On October 16th, Mongolia and the People’s Republic of China celebrated 75 years of diplomatic relations. More than just a commemoration of past cooperation, the milestone anniversary highlights the rapidly shifting global order, with Mongolia serving as a case study of how Beijing is outpacing the West in cultivating strategic regional partnerships. As China’s Ambassador to Mongolia, Shen Minjuan, noted, “China’s development presents new opportunities for Mongolia… The two countries need to enhance political mutual trust, align development strategies, deepen industrial cooperation… so as to make cooperation more diversified and trade larger and more comprehensive.” With sustained investments in infrastructure, industry, and mining, China is carefully building an economic ecosystem around resource-rich countries like Mongolia.
Mongolia’s strategic alignment with China, and increasingly with Russia as well, is driven by pragmatism. Geographically, Mongolia is wedged between its two powerful neighbors, both of whom offer critical economic and infrastructural support. This trilateral relationship is evolving into a powerful coalition, one that seems increasingly resistant to international norms and more focused on mutual self-interest. This is particularly evident in Mongolia’s mining industry, where the country’s vast resources—especially rare earth elements and battery minerals—are likely to flow into Chinese supply chains, further consolidating Beijing’s control over the global rare earth minerals market. For Europe, this poses a strategic challenge, as its efforts to secure alternative sources of critical minerals grow more complicated.
The West’s waning influence
Europe is acutely aware of the challenging position it finds itself in regarding Mongolia’s strategic resources. In response, European nations have made various overtures to strengthen their presence, but these efforts have not been enough to counter China’s entrenched influence.
France, for example, made a historic effort to solidify its presence in Mongolia, with President Macron’s May 2023 visit the first-ever by a French president to the country, which saw Paris and Ulaanbaatar sign a joint declaration agreeing to broaden cooperation in a variety of sectors. Despite these diplomatic overtures, France—and by extension, Europe—has seen limited success in securing a foothold in Mongolia’s resource sector.
Adding to Europe’s challenges is a new law passed by the Mongolian government in early 2024, involving the partial expropriation of mining assets to fund a newly established Sovereign Wealth Fund (SWF). This “Amendment to the Minerals Law” is designed to redistribute gains from natural resources by restricting any single entity from owning more than 34% of the shares in a company holding a strategic mineral deposit license. Additionally, a 30% tax is imposed on transfers of rights related to these deposits—unless the transfer is made to the state. These measures, aimed at increasing national control over Mongolia’s resource wealth, have created significant legal uncertainties for foreign investors, especially those from the West. The mandate for profit-sharing arrangements with the government further deters the foreign capital essential for developing key mining projects. For Europe, this represents a major setback as it seeks to secure the critical minerals needed for its green energy transition.
Looking eastward
For Mongolia, aligning more closely with China is seen as a necessary strategic choice. China offers Mongolia not only a stable market for its mineral exports but also the infrastructure and technical expertise required to develop these resources. Despite its urgent need for critical materials, Europe has not been able to match China’s level of commitment, in part due to Europe’s slower and more fragmented approach. Unlike China, which invests strategically and long-term through initiatives like Belt and Road, Europe’s engagement has often been perceived as piecemeal and overly cautious. For instance, France’s $400,000 investment in lithium exploration in Mongolia pales in comparison to China’s multi-billion dollar investments across Asia and Africa, including Mongolia, as part of its critical minerals strategy.
Europe’s challenges are compounded by China’s overwhelming dominance in global critical mineral supply chains. China refines the majority of key materials like lithium, nickel, and cobalt, making it difficult for Europe to compete without significant structural reforms. While the EU has introduced the Critical Raw Materials Act to diversify supply sources and reduce dependency on China, these efforts are unfolding as Mongolia has already deepened its ties with Beijing. China’s capacity for immediate, large-scale investments in infrastructure and processing has given it a significant edge over Europe.
Mongolia’s strategic pivot towards China is driven by these tangible benefits, which Europe has struggled to match, creating little momentum for meaningful partnerships despite recognising Mongolia’s importance. As Mongolia strengthens resource nationalism through its Sovereign Wealth Fund, Europe’s window of opportunity to secure access to critical minerals is closing.
Meanwhile, the growing trilateral relationship between Mongolia, China, and Russia—centered around shared resource development—further consolidates Mongolia’s alignment with China. As Europe plays catch-up, Mongolia increasingly integrates into China’s supply chains, leaving Europe scrambling to engage more effectively.
What does this mean for the West?
Mongolia’s growing alignment with China should serve as a warning for European policymakers. The West’s traditional approach to diplomacy, which consists of state visits, small-scale investments, and memorandums of understanding, is proving inadequate in the face of China’s more comprehensive, long-term strategy. If Europe hopes to secure access to the critical materials that will drive the next generation of technological innovation, it will need to radically rethink its approach. A more aggressive and coordinated strategy to invest in Mongolia’s future is required, one that can compete with China’s deep-rooted partnerships.
The 75th anniversary of diplomatic relations between Mongolia and China underscores a significant realignment in the global order. For Mongolia, China represents a stable, resource-hungry partner willing to invest in the country’s future. For China, Mongolia is a key piece in its effort to secure a dominant position in critical mineral supply chains. Meanwhile, Europe appears to be watching from the sidelines as its potential influence in Mongolia wanes in response to China’s growing control over the country’s vast mineral wealth.
As the global landscape continues to shift, the West risks being left behind. Unless Europe can develop a more compelling strategy to engage Mongolia and other resource-rich nations, it may find itself increasingly shut out from the markets and materials that will define the 21st century.
