27.08.2010, newswire, issue 133

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BUSINESS COUNCIL of MONGOLIA NewsWire www.bcmongolia.org [email protected] Issue 133, August 27 2010 NEWS HIGHLIGHTS: Business: Khan Resources claims CAD300 million damages from ARMZ; Leighton sticks to schedule at Prophecy’s Ulaan Ovoo mine; Banks given until August-end to reveal shareholding details; Prophecy Resource nominates new director; Construction of Garrison’s processing plant at Tovshiir “well under way”; General Mining to kick off drilling at Uvs potash project; Mobicom offers online training to 40,000 students; Rio sets changes in China business; Rio Tinto CEO sees tie-ups with China State firms; BHP’s full-year profit doubles on higher metal prices; Intel-McAfee deal bets on building security into hardware. Economy: Investors’ choice to be considered when selecting concession list projects; Ministries ready to begin big construction programs; now money has to be found; Inspection agency checking Central Bank’s audit of Anod before fall; Banks knew what they were doing with gold mine license, says Central Bank official; PM urges quick action on adopting EU norms; Tripartite meeting hints farmers will get more for wheat this year; Minister calls for patience, asserts harvest will lower wheat prices; People worried how the 30% salary raise will affect prices; More Japanese private sector investments likely in large projects; Copper may well be USD10,000 by 2012, analyst says; India rejects Vedanta mining plan on green worries; Rio CEO says Chinese growth may slow to 6% this decade; TPG and Shanghai to create fund in Chinese currency; The yuan three-step; China’s Africa policy “can only be a good thing”, Pretoria says; Great dangers attend the rise and fall of great powers. Politics: Seoul to help Mongolia achieve maritime transportation capability; 17 years’ jail term for passing secrets to China; Government meets today at “deserted” spot in Gobi ; Ninth Bogd gets Mongolian citizenship; Mongolia, U.S. vow to enhance defense cooperation; China, Mongolia stress importance of strong military ties; Mongolia reroutes rail link to avoid China, Group says; Canada’s Ambassador ends term here; Citizens force suspension of railway construction work; Former State Secretary to spend 4 years in jail; N.Korea smuggling banned materials through Mongolia, says Seoul newspaper;

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Page 1: 27.08.2010, NEWSWIRE, Issue 133

BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org

[email protected]

Issue 133, August 27 2010

NEWS HIGHLIGHTS:

Business: Khan Resources claims CAD300 million damages from ARMZ;

Leighton sticks to schedule at Prophecy’s Ulaan Ovoo mine;

Banks given until August-end to reveal shareholding details;

Prophecy Resource nominates new director;

Construction of Garrison’s processing plant at Tovshiir “well under way”;

General Mining to kick off drilling at Uvs potash project;

Mobicom offers online training to 40,000 students;

Rio sets changes in China business;

Rio Tinto CEO sees tie-ups with China State firms;

BHP’s full-year profit doubles on higher metal prices;

Intel-McAfee deal bets on building security into hardware.

Economy: Investors’ choice to be considered when selecting concession list projects;

Ministries ready to begin big construction programs; now money has to be found;

Inspection agency checking Central Bank’s audit of Anod before fall;

Banks knew what they were doing with gold mine license, says Central Bank official;

PM urges quick action on adopting EU norms;

Tripartite meeting hints farmers will get more for wheat this year;

Minister calls for patience, asserts harvest will lower wheat prices;

People worried how the 30% salary raise will affect prices;

More Japanese private sector investments likely in large projects;

Copper may well be USD10,000 by 2012, analyst says;

India rejects Vedanta mining plan on green worries;

Rio CEO says Chinese growth may slow to 6% this decade;

TPG and Shanghai to create fund in Chinese currency;

The yuan three-step;

China’s Africa policy “can only be a good thing”, Pretoria says;

Great dangers attend the rise and fall of great powers.

Politics: Seoul to help Mongolia achieve maritime transportation capability;

17 years’ jail term for passing secrets to China;

Government meets today at “deserted” spot in Gobi;

Ninth Bogd gets Mongolian citizenship;

Mongolia, U.S. vow to enhance defense cooperation;

China, Mongolia stress importance of strong military ties;

Mongolia reroutes rail link to avoid China, Group says;

Canada’s Ambassador ends term here;

Citizens force suspension of railway construction work;

Former State Secretary to spend 4 years in jail;

N.Korea smuggling banned materials through Mongolia, says Seoul newspaper;

Page 2: 27.08.2010, NEWSWIRE, Issue 133

Mongolia is the unsung success story of Asian human rights;

China is seeking to push U.S. forces out of Asian waters;

For China, will money bring power?

*Click on titles above to link to articles.

MONTHLY MEETING RECAP

Whether it was curiosity about a new venue or eagerness to network after a month‘s gap, the monthly meeting on August 23 at Kempinski Hotel Khan Palace brought together a record number of 99 members. They heard Executive Director Jim Dwyer make the happy announcement that membership had reached 160. The 11 of them inducted since the last meeting are:

AMC Consultants, a mining consultancy, providing services exclusively to the minerals sector;

Baker & McKenzie, as of 2009, the fifth largest law firm in the world by revenue;

Connect Resources Services, an Australia-based privately owned investment and investment consulting firm managing engineering and mining service entities;

CPS International, the Mongolian marketing arm of CPS Securities, an Australia-based financial services company;

Europharma, one of the largest pharmaceutical companies in Mongolia;

M.A.D Mongolia, offering assessment of business growth opportunities and a plan to realize those opportunities;

PricewaterhouseCoopers, one of the world‘s ―Big 4‖ assurance, tax and consulting firms that has just established a full-service Mongolian office (a ‗renewal‘ deserving special recognition);

Rodman & Renshaw, a full-service investment bank based in New York City and the leader in the PIPE (private investment in public equity) and RD (registered direct offering) transaction markets;

Runge LLC, providing consulting, training, and software for mining and related services industries;

Snowy Mountains Engineering Corporation (SMEC) Mongolia, an Australia-based engineering and development consultancy in 25 countries with more than 4,000 permanent and contract staff; and

Supply & Allied Services, the major shareholder in SAS-SGT in Mongolia, owning and operating an industrial supplies wholesale/retail warehouse in the country.

