) city that embodies how Mongolia sees itself: a fascinating fusion between ancient traditions and the modern, Western way of life. Where else would you find an Irish pub called The Grand Khan, where scores of expats flock in the evening for a beer, except between the 1st and 15th of every month when alcohol is not sold?

“Mongolian people are very open. We welcome visitors to our beautiful country, to experience our culture, arts, customs and traditions. Enjoy the beauty of nature and the beauty of the mind of the Mongolian people!” says the First Lady, Bolormaa Khajidsuren.

But managing the opening of the economy while maintaining sovereignty over its resources has proved to be a delicate exercise for Mongolia. It has suffered from a decline in China’s demand in mineral products and several shocks in global commodity prices.

There was also a dispute between Mongolian authorities and mining company Rio Tinto over a tax bill related to the Oyu Tolgoi copper mine. The $6.5 billion Oyu Tolgoi project will produce more than 300,000 tons of copper concentrate a year once construction is fully completed. It is expected to boost Mongolia’s economy by a third by 2020.

Furthermore, an investment law passed in 2012 to restrict foreign investors (read China) from acquiring a majority stake in companies operating in certain strategic sectors such as mining and telecommunications, backfired. As overseas companies delayed new projects, foreign direct investment shrank by half in 2013 and by 70% over the first six months of 2014.

In a bid to woo back foreign investors, authorities swiftly enacted a new investment law, in November 2013, eliminating previous restrictions, and in July this year, Parliament approved changes to the 2006 Minerals Law. Amendments include widening the proportion of Mongolia’s area open to mining and exploration from 8% to 20%, removing a 2010 ban on new licenses, and extending the period of exploration from nine to 12 years.

Moreover, it was announced in September this year that the dispute over the all-important Oyu Tolgoi mine had been solved.

With a flurry of projects currently underway in infrastructure development, telecoms, construction, tourism, without mentioning mining, Mongolia is eager to show the world it’s ready for business. One important partner is the United States, which Mongolia calls its “Third Neighbor” – the first and second ones being China and Russia –, with whom it has signed several agreements: an Overseas Private Investment Corporation agreement, a trade agreement, a bilateral investment treaty, and a trade and investment framework agreement. Mongolia is a strategic ally for Washington in a region where it has had very little influence historically, and it is to be noted that the Asian giant sent troops to Iraq between 2003 and 2008 as well as to Afghanistan.

“This is an open and transparent country where Americans are welcome,” says President Tsakhiagiin Elbegdorj. “The people of Mongolia are constantly demanding changes for the better. Doing business in Mongolia is also changing; there will be more changes in the mining sector and a clearer, more transparent framework for companies who choose to invest here. Some people say that information is everything, knowledge becomes the global demand, not only knowledge, but also transparent and accountable information, and this is what we are striving for. ”

China consigns $40b for new ‘Silk Route’ China consigns $40b for new ‘Silk Route’(0)

Chinese President Xi Jinping has promised to donate $40 bn to help Asian nations improve trade links in a new effort to assert to improve connectivity in the region.

Xi made the pledge in a meeting with leaders of Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan and Tajikistan ahead of this week’s Asia-Pacific economic summit, state media reported on Sunday.

The Asia-Pacific Economic Cooperation gathering brought together leaders of the United States, China, Japan and 18 other economies.

Beijing launched a series of initiatives this year aimed at reducing what it sees as Western-dominated regional and global trade, finance and security structures.

The latest effort, the “Silk Road Fund,” will finance infrastructure and cooperation in industry and finance to link Asian economies, Xi said in the meeting.

“Efforts by a single or several countries are far from adequate,” said Xi, according to China’s official Xinhua News Agency. “Only by building extensive partnerships where all will think and work in unison can we expect to achieve positive results.”

Linking Asian countries is “not merely about building roads and bridges or making linear connection of different places,” Xi was quoted as saying.

“More importantly, it should be a three-way combination of infrastructure, institutions and people-to-people exchanges and a five-way progress in policy communication, infrastructure connectivity, trade link, capital flow and understanding among peoples,” he said.

In a speech Sunday, Xi said China’s economy is shifting to a more stable growth and has the resiliency to overcome any “bumps on the road”.

China’s outbound investment will exceed $1.25tn over the next 10 years, while the country will import more than $10 trillion worth of goods and send more than 500 million tourists abroad over next five years, Xi said.

