BEIJING China expects to sign agreements to give landlocked and resource-rich Mongolia easier access to Chinese territory for its exports when President Xi Jinping visits the country this week, a senior diplomat said on Monday.
Mongolia, nervous about over-dependence on its enormous neighbor, had once favored a more circuitous and expensive northerly rail route via Russia that would connect its mines to the Pacific coast, a plan the World Bank said was unrealistic.
But in an apparent recognition that China is still the best option for Mongolian exports, Mongolia is now talking with China about a route directly south.
Assistant Chinese Foreign Minister Liu Jianchao said that making the trans-shipment of goods from Mongolia would be one of the topics for discussion during Xi's two-day trip to Ulan Bator, which starts on Thursday.
"Everyone knows that Mongolia is a land-locked country with no sea ports, so the issue of trans-shipment, especially via China, is a very important need for Mongolia. China fully understands this and will do all it can to help Mongolia to smoothly and more easily carry out trans-shipments," Liu told reporters in Beijing.
"Both sides are currently having talks on this issue," he added, declining to provide details. "The direction of these talks is to make Mongolia's trans-shipments easier and smoother."
Soaring Chinese demand for commodities like coal has underwritten Mongolia's rapid growth, with more than 90 percent of its exports sold to China.
Still, Beijing's growing economic hegemony has caused disquiet among Mongolian lawmakers, who hastily drafted a law in 2012 to limit foreign ownership in "strategic" sectors.
The law was designed to block efforts by China's state-owned Chalco Group (601600.SS) to acquire a majority stake in Mongolian-based coal miner South Gobi Resources (SGQ.TO).
Mongolia had ambitions to become China's top coking coal supplier, largely through the development of one of the world's biggest untapped mines at Tavan Tolgoi, near the Chinese border.
However Mongolia has complained that it has not received fair value for the coal, arguing that the lack of alternative buyers allows Chinese firms to drive down prices. A dispute with Chalco, which signed a supply deal with Tavan Tolgoi in 2011, has contributed to a decline in coal shipments.
Liu said that while there were "different points of view" on certain issues, generally China felt that Mongolia welcomed Chinese business.
"From what we can see from our contacts with the Mongolian government, people and companies, the Mongolia side really welcomes China's investment," he said.
"Both sides have had very effective cooperation on the energy and mining side. Talks on relevant projects, including coal mines, railways and roads are ongoing. We hope that there can continue to be progress."
In October, Mongolia agreed to establish a working group with China to oversee the construction of new road, rail and pipeline infrastructure connecting the two countries with Russia.
Liu would only say that China was talking with both Mongolia and Russia about the oil pipeline.
(Reporting by Ben Blanchard; Additional reporting by David Stanway)