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Strategic Development Outline for Economic Cooperation Between the People's Republic of China and Mongolia

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Strategic Development Outline for Economic Cooperation Between the People's Republic of China and Mongolia STRATEGIC DEVELOPMENT OUTLINE FOR ECONOMIC COOPERATION BETWEEN THE PEOPLE’S REPUBLIC OF CHINA AND MONGOLIA (PROJECT AREA: XINGANMENG PREFECTURE IN THE INNER MONGOLIA AUTONOMOUS REGION OF THE PRC AND THE PROVINCES OF DORNOD, HENTIY, SUHBAATAR OF MONGOLIA ) i This publication was prepared by Asian Development Bank consultants under the guidance of Bank staff. The findings, interpre- tations, and conclusions expressed in it do not necessarily represent the views of the Bank or those of its member countries. The Asian Development Bank does not guarantee the accuracy of the data in- cluded in this publication and accepts no responsibility whatsoever for any consequences of their use. @ Asian Development Bank 2002 ISBN No. 971-561-412-4 Stock No. 110501 Published by the Asian Development Bank P.O. Box. 789, 0980 Manila, Philippines For more information on ADB, visit http:\\www.adb.org ii STRATEGIC DEVELOPMENT OUTLINE FOR ECONOMIC COOPERATION BETWEEN THE PEOPLE’S REPUBLIC OF CHINA AND MONGOLIA (PROJECT AREA: XINGANMENG PREFECTURE IN THE INNER MONGOLIA AUTONOMOUS REGION OF THE PRC AND THE PROVINCES OF DORNOD, HENTIY, SUHBAATAR OF MONGOLIA ) iii Message from the People’s Republic of China n line with the open door policy, the Government of options for economic cooperation in a specific project the People’s Republic of China regards promotion area covering Xinganmeng Prefecture of Inner Mongolia Iof economic cooperation with neighboring coun- Autonomous Region and the three eastern provinces in tries as a special means to accelerate growth and eco- Mongolia. As revealed by the strategic study, the two nomic development of the local economy in the provinces countries have good opportunity to cooperate in the and autonomous regions that share border with other project area in the sectors of agriculture, mining, tour- countries. This is particularly true for those provinces ism, transportation, and environmental protection. and autonomous regions supported by the “Go-West” Please allow me to take this opportunity to express strategy of the national government including the Inner our appreciation to the experts and staff of the Asian Mongolia Autonomous Region. Development Bank for their hard work and professional The People’s Republic of China and Mongolia share contribution to the study. a common border of more than 4,600 kilometers. The I am looking forward to a timely implementation of two countries have great potential to achieve mutual ben- the priority projects identified by the study, and the con- efits from economic cooperation. We appreciate the tech- tinued assistance from the Asian Development Bank in nical assistance provided by the Asian Development Bank support of the economic cooperation between our two in undertaking the strategic study for development countries on a wider geographic basis. Vice Chairman State Development and Planning Commission People’s Republic of China iv Message from Mongolia am very pleased to see the timely publication of the cies in ensuring sustainable development for the eastern study report on the Strategic Development Outline for provinces of Dornod, Hentiy and Suhbaatar. Apparently IEconomic Cooperation between the People’s Republic of economic cooperation offers a new dimension for devel- China (PRC) and Mongolia. The report will provide its opment strategy of the Government of Mongolia in the readers with detailed information that are needed for a eastern region. I am happy with the successful conclu- better understanding of the development options avail- sion of this first study on economic cooperation spon- able to accelerate growth and development of the eastern sored by the Asian Development Bank. Greater challenges provinces of Mongolia. are ahead of us in terms of policy study, capacity building, Being a landlocked country endowed with rich re- and project design and implementation, given the com- sources, Mongolia has adopted the national policy to plexity involved in economic cooperation across the border. promote economic integration with the world economy I would like to thank the Asian Development Bank for through economic cooperation with the neighboring the effort exerted in this study and look forward to con- countries including the People’s Republic of China. The tinued support to further strengthen the economic inte- strategic study supported by the Asian Development Bank gration of the Mongolian economy with the world provides valuable guidance for the planning and decision economy through a more active involvement in regional making work of all the involved organizations and agen- cooperation. Chultemiin Ulaan Minister of Finance