“For the Asia-Pacific and the world at large, China’s development will generate huge opportunities and benefits, and hold lasting and infinite promise,” Xi said.

China is spearheading a free trade initiative – the Free-Trade Area of the Asia Pacific to which Bangladesh and other attending countries showed great interest and support.

– See more at: http://www.dhakatribune.com/asia-pacific/2014/nov/09/china-consigns-40b-new-%E2%80%98silk-route%E2%80%99#sthash.3fUUjh6g.dpuf

ASIA FOR THE ASIANS ASIA FOR THE ASIANS(0)

Recently, China and Russia have challenged the international order by giving each other diplomatic backing to confront Ukraine and Hong Kong, respectively. But Western observers have mostly misunderstood the countries’ reasons for building closer ties with each other. They have been motivated less by shared material interests than by a common sense of national identity that defines itself in opposition to the West and in support of how each views the legacy of traditional communism. Moscow and Beijing have disagreements about the future order they envision for their regions. But they agree that the geopolitical order of the East should be in opposition to that of the West—and that has led to significantly closer bilateral relations.

Some Western observers have placed an excessive emphasis on Sino-Soviet tensions during the Cold War era, also arguing that the relationship between Beijing and Moscow is likely to remain fragile because of developments in both countries since the 1990s, including democratization in Russia, globalization in China, and the rapid rise of a middle class with access to outside information in both countries. To the extent that China and Russia built ties, these observers believed that the relationship would be a marriage of convenience that would be trumped by other national interests, including good relations with the West.

But most Westerners have failed to understand that, since the 1990s, officials in China and Russia have deeply regretted the Cold War tensions between their countries. They understand that the problem was less a lack of overlap in national interest than national identities skewed by ideological claims to leadership. Moscow made a critical mistake in expecting that Beijing would acquiesce to its leadership, accepting a role as a junior partner. China’s leadership did not accept that role, given its obsession with ideological superiority.

Current policymakers in both countries are determined not to repeat these problems. Although China is now in the position to act as the dominant partner in the relationship, it has shown restraint. Leaders in Moscow and Beijing want to avoid allowing chauvinistic nationalism in either country to trump their mutual national interest in minimizing the influence of the West in their respective regions.

To that end, the governments of both countries have been consciously emphasizing foreign policies that dismiss Western legitimacy, while carefully refraining from commenting on the foreign policy ambitions of each other. Chinese President Xi Jinping has described a so-called China Dream that involves a new geopolitical order in Asia built by the governments of that region—with Beijing playing an outsize role. Russian President Vladimir Putin has likewise clarified that his goal is to create a Eurasian Union, in which relations between former Soviet states are determined by Moscow. Both states have accused the United States of following an aggressive Cold War mentality by trying to contain their rightful ambitions in their regions.

There are at least six reasons to believe that this tacit partnership between Russia and China is durable. First, Putin and Xi have been relying on very similar ideologies to justify their rule. They both emphasize pride in the socialist era, Sinocentrism or Russocentrism that seeks to extend the countries’ existing internal political order outward, and anti-hegemonism. Although Russian nationalism includes a strain of xenophobia that fueled demagoguery against China in the 1990s, Putin has sharply restricted that aspect of it and avoids direct references to China’s rise. Sinocentrist ideology has similarly tended to fuel tensions with Russia—including by challenging Russian claims in Central Asia, which had previously been part of the Soviet Union. But China’s current leaders have shown, in international meetings and forums, including the Shanghai Cooperation Organization, that they are prepared to show deference to Russian political and cultural influence.

Second, China and Russia are underscoring their historical differences with the West and emphasizing their Cold War­–era divide with the United States. Officially sanctioned writing in both countries makes scant mention of the Cold War Sino-Soviet dispute. Although some Chinese historians had previously acknowledged that the Korean War began because of North Korean aggression in South Korea, the latest textbooks universally blame the United States for the war. Likewise, policymakers and analysts in both countries increasingly argue that the West never changed its imperialist Cold War mindset (as evidenced by its alleged support for so-called color revolutions in Ukraine and Hong Kong). This rhetoric implies that China and Russia are still obliged to resist its influence and help create a new international order.