The first presentation of the evening was by Ms. E.Sodontogos, General Manager, Discover Mongolia 2010 Organizing Committee. She gave details on what to expect at this much-awaited annual investors' forum this year, to be held on September 8-10. There will be two keynote speakers and, apart from the favorite Government Hour, there will be a Parliament Hour, affording participants a chance to pick the brains of Mongolian lawmakers. Mr. James Polson, Executive Director, Australasian Independent Diamond Drilling (A.I.D.D), discussed the state of the Mongolian mining service sector. Exploration to feasibility study to mine development to actual mining is usually a 5-year cycle and Mongolia is yet to enter the fourth and final stage. The sector is ―in its infancy‖ and will not grow until the Government shifts its ―focus from short-term gains from mining investments‖, and offers tax incentives and easier access to credit. With such support, the sector can fulfill its potential and move beyond meeting domestic demand to exporting its services. Dr. Ch.Khashchuluun, Chairman, National Development and Innovation Committee (NDIC), spoke on the Development Bank of Mongolia and on the proposed Sainshand Industrial Complex, detailing the developments in the Government‘s ambitious and long-term policy of industrialization since he last spoke at a BCM meeting in January. The bidding for the Tavan Tolgoi project will be announced this year and that for the industrial complex next month. Project management companies will be chosen and their views on the viability of specific projects will be decisive. A small copper smelter will be set up at Erdenet. This and other processing units are likely to be owned by foreign investors. The complex will depend

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mainly on locally available raw material and due care would be taken of environmental concerns. The Sainshand project is a concentration of industries at one place, but the strategy is to encourage regional development. Indeed, western Mongolia is more resource-rich than even the Gobi. The most recent confirmation of this was the discovery of large molybdenum deposits there. The Shivee Ovoo coal-based power plant will cost USD4.5 billion to develop. On the other hand, Mongolia is ahead of most developed countries in deriving as much as 1% of its energy needs from sustainable sources. Interestingly, the ICT sector accounts for 9% of the country‘s GDP. USD14 million has been allocated to the establishment of the Development Bank. Its main job will be to provide long-term capital to finance strategically important projects. To ensure transparency in its operations, management will be in the hands of an international team of professionals and, even more, Mongolian members of the governing board will include people ―usually most critical of whatever the Government does‖. The last presentation was by Mr. Larry Marchese, e-Signature Consultant, USAID Economic Policy Reform and Competitiveness (EPRC). His topic was a digital signature law that would be Mongolia‘s gateway to the global digital economy. The Government had prepared the draft of such a law and EPRC has revised it to make it compliant with global standards and practices.

BUSINESS KHAN RESOURCES CLAIMS CAD300 MILLION DAMAGES FROM ARMZ Khan Resources said on Friday last week it has filed a statement of claim with the Ontario Superior Court of Justice, seeking damages of CAD300 million from Russia's State-owned uranium miner Atomredmetzoloto (ARMZ) and its subsidiary JSC Priargunsky Industry Mining and Chemical Union. The claim, brought by Khan and certain of its subsidiaries, seeks damages ―resulting from their breach of fiduciary duties as one of Khan's joint venture partners and a shareholder of CAUC, general damages resulting from their unlawful interference with the plaintiffs' economic relations, general damages resulting from their deliberately causing damage to Khan's and its subsidiaries' rights, business reputation and property and aggravated, exemplary and punitive damages‖. The statement of claim alleges, among other things, that the harmful conduct of ARMZ and its affiliates, namely in seeking to establish a joint venture with the Government of Mongolia over the Dornod uranium region without regard to Khan's rights and interests, impugning the legitimacy of Khan's interests in Mongolia, interfering with its economic relations with MonAtom LLC, and interfering with the competing and superior take-over bid by CNNC Overseas Uranium Holding Ltd., all with the goal of eliminating Khan's interests in Mongolia, has caused Khan, its subsidiaries and its shareholders substantial damage. Khan ―had no choice but to pursue a formal claim in order to try to protect Khan's rights and interests and seek compensation for the significant damage we believe Khan has suffered,‖ CEO Grant Edey said in a statement. "ARMZ has made no secret of its desire to acquire control of the Dornod uranium property in Mongolia," he said. Khan's main asset is a 58% stake in the Central Asian Uranium Company (CAUC), which in turn holds rights to the Dornod uranium project, in Mongolia. ARMZ owns 21% of CAUC though JSX Priargunsky, and the Mongolian Government holds the balance. Last year, ARMZ launched a hostile offer for Khan, which the Canadian junior rejected as opportunistic. ARMZ backed off the offer in February, after Khan agreed to be acquired by China National Nuclear Corp (CNNC), although that deal was later broken off. Khan alleges that ARMZ sought to set up its own joint venture with Mongolia to develop Dornod, and also interfered in the CNNC deal. It also suggests that the Russian firm was involved with the license problems the company has had in Mongolia.

Source: RTTNews, Mining Weekly

LEIGHTON STICKS TO SCHEDULE AT PROPHECY‟S ULAAN OVOO MINE Prophecy Resources has announced that Leighton Asia, with which it has a mine services agreement, has established on schedule the required infrastructure and deployed all necessary equipment and manpower to execute long term mining operations at Prophecy's 100% owned Ulaan Ovoo Coal Project, Northern Mongolia. Ulaan Ovoo site establishment commenced on July 13, 2010 to ensure that the commissioning of the 250,000-ton starter pit will take place in September 2010, as planned, with 57,500 tons in the first month ramping up to 100,000 tons per month by December 2010. Altogether 49 Mongolians were employed in the work. Prophecy has been informed that the Russian and Mongolian governments have agreed to open the

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Zeltura border crossing on a permanent basis. Zeltura port is 15 km by road from Ulaan Ovoo mine site and could bring down transportation costs significantly. The exact timing of the border opening is not known at this time. Off-take discussions are on-going with parties who have expressed written interests to procure coal directly at the mine site. Prophecy has also formally invited government site inspection, which is required prior to mine-starting.

Source: Prophecy Resource Corp.

BANKS GIVEN UNTIL AUGUST-END TO REVEAL SHAREHOLDING DETAILS Mr. N.Zoljargal, Vice President of the Central Bank, has given commercial banks until the end of August to reveal the identity of their principal shareholders, the pattern of shareholding and similar details enjoined by law. After that date, the Central Bank will be free to disclose these from its own records.

Source: Undesnii Shuudan

PROPHECY RESOURCE NOMINATES NEW DIRECTOR Prophecy Resource Corp. has nominated for appointment to its Board of Directors Mr. Paul Venter, a seasoned professional with over 30 years experience in the mining-, power generating, and transport industry. In 2006 he extended his focus to expand the business of a major strategic player in the coal and power generating industry in Russia, China and Mongolia. Mr. Venter has been associated with Prophecy since it commenced its Mongolian operations and has contributed to its accelerated path to coal production and in initiating thermal power generating opportunities.

