The unlikely beneficiary of the Hong Kong crisis: Mongolia’s new luxury market www.ozy.com

Mongolia isn’t a country commonly associated with luxury. Its nominal per capita GDP sits below that of Armenia, Tuvalu and Sri Lanka. Its only real city, Ulaanbaatar, is the planet’s coldest capital and often its most polluted. But some of the world’s biggest luxury brands are betting on it. Chinese consumers are the trump cards Mongolia is counting on. And the crisis simmering in Hong Kong promises to serve as an unlikely catalyst.

For years, Mongolia’s economy has depended on mining — in particular copper — that has left it vulnerable to repeated boom and bust cycles as commodity prices fluctuate. Now, it is pinning its hopes on a surge in tourism from consumerist China to also drive its emergence as a destination for luxury spending, hoping to add a fresh arrow to its economic quiver.

Over the past year, Rolex, Versace, Burberry and Gucci have all established bases in the capital. Commercial buildings housing luxury outlets, such as the Shangri-la Mall, are becoming a more regular sight. Meanwhile, Mongolia saw a 19 percent increase in Chinese visitors in 2018, and a 15 percent rise in sales of luxury products that industry insiders say simply can’t have been driven solely by the domestic market. Overall, retail sales rose by 22 percent, to $2.9 billion, according to latest figures.

And in the first half of 2019, a period which overlaps with the start of the Hong Kong protests, mainland Chinese tourists made up more than a third of all visitors to Mongolia — even as Chinese tourism to Hong Kong has fallen by 42 percent. Chinese consumers and tourists drive the global luxury economy — they’re responsible for a third of the industry’s spending — but experts predict sales figures for luxury brands in Hong Kong will fall between 30 and 60 percent this year. Yet that could prove a surprising fillip for Mongolia’s luxury sales, they say, as Chinese tourists pick the country’s northern neighbor more.

“Despite China’s slowing economy, there is still a huge rising demand for luxury goods,” says Thomas Klein, co-founder of Beijing-based digital strategy firm Creative Union. “Chinese consumers will continue to be the engine of worldwide growth in luxury spending, and it is crucial for luxury brands to have a piece of the pie.”

To attract Chinese tourists, Mongolia has taken a series of steps — and is plotting several more. Over the past year, the government has started free Mandarin classes to Mongolians working in the tourism industry. In 2019, Ulaanbaatar’s tourism department launched a series of “Culture and Tourism Days” in cities across the Chinese province of Inner Mongolia to highlight the Mongolian capital as a tourist destination. In a separate move, the tourism board is organizing sporting events, including a motorsport festival, specifically targeting enthusiasts from China.

The country needs to do that in part to support its high-end offerings such as luxury brands, says a partner at an investment advisory firm based in Ulaanbaatar, who requested anonymity. “The domestic Mongolian consumer market is simply too small to sustain luxury brands in the long run,” he says. “Ulaanbaatar could feasibly become a new destination for Chinese luxury spending.”

For Mongolia, the advantages are simple. According to McKinsey & Company, Chinese consumers spent $115 billion on luxury goods in 2018. By 2025, this figure is predicted to reach $170 billion, meaning Chinese consumers will be responsible for 65 percent of market growth over the next six years.

The benefits to Chinese visitors are clear too. Over 70 percent of China’s luxury spending is by tourists when they travel abroad. That’s because China — despite the flush of big brands that dot its cities — charges taxes as high as 56 percent on luxury products. In August, the same luxury products in China were on average 33 percent costlier than in France, according to global research firm Gartner.

Traditionally, Hong Kong — famous for some of the lowest tax rates in the world — has been the preferred destination for Chinese luxury shoppers. But the pro-democracy protests have changed that in recent months. According to financial services firm Jefferies, Burberry’s Hong Kong sales will be hit to the tune of $122 million this year. Watch and jewelry firms are expected to be harder hit, with third-quarter sales down 47 percent in Hong Kong.

That’s where Ulaanbaatar — a shorter flight away from Beijing compared to Hong Kong — could come in. Mongolia’s sales tax is 10 percent, with no additional luxury tax. Janet Yu, who lives and works in Beijing and until last year visited Hong Kong several times a year for designer goods and luxury cosmetics, has for the moment shifted her loyalty to other established luxury destinations such as Japan and South Korea. But she likes the idea of Mongolia as an alternative. “If Mongolian outlets sold the brands I like and I was confident of their authenticity, I would certainly shop there,” she says. “It’s close, and I like the idea of shopping somewhere not many others do.”

To be sure, Ulaanbaatar can’t compete with Hong Kong in terms of connectivity or a cosmopolitan culture. And sustaining its gains once Hong Kong’s crisis dies down won’t be easy. Fluctuations in Mongolia’s domestic economic fortunes — still dependent on minerals — could once again derail the nation’s plans.