Third, both countries have argued that the global financial crisis of 2008 demonstrates that the West’s economic and political model is on the verge of failure and inferior to their own models. (The latter half of this argument has resonated more in China than in Russia.) Leaders in both Beijing and Moscow have refused to allow civil society to pose a threat to their rule, cracking down more ruthlessly in 2014 than at any time since the beginning of the 1990s.

Fourth, Putin and Xi have emphasized the importance of Chinese-Russian bilateral relations in the face of outside threats. This is a corollary of both governments’ emphasis on the importance of communism, whether as the currently reigning ideology (in China) or as a positive historical legacy (in Russia). This has left both countries with few natural ideological allies other than each other—and there is little reason to believe this will change in the foreseeable future.

Fifth, Russia and China have made a successful effort to stay on the same side in international disputes. Rather than clash openly over regional issues, such as Vietnam’s territorial and energy policies, China and Russia have discouraged public discussion of their differences, thus minimizing public pressure in each country to stand up to the other. At the same time, each country has trumpeted the threat of the United States and its allies in any dispute that bears on either country. This campaign has been so effective that it was sometimes difficult this year to distinguish between Russian and Chinese writing on the Ukraine crisis or the Hong Kong demonstrations.

Sixth, there are official campaigns under way in both countries to promote national identity. Putin and Xi have used all the resources at their disposal, involving both tight censorship and intense, top-down argumentation, to mobilize their respective countries behind a shrill political narrative that justifies domestic repression and foreign repression. These appeals have been effective because they draw on historic grievances and use familiar chauvinistic rhetoric. The result in both countries has been the most significant spike in nationalism since the height of the Cold War.

China’s rhetoric in support of Putin’s actions in Ukraine and Russia’s rhetoric endorsing Xi’s thinking about East Asia is not a coincidence. Rather, it is a feature of a new, post–Cold War geopolitical order. As long as the current political elites in China and Russia hold on to power, there is no reason to expect a major shift in either country’s national identity or in the Sino-Russian relationship. Countries hoping to create a divide between the two—including Japan under Prime Minister Shinzo Abe—are bound to be disappointed. It is no accident, in other words, that the United States has failed to win China’s support against Russian expansionism in Ukraine. Whether the issue is North Korea, Iran, or some other challenge to the West, one should be prepared for more Sino-Russian competition, not less.

By Gilbert Rozman

Azerbaijan, Mongolia to organize CAREC workshops for economic operators Azerbaijan, Mongolia to organize CAREC workshops for economic operators(0)

Azerbaijan and Mongolia will hold workshops on risk management within the framework of preparation of the program for participants of foreign trade activities of the participating countries of CAREC (Central Asia Regional Economic Cooperation).

The State Customs Committee (SCC) reported that an agreement to hold workshops in these countries for authorized economic operators was reached during the 13th session of the Customs Cooperation Committee within the framework of CAREC held in Cholpon-Ata (Kyrgyzystan).

These [the organization of workshops] and other activities are envisaged within the framework of Aid for Trade program in 2014-2015.

The meeting of the Customs Cooperation Committee was attended by delegations of customs services in Afghanistan, China, Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, Tajikistan, Turkmenistan, Uzbekistan, as well as Azerbaijani delegation headed by Deputy Chairman of the State Customs Committee Rza Hasanguliev.

Issues of implementation of joint customs control, coordination at border management were discussed at the round table, held under the chairmanship of Hasanguliyev.

The meeting also mulled the issue of joining the member countries of CAREC to the updated version of the International Convention “On the unification and simplification of customs procedures”.

It was also decided to hold the next meeting of the Committee of the Customs Cooperation in Mongolia.

The CAREC program established in 1997 is a partnership of 10 countries- Azerbaijan, Afghanistan, China, Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, Tajikistan, Turkmenistan, Uzbekistan and 6 multilateral institutions: ADB, European Bank of Reconstruction and Development, International Monetary Fund, Islamic Development Bank, UN Development program and World Bank.

After joining the CAREC program in 2002 Azerbaijan has invested around $3 billion in program projects. Azerbaijan has allocated around $6 billion for the development of the transport corridor within CAREC. The East West highway reconstruction by Azerbaijan within the CAREC program has transformed the country into a more effective corridor between Caspian and Black seas, which contributed to the promotion of trade between Europe and Asia.

