27.03.2023 Author: Boris Kushhov

Japan and Mongolia: How Economic Giants are Strengthening Small States

Монголия Japan and Mongolia

Mongolia is increasingly in the sights of most major geopolitical players, according to modern experts in the field of international relations. For example, the United States intends to establish an Indo-Pacific region in which Mongolia will play an important ideological and political role. Mongolia is regarded as an important East Asian “dialogue partner” by South Korean and British politicians. Investment cooperation is intensifying everywhere, numerous business forums are being held, and the participation of extra-regional economic agents in the development of deposits on the country’s territory is expanding.

Japan is also looking to expand its presence in Mongolia. It is constructing road infrastructure, re-equipping thermal power plants, and constructing and jointly operating a new international airport in Mongolia. Despite its small population, the Japanese are becoming increasingly interested in Mongolia’s natural resources and labor force.

In the 21st century, the big capitalist countries have to resort to sophisticated methods of “bribing” and “persuading smaller partners to cooperate” in order to carry out the very selfish plans of economic giants in small developing countries. This is accomplished by the United States through ideological solidarity and the promotion of democratic and liberal values. South Korea and the United Kingdom are more concerned with cultural and linguistic means. Against this backdrop, China has long opted for economic stimulation.

Japan, on the other hand, is charting its own, largely distinct course. In its strategy of expanding its influence in Mongolia, Japan emphasizes the development of humanitarian cooperation. It is based on Japan’s funding of social and humanitarian programs and projects in Mongolia. It is carried out through various Japanese organizations, such as the Japan International Cooperation Association (JICA), the Japan International Cooperation Bank (JBIC) and the Japan Foundation, and through numerous Mongolian-Japanese programs, such as the Joint Loan Facility, non-project official assistance, the Export Credit Line and Grassroots.

Japanese financial aid since 1991 has reached three billion dollars, accounting for more than 30% of all foreign aid Mongolia has received in 31 years.  And if in the 1990s, most of the Japanese money was invested in Mongolia’s democratic and market institutions, since the early 2000s, partnership in the field of humanitarian programs has come to the fore.

In particular, bilateral cooperation in health care has been actively developing. In May 2012, the countries signed an agreement to build a hospital at the Medical Research University of Mongolia. The facility was built with $68 million in Japanese donations. As part of the Grassroots charity program, medical facilities in 16 aimags of the country as well as the city of Ulaanbaatar were renovated. In 2021, Japan donated $8 million to Mongolia to fight coronavirus and also sent specialized equipment to the Mongolian National Federation of the Blind. On January 5, 2023, the two sides signed a memorandum on health cooperation, agreeing on the details of Japan’s participation in Mongolia’s national Healthy Mongolian project. The plans for bilateral cooperation for the coming years included the prospect of creating a cardiovascular center, training and retraining of Mongolian doctors, as well as expanding the opportunities for Mongolian citizens to receive medical services in Japan.  The Japanese company “Tokushukai Medical Group” has declared readiness to allocate up to 43 million dollars for implementation of promising bilateral projects.

Cooperation between Japan and Mongolia is dynamically developing in the field of education and youth policy. Since 2004, the Mongolian-Japanese center of support of youth cooperation has been functioning, the main direction of which is to promote learning of the Japanese language in Mongolia. In 2009-2012 within the framework of a special program of school exchanges, about 1000 Mongolian school students visited Japan. In 2011, 50 Mongolian specialists in the fields of energy, agriculture, and disaster management were sent to Japan for training. In 2012, the Mongolian Cultural Heritage Center was technically re-equipped with Japanese funds. In 2018-2021, a project to renovate and modernize schools in five districts of Ulaanbaatar was implemented with funds provided by the Japanese government on a grant basis ($18 million). Since 2019, as part of the Mongolian-Japanese humanitarian cooperation, a $51 million project for the development of higher engineering education in Mongolia has been implemented. Funding is provided by the Japan Association for International Cooperation on a grant basis. Yamaha Japan has been training music technicians for the Mongolian State Philharmonic since 2022. The year 2022 has been declared the year of exchange and friendship between Mongolian and Japanese youth. There are currently 70 Mongolian students studying in Japan on Japanese government scholarships. Through the Grassroots Program, Japan has provided free repairs and technical upgrades to 55 Mongolian schools located in 10 Mongolian aimags. The Mongolian National University of Medical Sciences has cooperation programs with 80 educational institutions and hospitals in Japan.