Source: Prophecy Resource Corp.

CONSTRUCTION OF GARRISON‟S PROCESSING PLANT AT TOVSHIIR “WELL UNDER WAY” The construction of the processing plant building on site at Garrison International‘s Tovshiir Gold Project is well under way with all concrete foundation footings and beams installed, concreted and welded in place. All steel upright columns and roof beams, including C-channels have also been installed. Insulated wall and roof panels will be installed soon. Preparatory work has commenced on the ball mill foundation with the foundation pit formed and ready for concreting with the formwork being built to be equipped for fast pouring. The ball mill has now been obtained from storage in Ulaanbaatar and is ready for transport to the site. A rigorous soil sampling program is also under way and an agreement has been made with an accredited assay laboratory in Mongolia to conduct all analysis work on the soil samples.

Source: Garrison International Ltd.

GENERAL MINING TO KICK OFF DRILLING AT UVS POTASH PROJECT Perth-based General Mining is to commence drilling in September at its fully-owned Uvs Basin potash project in Mongolia, once all necessary approvals are received. The project comprises 5 granted exploration licenses covering more than 2,000 km2 within the Uvs Nuur Basin that is considered prospective for bedded and domal (salt diapir) potash deposits as well as for lithium and potassium brines. Some rock salt, soda ash and gypsum deposits and base metal occurrences have been discovered within the Uvs Basin and limited drilling at the northern periphery of the basin in the 1950-60s intersected shallow potash mineralisation in up to 600 m thick Devonian evaporates. These drilling results from the Russian part of the Uvs Nuur Basin confirm the prospectivity for solid potash and/or potassium brine deposits. The company has commissioned a drilling contractor to commence structural drilling of a series of drill holes at these circular features to a depth of about 150 m and totaling 1,200 line meters. If confirmed by this structural drilling, salt diapir structures could become a priority target for subsequent specialized exploratory drilling aiming at the domal type of potash deposits.

Source: Proactive Investors

MOBICOM OFFERS ONLINE TRAINING TO 40,000 STUDENTS As part of its ―Mobi aspiration program: Helping our youth have their dream come true‖, Mobicom Corporation will offer online training to students at 19 high schools in Bayanzurkh district in Ulaanbaatar in the ensuing academic year. The company handed over equipment and software programs worth MNT500 million to the schools at a well-attended ceremony on August 23. The program is aimed at training students in online administration and monitoring and in setting up a database for use in their school and during the training. Over 1,600 teachers will receive 160 hours

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of training to implement the program that will cover 40,000 students. Source: Udriin Sonin

RIO SETS CHANGES IN CHINA BUSINESS Rio Tinto has made operational changes in China as a result of the criminal convictions this year of key staff members on charges they took bribes and illegally procured commercial secrets from China's steel industry. CEO Tom Albanese told reporters in Shanghai that the case prompted the Anglo-Australian miner to take a comprehensive, internal look at its Chinese operations. "Recommendations from that review have been put in place," he said. "We all have to learn from our experiences." He declined to detail how Rio Tinto is doing business differently now. Analysts said China's case appeared politicized following Chinese complaints about the company's pricing policies and other matters and that the trial was opaque. But few have doubted admissions by the salesmen that they took multimillion-dollar bribes to steer allocation of iron ore. Citing intolerance to bribery, Rio Tinto fired the executives shortly after their convictions. Last year, even before facts of the case were known, Mr. Albanese said it was a top personal priority to tighten bonds in China. Last week he delivered a humble-sounding speech in Shanghai to several hundred metals-company executives, including several from Chinese companies, saying "We seek to develop mutual respect and trust." Read more… Later, in his first meeting with reporters in China since this year's trials, Mr. Albanese was reluctant to talk about it. He was more comfortable discussing Rio Tinto's desire to move its relationship in China beyond sales of minerals and begin exploiting resources alongside Chinese companies, anywhere. "The key for what we want to do in China is develop long term relationships," he told reporters. As one a handful of companies with access to minerals that China needs like iron ore, copper and diamonds, Rio Tinto is among the most profitable foreign companies operating in the country, with annual sales in China approaching USD11 billion. The company's largest shareholder, with 12%, is Aluminum Corp. of China, or Chinalco, which recently agreed to co-develop an ore project in West Africa.

Source: The Wall Street Journal Asia

RIO TINTO CEO SEES TIE-UPS WITH CHINA STATE FIRMS Rio Tinto hopes to see further cooperation with China's state-owned firms after its tie-up with Chalco, China's largest aluminum producer, CEO Tom Albanese has said, adding his company was willing to help China seek mineral resources at home and abroad. "The partnership with Chalco opens the potential for further cooperation with China's State owned enterprises, focused on assisting China to achieve its goal of securing a sustainable supply of raw materials over the long term," Mr. Albanese said in a speech at a mining industry event in Shanghai. Mr. Albanese has moved to repair ties with key market China by forging wider business relationships and appointing new executives to the country after a trial earlier this year convicted four Rio Tinto employees of taking bribes and stealing commercial secrets, handing out sentences ranging between 7 and 14 years in prison. "I do believe that Rio Tinto's long experience in exploring for and finding mineral resources around the world could usefully be brought to bear to supplement China's own effort," Mr. Albanese said. "I also see opportunities for us to team up with Chinese companies to explore outside China, bringing both companies' strengths to the project."

Source: Reuters.com

BHP‟S FULL-YEAR PROFIT DOUBLES ON HIGHER METAL PRICES BHP Billiton Ltd., the world‘s largest mining company, has reported its full-year profit to be more than double last year‘s. Net income was USD12.7 billion for the year ended June 30, from USD5.9 billion a year ago, the Melbourne-based company has said. That missed the USD13.3 billion average estimate of 15 analysts, but compares with 2008‘s record USD15.4 billion. The company joined competitors Anglo American Plc, Xstrata Plc, Vale SA and Rio Tinto Group in reporting an increase in profit in the past month as the economic recovery pushes up commodity demand and prices.

