Mongolia eyes economic boost from China president's visit

ULAN BATOR/BEIJING Thu Aug 21, 2014 2:41am EDT

ULAN BATOR/BEIJING Aug 21 (Reuters) - Chinese President Xi Jinping arrived in Mongolia on Thursday for a two-day visit designed to deepen economic ties between the neighbours, with Mongolia desperate to kickstart its struggling economy with fresh investment.

Xi's arrival marks the first Chinese presidential visit to Mongolia in 11 years, and Mongolia, hit by plunging commodity prices and a rapid decline in foreign investment, is keen to agree to new deals on transportation, energy and mining investment with its dominant trading partner.

In an article written by Xi for publication in Mongolian newspapers, the Chinese president said the country would do all it could to help Mongolia develop.

"China hopes that both countries can push cooperation on building inter-connecting railways and roads, the development of mines and processing ... so that people in both countries can receive even more benefits," Xi wrote.

China already buys more than 90 percent of Mongolia's exports, mainly of coal and copper, and 49 percent of foreign enterprises registered in Mongolia are Chinese, Xinhua news agency reported on Thursday.

But while the focus is likely to be on economic cooperation, persistent Mongolian worries about Chinese political hegemony in the region make a bigger breakthrough unlikely, analysts said.

"I don't think right now is the time to talk about breakthroughs in relations - the Mongolian economy is in a difficult situation but it isn't difficult enough to have any immediate impact (on relations)," said Sumati Luvsandendev, head of the Sant Maral Foundation, a local polling organisation.

Mongolia aims to use its mineral wealth to modernise its isolated pastoral economy, but it has struggled to fund its plans. Legislation aimed at restricting foreign ownership in "strategic" sectors has also deterred foreign investment, which fell 70 percent in the first half of 2014.

But despite political opposition, the government appears to be warming to the prospect of further Chinese involvement in its mining and infrastructure sectors, the two pillars of its long-term development plans.

Mongolia is also keen to use the Chinese rail network to deliver coal and other minerals to other markets, and a transshipment deal is expected to be signed during Xi's visit.

"I think the most important deal we can get out of this visit is a rail transit agreement," said Bontoi Munkhdul, chief executive of the Ulan Bator-based Cover Mongolia consultancy. "Allowing rail access to seaports in China would allow us to export our commodities to other sea-borne Asian nations such as Japan or South Korea."

The government in Ulan Bator has already agreed to form a joint venture with state-owned Chinese coal giant Shenhua Group to build a 13-km rail link that will help deliver Mongolian coal across its southern border.

During a Mongolian government delegation visit to China last year, officials told Reuters that a working group had been set up to build roads, railways and pipelines connecting the two countries to Russia. (Additional reporting by Ben Blanchard in BEIJING; Editing by Nick Macfie)

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