Mongolia pledges cooperation in resolving North Korean abduction issue Mongolia pledges cooperation in resolving North Korean abduction issue(0)

Prime Minister Shinzo Abe and Mongolian President Tsakhia Elbegdorj agreed on Tuesday to continue working together in the hopes of resolving the abductees issue with North Korea.

In a meeting at the U.N. headquarters in New York, Elbegdorj expressed his country’s intention to continue cooperation by providing a venue for bilateral talks between Japan and North Korea.

Mongolia has fairly good relations with Pyongyang.

Abe replied that he appreciates Mongolia’s understanding and cooperation.

The two leaders also agreed to ensure that Japan and Mongolia bring a bilateral economic partnership into effect. The basic agreement was reached in July.

Elbegdorj also briefed Abe on the results of a recent three-way summit in Tajikistan with Russian President Vladimir Putin and Chinese President Xi Jinping.

Mongolia: The Next Asian Tiger? Mongolia: The Next Asian Tiger?(0)

The news of July’s agreement in principle of the Mongolia-Japan Free Trade Agreement (FTA) was merely another addition to Tokyo’s stable of trade agreements in Asia. But for Mongolia, the trade pact with Japan is of far more significance—and not merely because it was with the world’s third largest economy. The conclusion of negotiations represents Mongolia’s official entry into East Asia’s proliferation of trade agreements, as this is the country’s first FTA. Meanwhile, Ulaanbaatar is also studying proposed agreements with South Korea and China.

But will Mongolia’s drive for FTAs and a greater push for economic regionalism help its economy? After years of soaring economic growth, the Mongolian economy has precipitously cooled over the past year with a sharp decline in GDP growth and a looming deficit of foreign direct investment (FDI). Indeed, Ulaanbaatar remains heavily dependent on the mining sector for its economic fortunes, which have been battered over the past two years due to the sinking price of coal as global supply outpaced demand. But while the demand for coal is once again slated to surpass supply in the coming years, Mongolia’s FDI numbers remain low.

Over the first six months of 2014, FDI to Mongolia dipped more than 70 percent as compared to the year before. This lack of capital flow compounds an already sizable challenge facing the Central Asian country, which saw its FDI numbers halved in 2013 after record growth in previous years. In addition to concerns about FDI in its minerals sector, Ulaanbaatar’s economy is likely to continue to feel pain in the coming years as a result of significant economic imbalances due to government policies aimed at stimulating economic growth. Without improved FDI flows, Mongolia’s trade imbalance—currently under -10 percent—will likely worsen as the country continues to depend on imported energy and infrastructure, rather than focus on strengthening its exports.

According to the most recent World Bank report, other key sectors are faltering too—such as agriculture, electricity and construction. These economic pressures are contributing to double-digit inflation in Mongolia and less purchasing power for domestic households. This inflation is also contributing to an already overheated housing market in Mongolia that is rapidly increasing household debt.

The news of the FTA with Japan—a significant source of regional FDI—is a good sign for kick-starting Mongolia’s drive to improve its investment appeal. But FTAs won’t be the only solution here. The government of Mongolian president Tsakhiagiin Elbegdorj continues to try to repair Mongolia’s international image after it rounded circles on its mining investment regulations over the past couple years. The new investment law has been more transparent and less restrictive than previous legislation, which handcuffed foreign investors and curtailed large investments in key projects, such as the multibillion-dollar Oyu Tolgoi copper mine.

What can Ulaanbaatar do to change the course of its economic fortunes? There are a number of domestic policies—including reigning in spending and attacking inflation—that are necessary, as noted previously. There are also key foreign-policy actions that Mongolia should undertake. First, Mongolia must address its FDI gap with a full-court press on international investors and a more transparent environment to court multinational companies. Second, Ulaanbaatar needs to recognize the limits of its “third neighbor” policy—which focuses on diversifying Mongolia’s strategic partnerships beyond Russia and China. While the policy has been, in general, a success story, Mongolia must work harder towards also pushing for stronger economic and investment ties with Beijing and Moscow.