and Economy Mongolia v Table of Contents Abbreviations and Acronyms, ix Foreword, x Acknowledgements, xi Executive Summary, xiii Background, 1 Economic Profile of the Project Area, 3 General Economy, 3 Agriculture, 4 Energy, 7 Mining, 8 Tourism, 9 Transportation, 13 Road and Rail Transportation, 13 Air Transportation, 16 Other Sectors, 18 Water Supply, 18 Telecommunications, 18 Human Resource, 19 Financial, 19 Assessment of Potential for Economic Cooperation in the Project Area, 21 The Policy Environment, 21 Assessment of the Potential for Economic Cooperation, 23 General, 23 Agricultural Sector, 24 Energy Sector, 24 Mining Sector, 25 Tourism Sector, 25 Transportation Sector, 26 Environment Sector, 26 Overall Sectoral Potential for Cooperation, 27 Constraints to Economic Cooperation and Development, 27 Infrastructure and Human Resource, 27 Finance and Capacity of the Private Sector, 27 Institutional and Legal Framework, 28 Development Options for Economic Cooperation, 31 Institutional Mechanism for Economic Cooperation, 31 Overview, 31 Institutional Policies and Strategies, 33 Evaluation of Potential Institutional Development Projects, 34 vi Agriculture, 35 Overview, 35 Agricultural Policies and Strategies, 36 Evaluation of Potential Agricultural Development Projects, 36 Mining, 37 Overview, 37 Policies and Strategies in the Mining Sector, 37 Evaluation of Potential Mining Development Projects, 38 Tourism, 39 Overview, 39 Policies and Strategies in the Tourism Sector, 39 Evaluation of Potential Tourism Development Projects, 41 Transportation, 43 Overview, 43 Policies and Strategies in the Transportation Sector, 44 Evaluation of Potential Transportation Development Projects, 47 Energy, 47 Overview, 47 Policies and Strategies in the Energy Sector, 47 Evaluation of Potential Energy Development Projects, 47 Environmental Concerns and Challenges, 49 Environmental Policies, 49 The People’s Republic of China, 49 Inner Mongolia Autonomous Region of PRC, 49 Mongolia, 50 Environmental Concerns, 50 National Level, 50 Subregional Level, 51 Potential Environmental Impact of Proposed Projects, 52 Proposed Agricultural Projects, 52 Proposed Mining Projects, 53 Proposed Tourism Projects, 53 Proposed Transport Projects, 54 Proposed Energy Projects, 54 Conclusions and Recommendations, 55 Appendices Appendix 1 - Detailed Terms of Reference, 59 Appendix 2 - Highlights of the Workshops, 61 Appendix 3 - Activities of the Mongolian Chamber of Commerce, 65 Appendix 4 - Sectoral Project Profiles, 67 Appendix 5 - Major Reference Documents, 99 Appendix 6 - List of Organizations Consulted, 101 vii List of Tables and Figures Tables 2.1 Key Socioeconomic Indicators for the Project Area, 2000, 4 2.2 Road Distances in Eastern Mongolia, 15 2.3 Railway Options Considered in the Pre-feasibility Study, 16 2.4 Labor Force in the Eastern Region of Mongolia, 2000, 19 2.5 Size of Deposits and Loans in Eastern Region of Mongolia, 2000, 20 2.6 Public Finance of the Eastern Region of Mongolia, 2000, 20 3.1 Distribution of Funds for Sectoral Projects Proposed for Xinganmeng Prefecture in the Tenth Five-Year Plan, 22 3.2 Potential for Cooperation in Key Sectors in the Project Area, 26 4.1 Potential Projects for Institutional Development Cooperation, 34 4.2 Potential Projects for Agricultural Development Cooperation, 36 4.3 Potential Projects for Mining Development Cooperation, 38 4.4 Potential Projects for Tourism Development Cooperation, 42 4.5 Potential Projects for Transportation Development Cooperation, 45 4.6 Potential Projects for Energy Development Cooperation, 47 5.1 List of Environmental and Related Laws in Mongolia, 50 Figures 2.1 The Project Area, 5 2.2 The Aduunchuluun Coal Mine near Choybalsan, 9 2.3 Azalea Lake—One of Xinganmeng’s Natural Attractions, 11 2.4 Road and Rail Network in Xinganmeng Prefecture, 12 2.5 Upgrading the Road from Arxan to the Border, 13 2.6 Road Conditions in Eastern Mongolia, 14 2.7 Proposed Railway from Choybalsan to Tumen River Economic Development Area via Xinganmeng Prefecture, 16 2.8 Air Routes to/from Ulanhot of Xinganmeng Prefecture, 17 2.9 Upgrading the Passenger Terminal at Choybalsan Airport, 18 3.1 Khavirga Border Port, 29 4.1 The Locked Gate at Arxan Border Port viii Abbreviations ADB Asian Development Bank Aimag Mongolian term for Province CTEC Committee on Trade and Economy Cooperation DPRK Democratic People’s Republic of Korea EIA Environmental Impact Assessment EPB Environmental Protection Bureau GDP Gross Domestic Product Ger Traditional Mongolian tent GMS Greater Mekong Subregion IMAR Inner Mongolia Autonomous Region JICA Japan International Cooperation Agency KOR The Republic of Korea MIAT Mongolian Air Transport Lines MIT Ministry of Industry and Trade mm Millimeters MONE Ministry of Nature and Environment NEPA National Environmental Protection Agency NGO Non-government Organization PRC The People’s Republic of China RETA Regional
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