Rising commodity prices have made Mongolia's largely unexploited mineral resources—coal, gold, copper, and uranium—attractive investment opportunities for mining companies around the world. But violent protests (NYT) prompted by opposition allegations of fraud in the June 29 parliamentary elections have made the fate of investment deals uncertain. A Central Asia expert and professor at Columbia University, Morris Rossabi, says the protests resulted from growing frustrations—significant income disparity, high levels of unemployment among young males, official corruption, fraying of the social safety net, and alcohol consumption. Rossabi says the political chaos should make foreign companies wary of the kind of investments they make in Mongolia. "Things may stabilize but I don’t foresee that unless the government is more serious about dealing with some of the basic social and economic problems of the country," he says.
Mongolia's neighbor China is its largest trading partner and investor, accounting for around 40 percent of the country's total foreign direct investment. "China is very eager to get access to Mongolia's resources but the question here is not merely economic," Rossabi says. He warns that economic influence often translates into political sway as well. Rossabi says China has been successful in convincing Mongolia to subscribe to some of its ideas about the Dalai Lama and Taiwan. In his opinion, China's growing influence in Mongolia does not bode well for the fledgling democracy nor does it serve U.S. interests. But he says the United States harmed its reputation in Mongolia by pushing tough economic reforms in the early 1990s that led to some of the country's current social and economic problems. "We have to focus on a different kind of approach, still emphasizing democracy," but moving away from limited government and reduced spending on health, education, and welfare.