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For Mongolia, China's Too Close For Comfort

Stocks in this article: ACH

The city, near where American explorer Roy Chapman Andrews made his much-heralded discovery of dinosaur eggs in the 1920s, is now Mongolia's richest because it's a staging ground for Tavan Tolgoi, a prized deposit estimated to hold 6.4 billion tons of coal, enough to meet Chinese demand for centuries.

Myadagmaagiin left his goats and sheep to his eldest son and followed his other children to the fast-growing city, where they found work: three sons in construction and his daughter as a cook.

Now, while looking after his grandchildren, the balding 58-year-old Myadagmaagiin fumes about the mines, the environmental damage and the throngs of Chinese workers they have attracted. Like many across Mongolia, he knows that a state-owned mining company is selling China coal at below international market prices â¿¿ a fact repeated endlessly on the country's independent but highly partisan TV stations.

The mining company agreed to a relatively low price of $70 a ton in return for an upfront payment of $250 million that it used to develop the mine.

"Mongolians should get the jobs in Mongolia, and the benefits should go to Mongolia, not the Chinese. They will take the wealth and leave a big hole," he said.

Money is spilling out of the South Gobi, funding businesses and creating jobs elsewhere in the country. If growth holds, economists project that in a few years every able-bodied Mongolian capable of holding a job will likely be able to find one. Full employment means that Mongolia must import labor to keep growing. China is the handiest source.

In its desire for coal, Beijing has treaded carefully against Mongolia's push-back. In the pre-boom days of 2002, Beijing blocked freight trains from entering China for two days when the Dalai Lama â¿¿ the exiled Tibetan leader reviled by the communist government â¿¿ came to preach to Mongolian Buddhists. Last November, the Dalai Lama returned, and Beijing protested in words only. It did not cancel long scheduled Cabinet-level meetings.

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