Mongolia’s recent history as a landlocked vassal to these superpowers has understandably cautioned Ulaanbaatar’s appetite for stronger ties. But despite historical resentment, most acutely focused at China, Mongolia must remain pragmatic in order to maintain its economic success of the past decade. This pragmatism was on display during Chinese president Xi Jinping’s two-day visit to Mongolia last month. The visit, the first by a Chinese leader in over a decade, was a significant step towards an improved economic relationship between Beijing and Ulaanbaatar. During Xi’s visit, both sides agreed to elevate their relationship and enhance economic cooperation in the minerals sector and also in areas such as infrastructure development. Beijing also relished the opportunity to attempt to upstage Japan’s surging engagement with Mongolia.

Ties with Russia also remain vital to Mongolia’s prosperity and Elbegdorj has looked to enhance the relationship with Moscow, despite strong international pressure against Russia due to its actions in the Ukraine. At the recent Shanghai Cooperation Organization (SCO) summit in Tajikistan, Elbegdorj took part in a trilateral summit meeting with Xi and Russian president Vladimir Putin. During the meeting, Xi proposed the three countries create a trilateral “economic corridor” that would serve as a modern-day Silk Road.

But while the prospects of large FDI numbers from Beijing and Moscow are appealing, Mongolia will have to tap-dance around the geopolitical pressure from both. This maneuvering is becoming increasingly more difficult as both Moscow and Beijing seem adverse to U.S. and Japanese efforts to strengthen partnerships in the region. Indeed, Xi demonstrated this baggage during this week’s trilateral summit by inviting Mongolia to next year’s commemoration of the 70th anniversary of the end of World War II—an opportunity to celebrate “the victories of the World Anti-Fascist War and the Chinese People’s War of Resistance Against Japanese Aggression.” In other words, Ulaanbaatar’s ability to balance its economic needs with its desired geopolitical trajectory will be put to the test in the coming years, especially if its economy fails to regain momentum.

J. Berkshire Miller is a fellow on Japan and Chair of the Japan-Korea Working Group with the Center for Strategic and International Studies Pacific Forum. Follow him on Twitter:@jbmllr.

Image: Flickr/Mario Carvajal/CC by 2.0

Anti-Western alliance in Asia Anti-Western alliance in Asia(0)

The Shanghai Cooperation Organization is planning to expand and become an alternative to Western-dominated international institutions. But experts say a lack of resources may hinder the process.

The 13th annual summit of the Shanghai Cooperation Organization (SCO) is set to start on Friday, September 12 in Tajikistan’s capital Dushanbe. The two-day forum will be attended by regional leaders, including Russian President Vladimir Putin, and his Chinese and Iranian counterparts, Xi Jinping and Hassan Rouhani.The SCO is an intergovernmental organization of Central Asian countries aiming to promote cooperation between its six member states: Russia, China, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan.

Topping the agenda are plans to expand the alliance: India, Pakistan, Iran and Mongolia, – all countries with observer status – are expected become members. Should this happen, the group would then control 20 percent of the world’s oil and half of all global gas reserves. On top of that, the bloc would represent about half of the world’s population.

The unknown alliance

Despite those numbers and large-scale joint military exercises – the SCO’s ‘Peace Mission 2014′ counted some 7.000 soldiers – the forum receives very little attention in Western media.

The SCO’s main goal has been to serve as a forum to ease tensions in the region. In the organization’s 2002 charter “confidence-building measures” were set as the alliance’s first priority. A key aspect of this strategy is the fight against the so-called “three evils:” terrorism, extremism and separatism. Moreover, the members of the group are encouraged to engage in economic and technical cooperation.

Russia and China’s interests

Russia and China strive first and foremost for stability. To achieve this, a steady bilateral relationship between the region’s two dominant powers is necessary, says Enrico Fels analyst at the Germany-based Center for Global Studies of the University of Bonn.

For a long time, Russia had been a declining power in Central Asia, while China was on the rise; so the SCO served as a way to coordinate regional interests, helping reduce tensions between the two countries.

Simultaneously, Central Asia is of strategic importance to both nations, as the maps shows. While Moscow feels threatened by the expansion of NATO and the European Union on its western border, China – the world’s largest exporter of goods and one of the largest importers of raw materials – is highly dependent on its ports. Beijing is under pressure in the east from the United States and its regional allies, Japan and the Phillipines.

Analyst Fels summarizes the situation by saying that given the outside pressure exerted on both countries they feel like they must get along in Central Asia. Stability in the region is also key to protect Russian and Chinese economic interests. Both countries depend on a functioning infrastructure, such as pipelines and railways.