The parties pay special attention to cooperation in the field of environmental protection and protection of the environment. In 2013, in order to support a favorable environmental situation in Mongolia, the parties developed the so-called “Joint Loan Facility.” It involves the Japanese government allocating loans on favorable terms to finance Mongolian projects to reduce hydrocarbon emissions. In particular, the mechanism provides concessional loans for the Mongolian government to buy Japanese monitoring equipment as well as to reduce air pollution in the country. In March 2019, the environment ministries of the two countries agreed to conduct a joint environmental balance study in Mongolia. In the 2010s, Japanese firms upgraded the water supply network in Ulaanbaatar, Altai and Mandalgobi with funds provided by the Japanese government as a soft loan. During the March 3, 2023 visit of State Great Khural Speaker Gombojavyn Zandanshatar to Japan, the parties announced the launch of the third phase of the small and medium-sized enterprise development and environmental protection program, which provides financial and technical support for environmentally friendly enterprises.

Bilateral humanitarian cooperation is also carried out in the field of tourism development. In 2013, the two sides signed an agreement on the construction of a new international airport in the Khushig Valley with a favorable loan from the Japan Bank for International Cooperation worth $210 million. Japanese corporations Mitsubishi and Chiyoda are involved in the project. The final cost of the project has reached $476 million. Within 15 years from the date of commissioning, the airport will be jointly managed by the Mongolian state company Khushig Valley Airport Company and Japanese Airport Management LLC, after which it will be fully transferred to Mongolia. Also, during a meeting between the State Great Khural Speaker Zandanshatar and the head of the Japanese parliament, representatives of the two countries expressed their desire to simplify the procedure for obtaining visas for Mongolian citizens traveling to Japan.

Other bilateral humanitarian cooperation projects include the technical re-equipment of the Ulaanbaatar city fire departments in 2012, the construction of the Solar Bridge in downtown Ulaanbaatar, Japanese participation in financing the Mongolian programs “New Railway,” “Housing for 100,000 Families,” “Development of Small and Medium Industries,” and the opening in 2013 of an export credit line worth $58 million to fight poverty in Mongolia.

So, how does Japan use such peace-loving initiatives to satisfy and protect its interests in developing countries?

First, actively promoting the development of various regions of the world is intended to improve Japan’s image in the international arena and strengthen its credibility at the UN as the country seeks permanent membership in the UN Security Council, which can be facilitated by the support of the majority of the organization’s members. In bilateral joint statements, Mongolia, in particular, expresses its solidarity with Japan on this issue on a regular basis. Japan’s “development assistance” is viewed by the UN as a tool for addressing global economic and social issues.

Second, the provision of concessional loans to developing countries, including Mongolia, is a government tool to stimulate Japanese industrial exports during the prolonged economic downturn. (Japan’s average annual GDP growth rate has not exceeded 1.5% since 1992). The terms of concessional loans frequently include the purchase of Japanese machinery and equipment, denying developing countries access to a competitive international market. Also, creating a favorable image of Japan in Mongolia is a means to strengthen political influence as well as a kind of “advertisement” for Japanese goods on the Mongolian market (43% of Mongolians view Japan “very positively” and another 41% view it “rather positively”).

Third, Japan’s funding of a number of Mongolian government programs is intended to make the Mongolian political elite to a certain extent dependent on Japanese aid, because the rejection of it will be accompanied by an increase in the deficit of the Mongolian state budget (the budget for 2023 was approved with a deficit of 2.6% of GDP, in previous years the figure was as high as 7%). Most of Japan’s financial aid goes to support budget projects. At the same time, Mongolian politicians’ hopes for more aid will push them to cooperate with Japan, shrinking the room for political maneuvering in directions that are disadvantageous to Japan.

Fourth, grant aid for transport and infrastructure facilities is designed to increase the possibility of exporting Mongolia’s natural resources to Japan by modernizing the country’s rail and road networks. Currently, this opportunity is not available because of China’s monopoly on the transit of Mongolian exports to Asia-Pacific countries.

Fifth, the promotion of the Japanese language and culture in Mongolia through educational programs and youth exchanges is intended to create a long-term favorable “conductive environment” in Mongolia for Japanese business plans.

Thus, the “generous” humanitarian partnership between Japan and Mongolia is only a tool to meet the needs of Japanese authorities and major business. A number of projects focused on long-term economic benefits are artificially equated by the parties with humanitarian and charitable ones. And those projects that do not involve direct material benefit work to promote Japan as a great friend and partner of Mongolia, justifying Japanese ambitions in that country, which will not weaken for a very long time to come.

Boris Kushkhov, the Department for Korea and Mongolia at the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the online journal “New Eastern Outlook.

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