But for now, confidence is high. The Asian Development Bank has amended the country’s economic outlook from 4.3 to 6.1 percent growth for this year. The country is targeting 1 million foreign visitors in 2020 — compared to 598,000 in 2018. (Mongolia’s own population is only 3 million.) A survey by real estate firm Mongolian Properties in 2019 showed that four in five retail owners planned to increase the number of outlets they operated in Ulaanbaatar.

And this is just the start of Mongolia’s coordinated efforts to establish itself as an emerging market for Chinese luxury spending. The land of sweeping grasslands, vast deserts and nomadic herders is making its move so that it is also known as the land of designer bags, luxury watches and high-end shoes.

IMF warns Mongolia’s livestock industry of threats www.news.mn

Mongolia’s livestock industry, once the primary engine of the country’s economy, is facing threats from climate change and overgrazing, according to a report from the International Monetary Fund (IMF). The national and regional costs to economic growth and inequality will continue to grow without prompt policy action, it added.

Agency says it will review Trump Jr.’s sheep hunt in Mongolia www.rollcall.com

The U.S. Fish and Wildlife Service said it will review allegations that Donald Trump Jr., may have illegally killed a rare sheep during a recent trip to Mongolia and imported parts of the animal back to the U.S.

Enabling children with disabilities in Mongolia to demonstrate their potential through individualized learning www.jica.go.jp

JICA has provided various forms of assistance to enable children from around the world to attend school, live safely, and demonstrate their potential. One such initiative is “The Project for Strengthening Teachers’ Ability and Reasonable Treatments for Children with Disabilities (START),” which has been implemented in Mongolia for four years up to July 2019.

Currently, the net enrollment rate in primary schools is approximately 96% in Mongolia. However, many children with disabilities are unable to attend or drop out of school due to insufficient educational environments and the inability to receive appropriate guidance. In order to improve this situation, JICA has worked to strengthen early childhood interventions and improve the quality of education for children with disabilities. The guidelines developed in the project have been approved by the Minister of Labor and Social Protection, the Minister of Education, Culture, Science and Sports, and the Minister of Health, and are the roadmap for future comprehensive support.

One of the accomplishments of this project is the introduction of regular health checkups. At the beginning of the project, children aged 5-16 were expected to be the target range to receive support. However, in Mongolia, where the enrollment rate in kindergartens is 80% or more, education starts at the age of two when children are admitted to kindergarten. As pre-kindergarten support, health checkups were conducted for children aged 1 year and 6 months in the pilot areas of Ulaanbaatar and Khuvsgul Province.

Before the health checkup, training was given to healthcare professionals, and the use of the Maternal and Child Health Notebook was promoted so that they can confirm proper development. As a result of the checkup, children suspected of having developmental delays or disabilities were provided with support in the Parents and Child Development Program, where play is incorporated into a program to stimulate their development, was conducted. The Parents and Child Development Program provided necessary information and advice to parents who were anxious about their children’s development.

The parents who participated in the checkups said, “I vaguely thought that my child was fine. However, when I visited the hospital, I realized that it was a valuable opportunity for me to be aware of what needs to be done and teach me how to prepare my child for entering kindergarten.” Until then, many parents who were anxious about their child’s development had no choice but to live with it, and those whose child was diagnosed as having a disability had no support. However, a model case was created that enabled them to prepare prior to starting their social life.

At the same time, educational services have been improving for children with disabilities after entering school. In Mongolia, the “National Program on Inclusive Education” was implemented from 2003 to 2008. Although children with disabilities can also attend school, in reality, there were numerous issues. There were children who were refused admission by schools because they wanted children with disabilities to go to special schools, and there were children who simply were unable to follow the class and just sat writing in one corner of the classroom.

Therefore, efforts were made to improve the physical environment of pilot schools, establishing resource rooms that allow children with disabilities to receive lessons in accordance with their needs, and implementing advisory activities by teachers at special schools.

Mr. Tetsuya Ishii (Koei Research & Consulting Inc.), the project leader, stated that one of the reasons why children with disabilities face difficulties in school was the lack of knowledge and skills of teachers. “For children with disabilities, we have created individualized education plans, and have identified and targeted individual educational needs and goals.”

“Teachers tended to think about age-based goals, such as “second-year students need to do multiplication,” but in the project, through advisory activities by teachers of special schools, they were instructed to set goals tailored to each child, for example, “matching the numbers from 1 to 5 with the actual objects.” By setting realistic goals, children will gradually increase their ability to do things, and teachers can also feel the growth of their children. As a result of these experiences, the attitudes of schools, and teachers toward children with disabilities have changed.”
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Handbooks and teaching materials created in the project. By using the same teaching materials and documents, high-quality education is available anywhere in the country
Also, in order to support teachers, the project has prepared a handbook on teaching methods and teaching materials for teachers. One example of this is the “Collection of Illustrations: 450 useful words at school,” which can be downloaded by anyone.

