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Mongolia finds China can be too close for comfort

Tuesday - 12/18/2012, 7:30am  ET

CHARLES HUTZLER
Associated Press

TSOGTTSETSII, Mongolia (AP) -- After years of testy debate, Mongolia broke ground this spring for a railroad that will haul coal across the pebbled Gobi desert to China, but with one costly condition.

Citing national security, the government ordered the rails be laid 1,520 millimeters apart, Mongolia's standard gauge inherited from the Soviets. The width ensures that the rails cannot connect to China's, which are 85 millimeters (about 3 1/2 inches) closer together. So at the border, either the train undercarriages will need to be changed or the coal transferred to trucks, adding costs in delivering the fuel to Mongolia's biggest customer.

When it comes to China, Mongolia will only go so far and no further.

"This is a political decision," shrugs Battsengel Gotov, the tall, boyish-looking chief executive of Mongolian Mining Corporation, which is building the railway from its prized coal mine, a few hours' grinding truck drive north of the Chinese border.

In the world's rush to get rich off China, Mongolia works mightily to ensure that Chinese investment does not become Chinese dominance. It's a balancing act shared by many countries, especially on China's periphery. Mongolia, though, stands out for its vulnerability and determined deflection of Beijing's embrace.

Landlocked with 2.8 million people spread over an area twice the size of Texas, Mongolia is dwarfed by China, with its 1.3 billion people and the world's second-largest economy. Fully 90 percent of Mongolia's exports -- coal, copper, cashmere and livestock -- go to China, which in turn sends machinery, appliances and other consumer goods that account for a third of Mongolian imports. The rising trade with China now amounts to three-fourths of Mongolia's economy, one of the highest ratios in the world, according to an Associated Press analysis of IMF trade data.

Mongolia's one other neighbor, Russia, remains important, supplying fuel and owning half a mammoth copper mine and half the national railway system, legacies of the 70 years Mongolia spent as a Soviet client state. But China, with its huge population and voracious demand, looms larger than resource-rich, thinly populated Russia.

Mongolia has sought to minimize both Moscow's and Beijing's influence by forging links with other world powers. The fledgling democratic government has contributed troops to U.N. peacekeeping missions in Sierra Leone and other countries, and to the American war in Iraq. U.S. Secretary of State Hillary Clinton, on a visit in July, praised Mongolia as "an inspiration and a model."

In measures that politicians here say are aimed at China without naming it, Mongolia also caps immigrants from any one country to a third of one percent of the population, or less than 10,000 people, and restricts the numbers of foreign workers and types of investment.

"We will not be another Africa," said Ganhuyag Ch. Hutagt, a banker and former vice finance minister who wants to turn Mongolia into an international center of finance. "We cannot afford to have one particular nation control our businesses."

From the steppe to the streets of the capital Ulan Bator, Mongolians evince a distrust of Chinese. The sentiment goes beyond a neo-Nazi fringe that shaves the head of Mongolian women who sleep with Chinese. Almost everyone says China is stealing Mongolia's coal.

When NBA star Dwight Howard appeared at an outdoor promotion for leading mobile phone operator Mobicom Corp. in Ulan Bator in November 2011, the popular Mongolian rapper Gee warmed up the crowd with his hit "Hujaa" -- a pejorative term for Chinese.

Unlike neighboring countries from Japan to India, Mongolia has no Chinatowns. The tens of thousands of Chinese workers drawn to Mongolia's mineral boom are rarely seen, living in fenced-off mining camps hidden in the vastness of the Gobi or behind high construction walls at building sites in the capital Ulan Bator. They are told to stay off the streets to avoid being beaten up by youth gangs. The few Chinese restaurants advertise "Asian" food, not Chinese.

Coal country is where Mongolia's balancing act is put to the test. Chinese demand for copper and especially coal has propelled the Mongolian economy to one of the world's fastest growing, making some wealthy and driving down poverty in a still poor country, and China wants a larger share of the resources.

Tsogttsetsii, the county seat closest to Mongolia Mining Corporation's coal mine and the planned railroad, bursts with activity. A new airport and apartment complexes rise out of the empty, tawny Gobi. Trucks full of coking coal veer off a company-built paved road to the Chinese border to avoid potholes, crushing tufts of grasses herds of camel and goats feed on.

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