Source: Bloomberg.com

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INTEL-McAFEE DEAL BETS ON BUILDING SECURITY INTO HARDWARE Intel Corp. has agreed to buy security-software specialist McAfee Inc. for USD7.68 billion, a surprise transaction designed to jump-start the chip giant's uphill effort to move its technology beyond computers. The deal, the largest in Intel's 42-year history, sent off shock waves on Wall Street and in Silicon Valley because of a lofty 60% premium and worries that Intel is moving far beyond its expertise in designing computer chips. Some industry observers said Intel could face concerns that the combination could hurt McAfee's competitors in antivirus software. The move comes just two weeks after Intel settled an antitrust probe by U.S. regulators over the company's dealings with computer makers. But Intel executives argued growing security dangers require new measures, describing the acquisition as an essential step to design chips and other hardware that can protect systems better than software alone. While antivirus software from McAfee, Symantec Corp. and others have slowed the spread of such rogue programs, computer systems run by companies and government agencies face thousands of attacks every day. Meanwhile, products such as smartphones and Internet-connected TVs have been slow to adopt comparable security measures—and potential weaknesses could multiply as Internet connections are added to new devices, including home appliances, office equipment and industrial machines. The pact is another sign of consolidation that is reshaping the technology landscape. Cash-rich tech giants are using acquisitions to push into faster-growing markets, in some cases moving out of their strongholds to create new combinations of hardware and software.

Source: The Wall Street Journal Asia

ECONOMY INVESTORS‟ CHOICE TO BE CONSIDERED WHEN SELECTING CONCESSION LIST PROJECTS Mr. J.Bat-Erdene, State Secretary at the Ministry of Road, Transportation, Construction, and Urban Development, says the 95 items on the list of concessions earlier ratified by the Government have since been broken down into 124 after suggestions from the State Property Committee and several Ministries. Investments in these will now be invited, so that work can begin without any demands on the State budget. The list embraces a wide range of projects, from infrastructure to repair of monasteries to road building to setting up industry in the Sainshand complex to putting up apartments, to building railway. The Government has prioritized the work to be done in 2010-2012 but will give due consideration to investors‘ choices when identifying any specific project to be undertaken. The total capital required is estimated to be MNT15 trillion or around USD10 billion. Mr. Bat-Erdene said investors will be selected through competitive tenders, the specific parameters of which will soon be published. The State Property Committee will have a key role in the entire exercise. Asked about the status of the proposed international airport in Khushig valley in Tuv province, he said the initial cost estimate made in 2005 was 21.9 billion yen but this has now increased substantially. Final figures are being discussed among the Ministry of Finance, the consultancies, and the Japanese Government. Denying that there is any possibility of the project being abandoned disagreements on cost, the official said there was a likelihood that some parts of the complex, like the cargo handling facilities, some offices, and the monitoring tower will be built with Mongolian investment. Tenders are scheduled to be announced at the end of 2011.

Source: Udriin Sonin

MINISTRIES READY TO BEGIN BIG CONSTRUCTION PROJECTS; NOW MONEY HAS TO BE FOUND Minister of Road, Transportation, Construction and Urban Development Kh.Battulga and Minister of Mineral Resources and Energy D.Zorigt have reported to the Government their readiness to begin implementing several construction projects approved by it as part of the National Developmental Strategy, the Government‘s Action Plan for 2008-2012, as well as others approved by Parliament. Most important among these are the 100,000 Apartments program and a project to connect 96 districts with one another by constructing 5,572 km of roads, including 990 km of expressway. The programs for Ulaanbaatar include repair of 350 km roads and construction of 212 km of new roads and seven flyovers. The techno-economic feasibility study of building the first stage of the new railway is also ready. Mr. Zorigt said Erdenes MGL, which holds the mining license for Tavan Tolgoi, has begun extraction and his ministry is working an improving the quality and capacity of work at border checkpoints. The Government would take a decision on beginning work on these after arranging for finances. It is likely that revenue from mining would be pledged against the required investment. Prime Minister

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S.Batbold underlined that all stages in the implementation must be open and the quality of the work must be ensured. He added that all decisions must give priority to furthering national interests.

Source: Montsame

INSPECTION AGENCY CHECKING CENTRAL BANK‟S AUDIT OF ANOD BEFORE FALL Observers have always been baffled by the suddenness of the fall of Anod Bank. The Central Bank conducted the mandatory annual audit of its accounts every year for seven years and never found any cause for concern, until it said the bank was in deep trouble, suspended operations, appointed its own man to run the bank, and finally allowed it to go into liquidation. Something similar happened in the case of Zoos Bank, too. Was there then something wrong with the way the Central Bank, the watchdog of the banking sector, monitored the errant ways of those under its charge? Was the failure to take remedial action in time deliberate, done for a consideration? These questions have long racked people‘s mind. Now everything could be revealed. The State Specialized Inspection Agency has been scrutinizing the details of past audits by the Central Bank to detect how warning signs managed to go undetected.

Source: Udriin Sonin

BANKS KNEW WHAT THEY WERE DOING WITH GOLD MINE LICENSE, SAYS CENTRAL BANK OFFICIAL The Director of Inspection at the Central Bank, Mr. B.Lhagvasuren, has said they are still pursuing many loans issued by Anod Bank under dubious circumstances and hope to get some of them paid back. He said the Mongol Gazar Company had taken several large loans from several sources by offering its Olon Ovoot gold mine‘s license as collateral. The total amount it borrowed was around MNT200 billion, including MNT10 billion from Anod Bank, MNT70 billion from Zoos Bank, and from others like Goldman Sachs. The Central Bank is now negotiating with the Just Group that operates Olon Ovoot on how the debts can be repaid with revenue from the mine. Asked why the Central Bank never intervened when a company took several loans against the same collateral, Mr. Lhagvasuren said a study of the relevant papers makes it clear that all the concerned banks were well aware of the borrower‘s debt situation, but decided to take the risk of giving the company a fresh loan knowing that the property now being mortgaged had already been pledged to another bank. The Central Bank cannot intervene in such cases, as every bank is a private organization that works for profit and should be free to take its own business decisions, based on its own risk perception.

Source: English.News.mn

PM URGES QUICK ACTION ON ADOPTING EU NORMS First Deputy Prime Minister N.Altankhuyag wll lead the working group set up last week to expedite introduction of European Union (EU) standards in all spheres of economy and business in Mongolia. Prime Minister S.Batbold has urged the group to lose no time in updating an existing draft plan to formulate a policy on how quickly to adopt EU principles, norms and standards. The Prime Minister himself and some other Ministers have already prepared some suggestions on how this can be done. Several former socialist countries in Europe could join the EU only after meeting EU standards. The Prime Minister wanted the group to study how they managed to do this. ―Mongolia and these countries used to have the same political system and began their transition almost at the same time. So our experience has been similar and we can do things they have already done,‖ he said, adding that EU countries are ready to help Mongolia. The matter, he said, was urgent as the EU was willing to consider ―our desire to have a comprehensive cooperation agreement with it‖ but insists on Mongolia adopting EU standards, norms and principles. Having the agreement will greatly benefit Mongolia, so fast progress has to be made on this condition. How serious the Prime Minister is about the issue was seen when, at a meeting with a German delegation led by Mr. Dirk Niebel, Minister for Economic Cooperation and Development, Mr. Batbold raised the issue and said adoption of EU norms would help develop responsible mining practices and improve capability in all spheres. "I expect the success of this measure to help protect the environment, create an open, just, responsible and sustainable society, and improve governance," he said. Source: Montsame