Moving the three ministries to support the entire country
The “Guidelines for Comprehensive Early Childhood Development for Children with Disabilities,” which summarize the guidelines and contents of development support through projects and the roles of related organizations, such as health checkups for children aged 1 year and 6 months, and the establishment of education models at schools, was approved as a joint order of the Minister of Labor and Social Protection, the Minister of Education, Culture, Science and Sports, and the Minister of Health, on Nov. 15, 2018. It is expected to serve as a guideline for structuring developmental support systems and concrete implementation throughout the country going forward.

Children have the right to receive an education, whether they have disabilities or not. JICA will continue to support the protection of children’s rights and freedoms.

Innovative product materials and ingredients to be exempted from customs duties and VAT www.montsame.mn

Ulaanbaatar /MONTSAME/ At its regular meeting on December 18, the Cabinet approved a list of raw and other materials and reagents which are not locally produced, but necessary for producing new products within innovative projects, to exempt customs duties and value added tax.

Exploration license issuance to be halted for a year www.montsame.mn

Ulaanbaatar /MONTSAME/ The Cabinet made a decision not to grant special license on mineral exploration for a year.

Ulaanbaatar heating system to be improved www.montsame.mn

Ulaanbaatar /MONTSAME/ At its regular meeting on December 18, the Cabinet approved the draft special loan agreement on the Ulaanbaatar District Heating Project to be implemented under the General Financing Agreement between the Government of Mongolia and European Bank for Reconstruction and Development.

Crude oil production equals 6.39 million barrels in 2019 www.zgm.mn

As of December 4, 2019, Mongolia has extracted a total of 6.39 million barrels, or 867,100 tons, of crude oil, according to the Ministry of Mining and Heavy Industry. Of these, 6.09 million barrels, or 827,700 tons, were exported to China, earning MNT 210.2 billion. Mongolia plans to extract a total of 8.15 million barrels, or 1.1 million tons, of crude oil this year, which would contribute MNT 335.6 billion to the state budget. Therefore, the country has so far implemented 78.5 percent of its extraction plan and 74.8 percent of its export plan. Currently, there is no oil refinery in Mongolia. The country’s first oil refinery is under construction in the southeastern province of Dornogovi, with an expected date of commissioning in late 2022.

ETT chooses two more foreign banks to advise on IPO www.zgm.mn

Еrdenes Tavan Tolgoi JSC (ETT)’s work to launch its IPO on the Hong \Kong Stock Exchange (HKE) is ongoing and additional banks in charge of IPO issuance have been selected, according to the International Finance Corporation (IFC). The IPO of ETT will be listed in London and HKE. The selected banks, namely Merrill Lynch and Swiss Multinational investment bank Credit Suisse have been announced in earlier November. Thus, Nomura, the Japanese financial services group has been chosen along with BOC International, IFC reported. The aforementioned three banks have been chosen out of 25 international banks in which the Government sent invitations. Furthermore, Linklaters, a multinational law firm headquartered in London, has been selected to provide legal assistance. ETT is ramping up work on a planned Hong Kong initial public offering that is expected to raise more than USD 1 billion. Bank of America, Credit Suisse, and Nomura banks will play a key role in the issuance of IPO, said Sumyabazar Dolgorsuren, Minister of Mining and Heavy Industry. Erdenes Tavan Tolgoi JSC is a Mongolian state­-owned company that holds mining licenses to the Tavantolgoi coal deposit which is regarded as one of the largest and high­-quality coking coal deposits in the world, located in the southern Gobi region of Mongolia, approximately 540 km south of Ulaanbaatar. IPOs in Hong Kong have raised USD 20.4 billion this year, down from USD 32.7 billion during the same period in 2018, according to data compiled by Bloomberg. A successful listing of Tavan Tolgoi would show positive results to the Hong Kong bourse after years of seeking to lure big foreign mining companies to list in the city. Tavan Tolgoi coal mine, located in the Gobi desert, is the largest coal ore deposit in Mongolia. Its deposit is estimated at a total of over six billion metric tons of coal, and more than one­third of which is high­grade hard coking coal. According to the port administration of Gashunsuukhit, for the first 11 months of the year, ETT exported 13.39 million tons of coal from Tavan Tolgoi.

Prague comes to Mongolian capital – in ice! www.news.mn

Ice replicas of Prague’s Charles Bridge and the Cathedral of Saints Vitus, Wenceslas and Adalbert are under construction on Sukhbaatar Square in the heart of Ulaanbaatar. Mongolian sculptor Ts.Batmunkh and his assistants are transforming ice cubes into Prague’s iconic emblem.

The ice replicas have been commissioned by the Czech Embassy and are being financed by two Czech companies. The ice sculptures are being made to mark the 70th anniversary of the establishment of diplomatic relations between the Czech Republic and Mongolia. The ice sculptures will be opened to the public on Monday (16 December).