Inner Mongolia Sustainable Cross Border Development Investment Program (RRP PRC 51192) SUPPLEMENTARY DOCUMENT TO THE ECONOMIC ANALYSIS 1. Introduction and background 1.1 PRC–Mongolia Trade and Cooperation 1. Since the establishment of trade relations between the People’s Republic of China (PRC) and Mongolia in 1951, the two countries signed a border trade treaty in 1962. The two countries have conducted in-depth cooperation in economic and trade aspects, and their scope has continued to expand. PRC has become Mongolia's largest trading partner. In 2018, the bilateral trade volume between PRC and Mongolia reached $8.54 billion, of which the PRC’s export volume was $1.99 billion and the import value was $6.54 billion. Inner Mongolia Autonomous Region (IMAR) has accounted for 70% of Mongolia’s import trade from PRC, and the IMAR’s import and export trade to Mongolia accounts for more than 40% of PRC-Mongolia trade. 2. According to the statistics of PRC–Mongolia economic and trade cooperation (Table 1), PRC continues to maintain Mongolia's largest trading partner, largest export market and largest import market in 2017. Mongolia's exports to PRC mainly include mineral products, animal fur raw materials and their finished products. Mongolia's imports from PRC mainly include gasoline, diesel, food, machinery and equipment, summarized is Table 1. Table 1: PRC–Mongolia Economic and Trade Cooperation Data for 2012-2017 Main Indicator 2013 2014 2015 2016 2017 China export ($ billion) 2.450 2.216 1.572 0.988 1.248 China import ($ billion) 3.506 5.093 3.779 3.619 5.118 Source: China Customs Statistical Data. 1.2 IMAR and Mongolia Port and Trade 3. According to the statistics of Inner Mongolia Autonomous Region’s (IMAR) Customs, in 2018, the total import and export volume of IMAR reached CNY103.435 billion, a year-on-year increase of 9.9%. The growth rate of import and export was 0.2 percentage points higher than the national total, and the growth rate ranked 15th in the country. Among them: the cumulative import volume was CNY65.571 billion, a year-on-year increase of 7.5%; the cumulative export volume was CNY37.864 billion, an increase of 14.4%. According to the US dollar, the total import and export value of IMAR was $15.69 billion, up 13.1% year-on-year, of which: the cumulative import value was $ 9.94 billion, up 10.4% year-on-year; the cumulative export value was $ 5.75 billion, up 17.9% year-on-year. 4. IMAR has 18 open ports approved by the State Council, including four airports, namely Hohhot, Hailar, Manzhouli, Ordos; two land(rail) ports, respectively, Erenhot and Manzhouli; 12 land (road) ports, they are Manzhouli, Erenhot, Ceke, Ganqi-Maodu, Jungdadabuqi, Mandula, Abdu, Arhashate, Heishantou, Shiwei, Arxan, Uliji. 5. On the border line of 4,221 kilometers (km) in IMAR, the borderline between PRCa and Mongolia is 3,103 km. There are 10 ports developed by IMAR for Mongolia: Erenhot Railway Port, Erenhot Highway Port, Ceke Highway Port, Ganqi- Maodu Highway Port, Junggadabuqi Highway Port,Arhashate Highway Port, Mandula Highway Port, Abduge Waterway Port, Arxan Highway Port, Bagemaodu Highway Port. There is an international airport opening to Mongolia: Hohhot 2 Airport. Since the reform and opening up, the opening of ports in IMAR has been greatly developed. Most of the border cities have their own ports as shown in Table 2. Table 2: Main Port on Border of PRC–Mongolia Approval Corresponding Port Name Mode Location Feature Organization Port Class I Railway State Council Zamyn Uud Connecting Jier Railway Perennial Erenhot PRC–Mongolia border Class I Highway State Council Zamyn Uud Perennial Alxa League Class I Ceke Highway Mesozoic-cenozoic State Council Shivee Khuren Perennial Hulun Buir Class II EbudugeJua Waterway IMARG Bayankhoshuu PRC–Mongolia border Perennial Class II Arxan Highway Hinggan League Arxan State Council Cymber Seasonal Class I GanqiMaodu Highway PRC–Mongolia border State Council Gashuun Sukhait Perennial Hulun Buir Class I Arkhashaat Highway State Council Khavirga PRC–Mongolia border Perennial Xilingol League Class I Juangadabuqi Highway State Council Bichigt Dong Wuzhu MuqinQi Perennial Damaoqi County, PRC– Class II Mandula Highway IMARG Khangi Mongolia border Seasonal BageMaodu Highway PRC–Mongolia border IMARG Class II BodonMaodu Source: Inner Mongolia Department of Commerce Website and China Port Statistical Book 6. In 2018, the import and export freight volume of ports in IMAR was 91.336 million tons, an increase of 4.9% year-on-year, and the growth rate dropped by 5.4 percentage points from the previous year. The import freight volume was 66.843 million tons, up 3.2% year-on-year; the export freight volume was 12.5953 million tons, up 22% year-on-year. The passenger traffic volume of import and export in IMAR was 6,212,500, an increase of 4.4% year-on-year; the number of inbound and outbound vehicles was 1,844,400, an increase of 0.5%. The distribution of freight volume in the main ports on the PRC–Mongolian border over the years is shown below. 