China’s Belt and Road is putting pressure on Mongolia to resolve a strategic dilemma. On the one hand, Ulanbaatar is eager to reduce its political and economic dependence on China through its Third Neighbor foreign policy; on the other, Mongolia faces competition from Kazakhstan to reap the potential rewards of becoming a key node in the Belt and Road.
The Belt and Road initiative is not a perfect fit with Mongolia’s current economic priorities. Mongolian leaders want to diversify the country’s economy by building a manufacturing base and reducing its near total dependence on the exports of natural resources. Ulaanbaatar also wants to expand its number of trade partners. At present, China is by far Mongolia’s largest trading partner, accounting for 90 percent of Mongolian exports and over 30 percent of its imports, and, as Mongolia’s balance-of-payments crisis last year demonstrated, this economic arrangement invites instability, rather than protects from it.
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