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Mongolian Economy Braces For China Chill www.mongoliaweekly.org
With China recording its slowest growth in decades, its economic chill threatens to give neighboring Mongolia a serious case of the flu. Resource-rich but undiversified Mongolian economy depends on China for over 90% of exports and could see growth slashed as Chinese demand weakens.
Steel making in China
Mongolia’s impressive GDP growth - hitting 7.9% in Q1 2023 - has been built on supplying coal, copper and other minerals to its giant neighbor.
But with China’s property sector slowing down amid a brewing debt crisis, Mongolian commodity exporters are facing challenges from lower demand and prices. State revenues and foreign reserves are set to take a hit.
And it’s not just commodities. Chinese tourism and investment are important economic sources for Mongolia, but they also pose some challenges and uncertainties. With China’s economy at its most feeble since 1976, we can expect sharp drops in both.
Mongolian firms heavily reliant on Chinese visitors and investments will have challenging times.
The anticipated casino bill, which could have significantly attracted Chinese tourists, is currently pending approval.
There are some silver linings. Declining global commodity prices will ease inflation pressures at home. And reduced Chinese demand could open trade opportunities with third countries. But these positives pale compared to the loss of Mongolia’s main growth engine.
Mongolia’s policymakers have a battle ahead. Fiscal spending may help soften the blow in the short-term, but risks debt concerns.
Maintaining high interest rates seem inevitable to protect the tugrik currency as foreign reserves start falling. Using its sovereign wealth fund could provide breathing room, but rainy day savings only go so far.
In forecasting just 4.5% economic growth in Mongolia this year, the IMF has already baked in significant downside risks from China’s downturn.
But further deceleration may be in store if Beijing fails to course correct.
Mongolia’s lack of economic diversification means it has little insulation from the cold winds blowing from its neighbor.
With prudent policies, Ulaanbaatar can hope to emerge without catching pneumonia. But China’s massive economy sneezing inevitably means its small, export-reliant neighbor Mongolia will get sick. There is no vaccine for this economic flu yet.
BY Amar Adiya
Published Date:2023-08-16