China not only imports gas and oil from Russia and Central Asia, but it is also the largest supplier of goods in the region. Not least, both Moscow and Beijing do not want Central Asia to become a location for Western military bases – namely American – as it once was.

Central Asian perspective?

There is no Central Asia perspective, as Beate Eschment, analyst at the Research Center of East European Studies at the University of Bremen told DW. The countries’ interests are pointedly different: while Kyrgyzstan and Tajikistan are economically and militarily dependent on Russia, Turkmenistan – which is not a member of the SCO – isn’t, as it is trying to maintain as neutral a position as possible, says Eschment.

Furthermore, Uzbekistan is pursuing a completely different policy, sometimes leaning towards Russia and sometimes towards China. At the same time, “the leadership of the biggest and both militarily and economically strongest country in Central Asia – Kazakhstan – is Russophile,” says Eschment.

However, there are huge tensions between the two, as the Kazakhs are wary of too much Russian interference. Given the situation in Ukraine, Astana is afraid of a possible annexation of their northern territories by Moscow, since the area is home to a large Russian minority. As such, China may have an advantage in these countries, as it is seen by their leaders as having only an economic interest in them, Eschment adds.

Against the West

What links all SCO states – whether members or observers – is the rejection of Western-dominated institutions, be it the United Nations, World Bank or the International Monetary Fund, which are all US-based. “The SCO, like the BRICS with the establishment of their Development Bank, sees itself as a forum against the global order,” says Fels.

“They are seeking to provide alternatives to these international organizations. However, I don’t think that the SCO will be an anti-NATO or an ‘OPEC with bombs,'” the analyst says. Their approach, he adds, is comprehensive and based not only on a military alliance, but also on economic ties and soft power.

In spite of this, Fels says that “very little else has been done beyond letters of intent and military exercises.” The reason for this is that the SCO is poorly equipped, he says: “They want to cooperate and have geostrategic operations. But the question is how many resources will be allocated for this?”

Moreover, they work along the principle of non-interference, which has long dominated Chinese foreign policy. However, this approach can only go so far when applied to an international alliance. For instance, when violent conflicts between ethnic Kyrgyz and Uzbeks in Kyrgyzstan broke out in 2010 – claiming the lives of 2,000 people and leading to the displacement of hundreds of thousands – the SCO decided to follow the non-interference principle and remain, by and large, passive.

SCO Seeks Transport Hub in Mongolia, Eyes to Boost Market in India SCO Seeks Transport Hub in Mongolia, Eyes to Boost Market in India(0)

MOSCOW, September 10 (RIA Novosti) – The Shanghai Group is expected to consider Mongolia as the next member of the organization, which is set to become a transport hub, the director of the Russia department of the SCO International Relations Institute said Wednesday.

“We hope that the SCO will consider the issue of accepting new member states, includingMongolia. New members will receive aid to develop security,” Feng Noyzun said at the International Information Agency Rossiya Segodnya press conference.

“We will seek more innovative ways of collaboration. China, Russia and Kazakhstan have reached a lot of mutual understanding in Central Asia, the oil and gas pipelines are just the start of the partnership,” he said.

“For Mongolia, we need to see how it can become a transport hub in SCO, and how it could offer a new model of cooperation,” the Chinese expert added.

Chen Yu Zhu, who also heads the international relations institute, said expanding the SCO is important as it will lead to stronger influence of the organization on the international arena.

“The SCO today faces a difficult situation. India, Pakistan, Afghanistan hope that if they join the SCO they will enhance their security, and it will be a good stimulus for their economy. The SCO will increase the market for India, the telecoms leader in the region,” he said.

Andrei Kortunov, Director General of the Russian International Affairs Council, said: “Mongolia’s membership is a prospect. Mongolia has its own keys to North Korea. So the SCO is not a war or economic bloc, but a more flexible, more functional organization. And that is why the Mongolian case is needed.”

The Chinese experts participated in the video link-up between Moscow and Beijing organized by the International Information Agency Rossiya Segodnya press center ahead of the SCO summit to be held in Tajikistan’s capital Dushanbe on September 11-12.

SCO is a Eurasian political, economic and military organization founded in 2001 in Shanghai by the leaders of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. Afghanistan, India, Iran, Mongolia and Pakistan are currently observer members.

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