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TRIPARTITE MEETING HINTS FARMERS WILL GET MORE FOR WHEAT THIS YEAR There has been no official announcement, but indications are that farmers will get MNT350,000 per ton for their wheat this year. That would mean the price of flour would reach MNT650 per kilo or 30-40 percent more than the MNT480 set by the government. A recent meeting of wheat farmers, flour manufacturers and ministry representatives to decide on prices was marked by differing perceptions and conflicting data. Flour manufacturers said they needed better quality wheat while the growers worried about their problems of transportation. Apart from the MNT350,000 per ton that seems likely to be the decision, farmers will get some more money as incentive from the Government. Last year this was MNT60,000 per ton, and farmers are hoping for more this year. They also want the incentive to cover wheat grown for animal feed, and not just for what is consumed by humans and used to make flour. The Ministry representatives did not make any commitment. Incidentally, the Government last year bought wheat for MNT330,000 per ton, including the incentive, but is now selling it to some companies for MNT220,000.

Source: Ardiin Erkh

MINISTER CALLS FOR PATIENCE, ASSERTS HARVEST WILL LOWER WHEAT PRICES Mr. T.Badamjunai, Minister of Food, Agriculture, and Light Industry, has asked people to be patient for just a few weeks for wheat and flour prices to fall after the harvest. This year wheat is being grown on more than 350,000 hectares, considerably more than last year, and the harvest should be adequate to meet domestic needs. He explained the need to import flour by saying that only a special type of wheat can be made into flour and in previous years there was not enough Mongolian wheat with the required ―stickiness‖. However, this has been taken care of this year. Referring to the recent wheat price increases despite the Government‘s claims that supply met demand, Mr. Badamjunai said this was a seasonal and short-lived phenomenon and the new crop will see a fall in prices. However, he warned, even domestic prices will in some way have to reflect international market rates.

Source: Zuunii Medee

PEOPLE WORRIED HOW THE 30% SALARY RAISE WILL AFFECT PRICES The 30% rise in salaries and pensions to take effect on October 30 will benefit 148,223 government employees, but the rest of the country is worried about the effect this may have on prices. Parliament has included MNT78.2 billion this year on this account in the budget. The money is expected to come from the next installment of the Oyu Tolgoi advance payment. The cost of the increase will amount to MNT300 billion in a full year. The budget also has to provide for distribution of the motherland allowance. If a family has five members, and one of them is a state employee, it will receive MNT50,000 per month from the Human Development Fund and the 30 percent rise in one person‘s salary. The average salary now is MNT300,000, so the average rise will be MNT90,000. This means the income of the family will be up by MNT120,000. That is a tidy sum for an individual family, but it is anybody‘s guess how much of this will be eaten up by the anticipated price rise. One can only hope that the nation in general does not end up suffering because government employees had to be satisfied.

Source: English.News.mn

MORE JAPANESE PRIVATE SECTOR INVESTMENTS LIKELY IN LARGE PROJECTS During his recent visit to Japan Minister for Mineral Resource and Energy D.Zorigt and his hosts agreed that expanded private sector investments in the biggest projects should be encouraged and facilitated. Arrangements will be made to train workers and to develop comprehensive collaboration in introduction and use of new techniques and technology in many sectors. Joint research on geological resources in Mongolia will begin and the Japan Bank for International Cooperation (JBIC) will consider increasing the quantum of development assistance to Mongolia.

Source: Montsame

COPPER MAY WELL BE USD10,000 BY 2012, ANALYST SAYS Going back a year or so, who would have predicted a jump in the copper price from a little below USD3,000 a ton to the current USD7,440 a ton in a matter of 20 months (a rise of around 150%)! Thus a prediction from Credit Suisse analyst Michael Shillaker, of USD10,000 a ton in 2012 - a mere 34% increase - which has caught the headlines, is hardly as bullish a forecast as many would have us believe. Indeed copper has already touched close to USD9,000 a ton back in the heady days of 2008 before the bottom fell out of the market. Viewed in such terms the bullish prediction is certainly

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not out of line assuming Mr. Shillaker's demand assumptions are in any way reasonable. Mr. Shillaker's analysis is predicated primarily on a further surge in Chinese growth. He suggests that the recent signs of a slowdown in the Middle Kingdom‘s economy have just been a bottoming out from a government instigated cooling, designed to try and control inflation, and expects there will be a further surge in economic growth, starting in the latter part of the current year which will carry on throughout 2011. Indeed if this is coupled with any kind on meaningful industrial recovery in the West, then one suspects USD10,000 copper could even be a conservative estimate, particularly given supply constraints in the sector. Not only does Mr. Shillaker feel that copper will be a major beneficiary of this upturn, but also other mined commodities, with bulks, like iron ore and coal benefiting strongly, as well as the other base and industrial metals, although he feels that copper's fundamentals are the strongest. He is also quoted as saying that this suggests a big rise in mining company share prices over the next two years, looking for around a 30% increase overall by the year end and as much as 100% or more for some stocks over the next two to three years. But, this all rests on continuing Chinese growth and a slow return to normality in the West - neither of which are certainties so although the odds may favour a strong period for metals prices ahead, this is by no means a foregone conclusion.

Source: Mineweb.com

INDIA REJECTS VEDANTA MINING PLAN ON GREEN WORRIES India has rejected a plan by UK-based mining group Vedanta Resources Plc to mine bauxite over environmental concerns, a blow to the firm already facing hurdles to a planned USD9.6 billion energy deal in the country. The decision comes after about four years of a global campaign against Vedanta's plan to mine in Orissa state that the government says could affect large swathes of forested hills considered sacred by indigenous tribes. Vedanta set up a 1-million-tonne alumina refinery in Orissa in 2008 which was running on bauxite from a neighboring state while it awaited a mining lease closer to the plant to help cut operating costs. "There have been serious violations of environment protection acts," Environment Minister Jairam Ramesh told reporters. "There is no emotion, no politics, no prejudice ... I have taken the decision in a purely legal approach." Vedanta is among several top corporations, including South Korea's POSCO, whose Indian projects face delay as a proactive environment ministry tightens rules that often brings it in conflict with other government ministries pushing for rapid industrialization. Mr. Ramesh wants to protect and expand India's remaining forest land as part of a strategy to fight climate change, but that could mean giving up mining about a quarter of the country's mineral reserves, needed to power Asia's third-largest economy.

