Source: The Wall Street Journal blogs                      Date: 22 June, 2011

On opposite sides of the world last week, Mongolian leaders were illustrating the diplomatic balancing act their country faces as it divvies up a trove of mineral wealth – and the contracts to get it out of the ground. President Ts. Elbegdorj was in Washington on Thursday pumping the flesh with President Obama after a multi-stop visit to the U.S.  Hours earlier Prime Minister S. Batbold was completing a swing through Asia with a call on China’s premier, Mr. Wen Jiabao.

For decades, Mongolia’s vast expanse has served as a buffer – sometimes contested – between Russia and China. In bargaining, Mongolian leaders had little to offer than fine cashmere. Mongolia’s land today is no less strategically valuable, including for the U.S., which seeks a foothold in the fast-developing region. But these days, Ulaanbaatar’s diplomatic pouch is bursting with commodities that boast a bit more geopolitical heft than goat hair: copper, coal and rare earth minerals. Known for its nomadic herders, Mongolia now has money to buy Boeing airliners, but it is not rich enough to turn down USD500 million in aid from Beijing.

In the past week, Mongolia opened new consulates in both Hong Kong and San Francisco, illustrating its desire to maintain balance in dealing with the world’s two largest economies and attracting their investment. The President dropped into the Asia Foundation and dined with Michelle Obama, while the Prime Minister talked about investment options with Hong Kong financiers.

The country that ruled an enormous empire 800 years ago is determined to be no one’s patsy. Yet the decisions Mongolian leaders are weighing about which operators to bring into its mine development projects are tough ones. Strong bidders hail both from big powers, China and the U.S., as well as Russia, South Korea and Australia. “This is very delicate work,” Mr. D. Jargalsaikhan, an Ulaanbaatar banker and noted commentator, says. He thinks timing of the diplomatic visits to Beijing and Washington is mostly coincidence, adding that he is more immediately worried about the price of fuel imported from Russia than the U.S.-China diplomatic dance.

Nevertheless, Mongolia’s challenge is huge. “Dealing with China and Russia is hard work, and we are dealing with them at the same time,” he said. Mr. Jargalsaikhan said democratic ideals make Mongolia more flexible than in the past, and better suited to satisfy its own interests through diplomacy. “We are not under one ideology,” he said.

Neither official statement released in Beijing nor Washington referred very directly to the upcoming contractual decisions about mineral development. Nor was mining ignored.

“Mongolia noted the important role that U.S. companies, with their internationally leading management, technical, safety, environmental, and sustainable mining practices, will play in the development of the country’s coal, other mineral resource, infrastructure, agriculture, energy and tourism industries,” the joint U.S.-Mongolian statement said. The Xinhua news agency summarized the Chinese meetings by noting that the two sides “reiterated that priority will be given to natural resources and infrastructure in their economic cooperation.”

Mongolia’s head appears to be with China, since its populous next-door neighbor is the natural market for its resources and the primary reason expectations are growing about the country’s impending windfall. But Mongolia’s heart may be closer to the U.S., the nation that inspired its democratic system, which President Elbegdorj refers to as the freest “in this part of the world”.

The shuttle diplomacy by Mongolian officials, meanwhile, is a reminder of how rarely Ulaanbaatar has had a chance to host presidents of the country’s suitors. George W. Bush became the first and only U.S. president to visit Mongolia when he traveled to the capital in 2005, Chinese President Hu Jintao made his only stop in 2003, an overnight trip during his first overseas travel as president.