Mongolia Suffers from China Slowdown

Mongolia plunges further into an economic crisis, stemming from lacking Chinese demand and falling commodities prices, according to Bloomberg Business. The government announced emergency austerity measures that would consolidate government departments and cut various public-sector jobs. In 2014, over 80 percent of Mongolia’s export sector comprised of commodities going to China, and the Chinese provide 30 percent of the nation’s imports.

Mongolia plunges further into an economic crisis, stemming from lacking Chinese demand and falling commodities prices, according to Bloomberg Business. The government announced emergency austerity measures that would consolidate government departments and cut various public-sector jobs. In 2014, over 80 percent of Mongolia’s export sector comprised of commodities going to China, and the Chinese provide 30 percent of the nation’s imports.

Mongolia is a landlocked country wedged between Russia and China, so it should not come as a surprise that officials would maintain a neutral stance, given the contentious geopolitical and world economic climate. Mongolia is not only reliant on China, but Russia also supplies the Asian nation with all energy imports, notes the New York Times.

Mongolia showed its neutral side by refusing to vote on a resolution condemning Russia’s annexation of Crimea, and the country’s official neutral status limits its association with NATO. Mongolia tries to remain neutral to prevent the wrath of an opposing side, and this is a smart move when considering the fragile state of the economy. Mongolia was originally an agriculture-based economy, and the country’s rising status as a commodity producer started in the 1990s.

However, falling commodity prices proved to be a detriment to the economy, and Mongolia’s problem has been compounded by plunging foreign investment.

Investment Problems

A notorious dispute between the government and mining firm Rio Tinto Plc. did some damage to Mongolia’s credibility as a stable investment atmosphere. Moreover, the active discouragement and hostility toward foreign investment throughout the years, which caused foreign firms to withdraw investments by 50 percent at one point, prevented further diversification and resource development that could have enhanced growth.

With that being said, experts note that Mongolia learned a hard lesson and is trying to regain the trust of investors. Mongolia can attract more investors in the future, but China is Mongolia’s largest concern, and the situation will only grow worse if Chinese demand does not improve.

Commodity Sector

The issue of Mongolia’s commodities reliance must be called into question, but the government tried to diversify the economy away from minerals in the past, enhancing such sectors as tourism, meat, and gambling.

Nevertheless, the mining sector comprises 79 percent of the export sector, but Mongolia chose commodities out of necessity and opportunity. Mongolia was also not overly dependent on the Chinese economy as well. For instance, the Soviet Union was Mongolia’s largest trading ally throughout the 20th century, until the rise of China throughout the later part of the century. Mongolia may be weary of foreign influence from Russia and China, but the consensus is that certain internal policies are to blame in part.

Though Mongolia has made mistakes in the past, Mongolia is still a viable market that can get beyond the downturn through sound policies.