Mongolia puts its faith in China railway to boost Covid-battered economy


Mongolia on Friday opened a new rail line to China that the prime minister said would help the country pass zero-Covid controls that have disrupted cross-border trade with its powerful neighbour.

“The opening of the new railway line is of historic significance for Mongolia,” said Oyun-Erdene Luvsannamsrai in an interview with the Financial Times ahead of the launch of the Zuunbayan-Khangi rail link, which will carry goods from mines including the Oyu Tolgoi project by Rio Tinto. to the second largest economy in the world.

After nearly three years of disruption due to Covid-19 and China’s tight epidemic controls, cross-border trade is finally approaching pre-pandemic levels. “Currently an average of 1,300 [commodity] cars leave the borders of Mongolia every day,” the prime minister said. “In 2019 there were 1,500.”

Mongolia’s economy grew at an annualized rate of 3.7 percent in the third quarter of this year, the biggest increase since 2019. Economic output recovered by just 1.4 percent in 2021, after falling 4.6 percent in 2020 .

Zuunbayan-Khangi is one of three new rail links to China that Luvsannamsrai says would increase export capacity by an additional 4,500 cars per day and help reduce Mongolia’s traditional reliance on trucks for transporting iron ore, coal and other bulk commodities.

Truck traffic across the two countries’ 4,630km border has been regularly disrupted amid China’s fears that drivers could transmit the virus.

“Using trucks takes a long time and costs a lot,” said Luvsannamsrai. “The track is much better. It has a lower risk of Covid transmission and is the safest way to export.”

The 227km Zuunbayan-Khangi Railway was completed in just eight months as construction activities are impossible during Mongolia’s frigid winters. It connects to a newly built counterpart in China that can transport raw materials to industrial centers such as Baotou in China’s Inner Mongolia region.

Luvsannamsrai, 42, was named prime minister in January 2021 and has launched a “new resurgence policy” that aims to boost Mongolia’s exports to China, pay off external debt and reduce dependence on Russia for energy.

He said that 90 percent of Mongolia’s exports went to China and that the country was “entirely dependent” on Russia for its energy supply. Those lifelines have been threatened, respectively, by Beijing’s controversial zero-Covid policy and international sanctions imposed on Moscow over its invasion of Ukraine.

President Xi Jinping’s government has reiterated its support for zero-Covid to contain the virus in China. But Luvsannamsrai said he was optimistic the situation would improve next year after the country appointed a new prime minister, most likely Li Qiang, in March.

“After the [January] Lunar New Year in China, we believe the new government, due to take office in March, will focus on economic growth,” he said. “Combined with that, vaccination rates will be much higher in all countries, so we expect better days to come.”