Source: Reuters.com

RIO CEO SAYS CHINESE GROWTH MAY SLOW TO 6% THIS DECADE Rio Tinto Group Chief Executive Officer Tom Albanese sees economic expansion in China, the biggest metals user, slowing to as low as an annual 6 percent this decade after a 30-year run of average 10 percent growth. ―We should temper our forecasts with the thought that nothing is forever,‖ Mr. Albanese said. ―China‘s growth rates, as amazing as they are, are bound to flatten.‖

Source: Bloomberg

TPG AND SHANGHAI TO CREATE FUND IN CHINESE CURRENCY TPG, one of the world‘s biggest private equity firms, is teaming up with the Shanghai municipal government to raise USD735 million and create its first fund denominated entirely in Chinese currency. The company, which has about USD57 billion in assets under management worldwide, said it was time to move into China‘s currency, the renminbi. The announcement comes as some of the world‘s biggest private equity firms, including the Blackstone Group and the Carlyle Group, have already scrambled to raise huge funds denominated in the renminbi. Analysts say the moves are a reflection of the growing importance of the Chinese currency, but also a sign that global funds are eager to tap the enormous pools of wealth now forming in the fast-growing Chinese economy. China‘s central government is encouraging the shift, hoping the renminbi investments will help strengthen the nation‘s capital markets and create a more efficient system for allocating capital to private Chinese companies. This is part of China‘s plan to strengthen its financial services industry and transform cities like Beijing and Shanghai into global financial centers that can some day compete with New York, London, Tokyo and Hong Kong.

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By teaming up with the government, private equity firms believe they stand a better chance of getting speedier investment approvals and gain access to huge pools of state capital. TPG said the new renminbi fund would be able to invest in areas previously restricted by the government. And because regulators recently agreed to allow insurance companies to invest a portion of their money in private equity, the incentives for creating a local currency fund were now incredibly attractive, TPG said.

Source: The New York Times

THE YUAN THREE-STEP The global financial crisis has sparked many calls for regulatory improvements to prevent such a disaster from happening again. But while those discussions continue in forums such as the Group of 20, one major economy is embarking by itself on monetary reforms that will diversify the world's monetary system. By allowing the use of its currency beyond its borders, China is taking steps that will eventually allow it to participate in the creation of a more stable financial architecture. Beijing has said it will allow offshore banks and institutional investors to invest yuan they accumulate through a recently announced trade settlement scheme into the mainland interbank bond market. Beijing also recently expanded the number of provinces where companies are allowed to settle international trade and services transactions in yuan instead of dollars. Although the pilot programs are relatively small, significant change is afoot. These measures are billed mainly as reforms to facilitate international trade, but they have a bearing on several global macroeconomic anomalies that contributed to the financial crisis. China is the world's largest exporter and now the second-largest economy, yet it is the only major trading nation that does not trade and settle in its own currency. Meanwhile, Beijing still maintains capital controls that involve sterilizing the flow of money into the economy. Since so much of China's trade is denominated in dollars, the government must accumulate huge dollar reserves, which now constitute the bulk of China's total USD2.45 trillion in foreign reserves. Since this money is reinvested mainly in U.S. securities, it artificially increased the U.S. money supply and helped lower interest rates during the bubble years. In all these steps Hong Kong will play a key role. It is both geographically close to China with many businesses that trade with the mainland, and a distinct market with its own economic regulations and a highly developed financial system. That makes the territory an ideal testing ground for yuan internationalization. What at first might look like small steps affecting only Hong Kong could have major ramifications for the international monetary system down the road. Read more… Other effects are also important. For instance, the combined market capitalization of the Shanghai and Shenzhen stock exchanges is the fourth-largest in the world after NYSE, Tokyo and the Nasdaq. Yet because these markets are sealed off behind capital controls, their price-discovery process is isolated from the rest of the world's equities and futures markets. While nobody seriously doubts the dollar will remain the dominant international reserve currency for a long time to come, allowing a greater role for the yuan in international trade still will help alleviate some of the pressures that excess reliance on the dollar has created. The question for policy makers in Beijing is how to achieve that result with minimal risk or disruption—not a small concern given the significant ramifications of such a major monetary change. The most likely path is a three-step process toward creating a truly international, liquid market for yuan offshore—and the experience in Hong Kong shows how this will work. The expanded yuan trade-settlement scheme is part of the first step: the circulation of yuan liquidity outside the mainland. Before Beijing started the pilot program, there were very few legitimate paths for yuan to the outside world. Until that happened, it was impossible for businesses and regulators to test the yuan as a unit of account for international transactions. As a sign that the trade settlement scheme is gaining traction, yuan deposits in Hong Kong have grown 50% to nearly USD13.3 billion at the end of June from six months earlier. The second step is for the offshore reservoir of yuan to increase in both width and depth. This involves allowing these offshore funds to circulate freely and widely outside the mainland. Hong Kong took a big step in this direction a month ago when restrictions on bank transfers of yuan funds between individual accounts were lifted. This has led to the development of a nascent offshore yuan asset market. McDonald's and Hopewell Highway Infrastructure issued yuan bonds, marking the first time foreign companies have raised funds in yuan offshore. In another first, Haitong Securities in Hong Kong offered an offshore 5 billion yuan fixed-income fund to the public. These developments will test the yuan's suitability as a reserve currency—money in which people feel confident investing. In that respect, it's significant that the yuan bonds have been very popular

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with institutional investors. The third step is to allow offshore yuan to flow back into the mainland in a controlled and regulated manner that doesn't raise concerns about hot-money flows. The recent announcement falls under this heading. Beijing also is considering allowing yuan securities funds in Hong Kong to access the mainland's listed fixed-income and equity securities under a quota system. Beijing would probably like to see a vibrant offshore market in Hong Kong to test the acceptability of yuan among international investors before considering how and at what pace it would liberalize its own capital account. In the process, Hong Kong can cushion some of the hot-money flows in pursuit of yuan assets.