7. The import and export freight volume of the Mongolian port was 59.335 million tons, a year-on-year increase of 6.4%, of which: the import freight volume was 50,774,400 tons, an increase of 2.7%; the export freight volume was 8,560,900 tons, an increase of 35.5%. 3 Figure 1 – Port Freight Volume from 2003 to 2018 8. Considering status quo and demand of the nine ports on the border between PRC (Inner Mongolia) and Mongolia, this multi-tranche financing facility program involves Erenhot Port, Mandula Port, Ganqi-Maodu Port, Arxan Port and Uliji Port. The first tranche of selected projects is located in Erenhot Port and Mandula Port. 1.2.1. Erenhot 9. Erenhot is a border city on the border between China and Mongolia in IMAR. It is 9 km away from Zamyn-Uud, the largest port city in Mongolia. It is the largest road and railway port in PRC. From the analysis of the background data in the first part, the import and export volume of the Erenhot port has basically increased steadily in recent years, accounting for 27.9% of the cargo volume of the IMAR. In June 2014, the State Council officially approved the establishment of the Erenhot Key Development and Open Experimental Zone in IMAR. In August 2014, the two sides agreed to establish a cross-border economic cooperation zone in places such as Zamyn- Uud in Mongolia. PRC and Mongolia signed the Memorandum of Understanding on the Establishment of PRC–Mongolia Economic Cooperation Zone (ECZ), which clarified the objectives, principles, methods, mechanisms and overall planning of the development of cross- border economic cooperation zones and made top-level design at the national level. The Erenhot– Zamyn-Uud ECZ in PRC and Mongolia was officially put on the agenda after 2015. At present, the general regulations and industrial planning drafts have been submitted to relevant departments. At the end of 2018, the city's population was 71,868, with a regional gross domestic product (GDP) of CNY11.79 billion (2016 price). The total import and export volume of the year reached CNY23.798 billion, a year-on-year increase of 14.9%, of which: imports were CNY7.029 billion, up 10.7% year-on-year; exports were CNY6.769 billion, up 27% year-on-year. Among them, the import and export volume of small-scale border trade was CNY6.611 billion, up 17.8% year-on-year, and the import completed CNY5.398 billion, up 16.3% year-on-year. The export volume was CNY1.213 billion, up 25% year-on-year. Small-scale border trade accounted for 27.77% of total import and export, down 0.14 percentage points from the previous year. Imported bulk cargoes are mainly iron ore, wood, copper ore, petroleum, and pulp. Export commodities are mainly carbon electrodes, asphalt and steel structures. In 2018, the number of inbound and outbound ports was 2,440,800, a year-on-year increase of 9.27%. Among them, 1,250,500 people 4 entered the country, an increase of 9.16% over the same period of last year; the number of exits was 1,222,000, an increase of 9.39%. The per capita disposable income of all residents was CNY43,750, an increase of CNY1,964 over the previous year, an increase of 4.7% over the same period of last year. 1.2.2. Mandula 10. Mandula Port is the nearest port of Hohhot and Baotou to Ulaanbaatar, corresponding to Mongolian Gobi Province and South Gobi Province. At the beginning of the establishment of the port, Damaoqi County clearly defined the port development as developing and importing Mongolian and even Russian mineral resources in accordance with the working principle of Baotou Steel and Baotou Steel. To this end, Damaoqi included the port project in the eight pillar industries of the whole banner and five key projects to fully cultivate. A working group was set up to develop and import Mongolian mineral resources, build the Baiyun Obo-Mandula Port- Mongolian Zhuen Bayin Railway and the construction of the three major port projects of the Animal Products Processing Zone, and actively introduce large enterprises. Develop large projects, focus on manpower and material resources, do everything possible to advance, and make progress in stages. In February 2009, the State Council agreed that the Mandula Port will be open, and the port nature is the highway passenger and cargo transportation port that is open during the bilateral season. In the same year, the Mandula Port began to temporarily open and import Mongolian mineral products.