China's Obstacles to Investing in Mongolian Mining

In 2010, Chinese state-owned mining companies began making several ambitious bids for stakes in Mongolian coal and metals mining operations. The moves reflected Beijing's ongoing efforts to offset rising domestic demand for natural resources by gaining control over international supply chains in several sectors. Many such moves have been highly successful — especially in the years following the 2008-2009 global financial crisis, when well-financed Chinese firms invested heavily in cash-starved foreign companies and countries.

But that success has not been uniform. In the past month, for example, a Chinese state-owned company withdrew more than $1.2 billion in bids to purchase sizable stakes in two mining companies with operations in Mongolia. Meanwhile, a bid won by another Chinese firm to buy a major stake in Mongolia's Tavan Tolgoi mine, which holds the world's largest untapped deposits of coking coal, will almost certainly be downsized. The failure of these efforts reflects a growing concern among recipients of Chinese investment, in Mongolia but also across the globe, about the political and geopolitical implications of ceding control of domestic resources to Chinese state-owned enterprises.