Source: The Wall Street Journal Asia

CHINA‟S AFRICA POLICY “CAN ONLY BE A GOOD THING”, PRETORIA SAYS South Africa‘s trade minister Rob Davies has welcomed China‘s surging investment in Africa, saying that Beijing was not pursuing a neocolonial policy and its growing interest in the continent would bring huge benefits. The trade minister is part of a delegation led by South African President Jacob Zuma that includes almost 400 business executives and 11 cabinet members, the biggest group yet to accompany a South African leader abroad. Mr. Davies said China‘s rapidly expanding African presence ―can only be a good thing‖ because it meant increased competition between developed and developing countries in their pursuit of resources and influence in Africa. ―We don‘t just have to sign on the dotted line whatever is shoved under our noses any longer; we now have alternatives and that‘s to our benefit,‖ Mr. Davies said. These comments contrast with statements by Mr. Thabo Mbeki, former South African president, who said three years ago that Africa risked falling into a ―colonial relationship‖ with China. Mr. Zuma, who has been far friendlier towards Beijing, told a Sino-South African business forum in Beijing that ―China is indeed a key strategic partner for South Africa, and South Africa is open for business in a big way‖. China has many supporters in Africa, particularly among ruling elites who often benefit personally from its allocation aid and investment without attaching conditions. But Beijing also has many African critics, and Chinese companies and workers have been targets of animosity and violence in places such as Algeria, Angola, Democratic Republic of Congo and Zambia, where they have a growing presence. Read more… Critics in the U.S. and Europe point to Beijing‘s support for unsavory governments in places such as Sudan and Zimbabwe and its willingness to ignore governance, human rights and the environment in pursuit of resources. Mr. Davies said the appropriate response to western critics who say China is pursuing neocolonialist power was that ―it takes one to know one‖. ―We‘re trying to encourage much more value-added trade and investment with China but right now there is a preponderance of raw materials exports to China and a preponderance of value-added goods coming from China to South Africa,‖ Mr. Davies said. South Africa is hoping for more Chinese investment in railways, the power grid and other infrastructure and also wants to convince Chinese companies to set up more manufacturing in the country.

Source: The Financial Times

GREAT DANGERS ATTEND THE RISE AND FALL OF GREAT POWERS Shakespeare‘s Julius Caesar wanted to have men about him who were fat because lean and hungry men were dangerous. If the same principle applies in international relations, this week‘s news that China has overtaken the world‘s second-largest economy, Japan, in terms of nominal gross domestic product should be welcome to the rest of the world. Yet nominal GDP is unfortunately a poor guide to what constitutes a satisfied, unthreatening state. Per capita income is a better, if imperfect, pointer. And since China‘s per capita income of $3,678 is still less than a 10th of Japan‘s, Caesar would have drawn little comfort from this watershed, given that China clearly remains a very poor country despite its spectacular recent growth rate. It is a discomfiting historical fact that great power shifts in the global economy are dangerous. They have tended to coincide with extreme financial dislocation, currency turbulence and trade friction. This is because the aspiring new boy on the block is usually a protectionist-inclined creditor country that is reluctant to shoulder international responsibility commensurate with its economic strength. Consider the transition from British to U.S. hegemony after the First World War. From 1918 the U.S. rejected the Versailles treaty, opted out of the League of Nations and had nothing to do with German reparations, although it collected war debts from the allies. Britain‘s liberal attitude to

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trade allowed the U.S. to run a big trade surplus. Meantime, the young and inexperienced Federal Reserve pursued lax monetary policies in the Roaring Twenties while unwisely trying to prop up the ailing pound. When the Fed belatedly pricked the resulting bubble in 1929, the Jazz Age came to an abrupt end, banks collapsed and the depression ensued. As the U.S. exported its problem of deficient demand to the rest of the world, it failed to provide leadership to prevent an outbreak of disastrous competitive devaluations and was unwilling to act as a global lender of last resort to collapsing banks. The next case in point is postwar Japan. Japanese economic growth was export-led, fueled by an undervalued yen and subsidies for exporters. It was a model that worked as long as Japan was not a significant economic power. Yet by the late 1960s Japan was the second largest economy in the world. It was also running a huge trade surplus with the U.S. There is, then, a Chinese policy impasse. How does the world escape from its dire potential economic consequences? One scenario might be muddle-through: the U.S. responds to an impending economic slowdown with looser fiscal and monetary policy, at the cost of racking up more debt and a crunch later on. Another would see U.S. fiscal conservatives prevent budgetary loosening, while monetary policy remains lax. This would cause the U.S. current account deficit to shrink sooner rather than later. Either way, the risks of a protectionist backlash against China would rise. Under either scenario, the world‘s creditor countries would ultimately see their chief market dry up. The main difference is in the timing. When, you might well ask, will the creditors wake up? Read more... International efforts to address imbalances and stabilize an overvalued dollar in the Reagan era had unintended consequences – not least that Japanese intervention in the yen-dollar rate had the same bubble-inducing outcome as the Fed‘s efforts to prop up sterling in 1927. The pricking of the bubble led to 20 years of economic stagnation. China‘s challenge to the U.S. is similarly export-led and its current account surplus is the biggest contributor to the Eurasian savings glut that led to the credit bubble and the global imbalances behind the financial crisis. Yet despite its success, China‘s economic model generates wasteful over-investment and under-delivers to ordinary people, who have the lowest share of private consumption in GDP in Asia. In a country that enjoys double-digit growth rates, employment growth has been running at a paltry 1 per cent a year, while real returns on savings are negative. As with Japan at its peak, the economy delivers a poorer quality of life than the per capita income figures suggest, with pollution, adulterated food and bad employment conditions posing threats to health. China‘s export-led growth, fueled by an undervalued renminbi, has been possible only because the US and other deficit countries have been willing to run up large debts to finance household consumption and now government spending. The snag is that the resulting imbalances are not sustainable because the point of debt exhaustion is close. Yet as Charles Dumas of Lombard Street Research argues in Globalisation Fractures, a new book on the incompatibility of the policies of the leading industrial countries, the policy response to the crisis has been too narrowly focused on financial issues rather than global imbalances. What is needed globally is for both debtor and creditor countries to rebalance their economies. The debtors need to tidy their balance sheets, while the creditors need to bump up domestic consumption, let currencies float and reduce export dependence. This would also be in China‘s own interest because its economy is in disequilibrium. It cannot, among other things, prevent inflation and asset-price bubbles while running an artificially low exchange rate. Yet the obstacles to change are formidable. The key to rebalancing towards consumption, says Mr. Dumas, may be relaxation of government control over its citizens, which is unlikely to happen. There are also powerful lobbies against change, not least the inefficient producers who have been featherbedded by a cheap currency and whose economic survival depends on continuing undervaluation.

