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TheStreet Open House

For Mongolia, China's Too Close For Comfort

Stock quotes in this article: ACH

By CHARLES HUTZLER

TSOGTTSETSII, Mongolia (AP) â¿¿ 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.

___

EDITOR'S NOTE â¿¿ This story is part of "China's Reach," a project tracking China's influence on its trading partners over three decades and exploring how that is changing business, politics and daily life. Keep up with AP's reporting on China's Reach, and join the conversation about it, using (hashtag)APChinaReach on Twitter.

___

"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 â¿¿ coal, copper, cashmere and livestock â¿¿ 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.

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