Author: Julian Dierkes, University of British Columbia Justin Li’s 2 February 2011 post is welcome in that it attempts to analyse the economic development of Mongolia in its political context. It is also significant in that it raises an important aspect of China’s perceived rise in standing and its newly assertive foreign policy, namely that this has a very specific impact on regional (security) dynamics and popular perceptions. Li’s essay mainly focuses on the extent to which politics and populism have got mixed up (I assume that’s how he might see it) with investment decisions. This ignores another political arena entirely: foreign policy. The Mongolian parliament is currently debating an updated foreign policy vision, so this particular point may well shift significantly in the coming weeks/months. Up until now the dominant stated theme of Mongolian foreign policy has been the so-called ‘third neighbour’ policy; that is, attempts by successive Mongolian administrations to build closer ties with partners other than Russia and China, its dominant neighbours. The most prominent third neighbours have been Canada, the EU (as a whole or individual countries, especially Germany and the UK, though they are both currently involved in an extradition case involving Mongolia’s spy chief, Khurts ), Japan, South Korea and the US (built to some extent on the Bush administration’s gratitude for the deployment of Mongolian troops in Iraq and Afghanistan). Mongolia has also pursued strong relations with India, Kazakhstan and Turkey. This third neighbour policy has met with some success, far from the ‘geopolitical nightmare for its leaders’ that Li describes. Japan and Korea are clearly very engaged in Mongolia (beyond the Mongolian invasion of sumo ranks, and the large number of Mongolians working in industrial jobs in Korea). Canada’s first resident ambassador, Anna Biolik, took up her post in 2008 and has since been succeeded by Greg Goldhawk. The US-Mongolia relationship seems to have weathered the transition to the Obama administration. Much of what Li describes in his essay could be interpreted as an investment policy based on this third neighbour precept. It is thus quite rational as long as one accepts the aims of the third neighbour policy. Given that Li’s post focuses on the Oyu Tolgoi project in particular, it may not be surprising, given parliament’s involvement in that decision, that the eventual investment agreement for that project involves third neighbours Australia, Canada and the UK. Sticking with a focus on economics, as Li mentions, China has been the largest investor in Mongolia for over ten years casting doubt on his assertion of irrational and imprudent resentment against Chinese investment in Mongolia. Anti-Chinese sentiment in Mongolia has indeed been stirred up by populist politicians in this period, but it is not clear that it is on the rise, rather than representing an on-going undercurrent. Li implies an upsurge of anti-Chinese sentiment with terms such as ‘rapidly capturing’ or ‘increased fear a hundred-fold,’ yet there is scant evidence that this is really a sudden increase in hostility. The fact that Chinese corporations will quite naturally be the biggest customers of any natural resource projects that are developed in Mongolia does not imply that there are incentives for the Mongolian government that these projects should also be Chinese-owned. The government has no obvious interest in creating integrated supply chains for Chinese corporations. In representing the interests of the Mongolian people, the government may be much better off in keeping initial production of raw materials separate from their sales in order to create opportunities to levy taxes and enforce environmental regulation. As to Mongolian decisions regarding railroad construction, Li might enjoy reading Asia Pacific Memo #11 on ‘Broad Gauge versus Narrow Gauge: The Politics of Dimension in Mongolia’s Railroad System’ by Jargalsaikhan Mendee or my own discussion of shifts in the political landscape in Mongolia just this month. I would, finally, take issue with Li’s use of the term ‘racism.’ Without getting into a fruitless discussion of the racial origins or make-up of different populations, it would seem more appropriate for the anti-Chinese sentiment in Mongolia to be referred to as just that, ‘anti-Chinese sentiment,’ or perhaps xenophobia, rather than ‘racism,’ as Li implies. Julian Dierkes holds the Keidanren Chair in Japanese Research, Institute of Asian Research, University of British Columbia where he also coordinates the Program on Inner Asia. Chinese investment in Mongolia: An uneasy courtship between Goliath and David Getting foreign investment policy and China right How do Australia’s foreign investment rules apply to China?