Source: Reuters.com    Date: May 28 2010

Mongolia sits atop billions of dollars of mineral wealth and its economy is poised to grow

rapidly, but foreign investors are finding that geopolitics hangs heavy over business in a nation caught between China and Russia.  Few companies are more aware of the perils of investing in

Mongolia than Canadian miner Khan Resources, now battling the might of Russia for the rights to a uranium deposit in the country's remote northeast.

But Khan itself had been planning to sell out to the state-owned China National Nuclear Corporation (CNNC), raising perennial Mongolian fears about Chinese dominance. However, the Chinese company dropped the planned acquisition last week.

Mongolia broke away from the crumbling Soviet system in 1990, and while it is struggling to stay neutral between its two giant neighbors, it may still be amenable to some Russian persuasion.

China, on the other hand, relinquished any claim to Mongolia in 1950, but has done little to allay suspicions that its economic dominance could lead to political hegemony.

But it is always more than mere economics in Mongolia, economists and analysts say.  "A country like Paraguay would die to have a market like China on its border, but there is this concern about the imbalance of populations and power," said Mr. Peter Morrow, chief executive of Khan Bank, one of the country's biggest lenders.

Mr. Alan Wachman, an expert in Mongolian politics at Tufts University, says China has done nothing to Mongolia to warrant this level of anxiety.  "But when I press Mongolians about this, they say there are plenty of people in China who say that Mongolia is fundamentally Chinese and that this suggests an intention that has to be taken seriously," he said. "They ask what are we to do given our size and power if the Chinese begin to act on it? It puts this whole thing in the realm of emotions rather than any kind of rational analysis."

Mr. Rodger Baker, director of East Asia analysis with global intelligence company Stratfor, says, "In the end the Mongolian situation is one of excessive insecurity. It could be very realistic from a Chinese businessman's perspective that this is pure business, but if you are Mongolian, how can you take the risk of putting even more of your business in the hands of the Chinese?"



The full story can be found at BCM’s website – Resources, Mongolia Reports.