Source: The Financial Times

POLITICS SEOUL TO HELP MONGOLIA ACHIEVE MARITIME TRANSPORTATION CAPABILITY South Korea plans to help Mongolia to build up maritime transportation capability in exchange for gaining access to the landlocked country's abundant natural resources. The Ministry of Land, Transport and Maritime Affairs said Seoul aims to train sailors, share commercial maritime management systems and allow Mongolian ships to use its port facilities. The move will be carried

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out alongside current efforts to enhance overall logistics networking in Northeast Asia that can create new business opportunities for local companies. South Korea possess the world's fifth-largest commercial shipping fleet, while Mongolia is considered one of the top 10 producers of various natural resources such as coal, copper, molybdenum and uranium. "Under the scheme, Mongolian natural resources can be moved by rail and ship to South Korea where they will be shipped out to other countries," a ministry official said. He added this relationship could be a win-win arrangement since Mongolia can diversify where it sells its natural resources and create an indigenous maritime transportation industry that can lead to more jobs vital for sustained economic growth. For South Korea, closer cooperation with Mongolia can allow it to gain access to natural resources and win orders for vessels and ship-related financial services down the road. The ministry, in addition, said that Seoul also can assist Mongolia secure the use of foreign ports in China and Russia so it can better export its resources.

Source: Bernama.com

17 YEARS‟ JAIL TERM FOR PASSING SECRETS TO CHINA Mr. Ts.Jargalsaikhan, advisor at the Foreign Relations Department of Parliament, has been sentenced to 17 years in prison for passing on through email to Chinese officials secret documents related to the Speaker‘s visit to Russia. He is the son of Mr. D.Tsakhilgaan, a former Mongolian Ambassador to China. Journalists were not allowed to attend the trial at the Chingeltei district court which passed the sentence last week. Two other persons working at the Foreign Relations Ministry, B.Bolor and G.Baigalmaa, were also charged in the case but were acquitted.

Source: Ardiin Erkh

GOVERNMENT MEETS TODAY AT “DESERTED” SPOT IN GOBI Prime Minister S.Batbold concludes his 5-day tour of the Gobi provinces in Umnugobi on August 27 when he chairs a special Government meeting at a place called Gashuun Khooloi. The spot was chosen as it is experiencing extreme desertification and the Government meeting away from the capital has been decided upon to draw people‘s attention to climate change and environmental damage. Earlier in the week, during his visit to Dundgobi, Dornogobi and Umnugobi provinces, the Prime Minister stopped at several places to see the progress of several projects, both State and private. These included a vocational training and service center, an organization involved in greenhouse cultivation and dairy farming, the exploration sites of Areva, the oil refinery at Zuunbayartsagaan, Oyu Tolgoi, Erdenes MGL, and Tavan Tolgoi. He also visited Gashuusukhait, the port through which coal from Oyu Tolgoi and Tavan Tolgoi goes to China. The port daily deals with 600 trucks, each carrying 70-80 tons of coal, and needs more space and manpower.

Source: Ardiin Erkh

NINTH BOGD GETS MONGOLIAN CITIZENSHIP Jambalnamdalchoijijantsan, the reincarnated Ninth Bogd (the ―living Buddha‖) is now a Mongolian citizen. Born in Tibet in 1932, he was identified as the reincarnation of the Eighth Bogd when he was four years old. He stayed away from Mongolia as he grew up and finally went to Dharamsala in India in 1961. The Dalai Lama, already there in exile, formally anointed him, under his seal, as the Ninth Bogd a year later. His first opportunity to visit Mongolia arose in 1999 when he attended a religious conference in Khalimag. However, he had to cancel his plans as the Chinese leader Jiang Zemin would have been in the country at the same time. Finally he came last year in the autumn and returned for two months this year, at the invitation of the Gandantegchilen monastery when he received his Mongolian citizenship. He has since returned to Dharamsala and it is not clear where he will live from now on. The Eighth Bogd Khaan, Javzundamba Khutagt, was brought out of a Chinese prison and proclaimed head of the theocratic government when Mongolia declared independence from China in 1911. He was reduced to a ceremonial figurehead with no real power when the People‘s Government of Mongolia was declared in 1921. He died in 1924 and thereafter Mongolia became a republic, abolishing the institution of the Bogd Khaan.

Source: Udriin Sonin

MONGOLIA, U.S. VOW TO ENHANCE DEFENSE COOPERATION Prime Minister S.Batbold and a visiting senior U.S. defense official last week reaffirmed their policy

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to enhance cooperation in security and defense sectors. Mongolia is working with the USA in strengthening international as well regional security and will extend their cooperation to help strengthen and maintain security in Asia and Pacific Rim area, Mr. Batbold said while meeting with Mr. Wallace Gregson, U.S. Assistant Secretary of Defense for Asian and Pacific Security Affairs. In his reply, Mr. Gregson said the USA highly values U.S.-Mongolia relations, especially cooperation between their defense sectors. He added that Mongolian peacekeeping troops play an important role in international peacekeeping operations. Mr. Batbold also mentioned the "Khaan Quest" peacekeeping military drill held in Mongolia every year since 2004, saying it plays an important role in improving the skills of Mongolian peacekeepers and strengthening mutual trust and understanding between the armed forces of the participating countries. More than 200 military personnel from Mongolia and 125 others from Canada, France, Germany, India, Japan, Singapore, South Korea and the USA participating in this year‘s drill that ended on August 21.

Source: Xinhua

CHINA, MONGOLIA STRESS IMPORTANCE OF STRONG MILITARY TIES China-Mongolia military cooperation should keep on exploring new fields and patterns, Mr. Ma Xiaotian, deputy chief of the General Staff of the Chinese People's Liberation Army (PLA), told State Secretary at the Mongolia's Defense Ministry, Mr.Bolbaatar. This was at the 5th China-Mongolia Defense Consultation Commission meeting last week, where the two exchanged views on such issues of mutual concern as regional security and bilateral defense cooperation. "In recent times, the Chinese and Mongolian military have quite fruitful relations, including exchange of high-level visits, military aid training, frontier defense exchange and joint training. All this has made positive contributions to advancing the mutual trust between the two militaries," said Mr. Ma. He called for both sides to push their friendly military cooperation to a higher level so as to promote the development of the good-neighborly partnership of mutual trust between China and Mongolia. Mr. Bolbaatar said the Mongolian side was very happy with the substantial development in the relationship between the militaries of the two countries. Mongolia would like to develop stable, good-neighborly relations over the long term on the basis of mutual benefit and equality, adding that he expected the Mongolian and Chinese military forces could strengthen their cooperation in all sectors.

Source: Xinhua

MONGOLIA REROUTES RAIL LINK TO AVOID CHINA, GROUP SAYS Mongolia will connect a new coal mine to the national rail network rather than build a direct link to China because authorities want to avoid over dependence on their southern neighbor, a New York-based research group has said. International advisers said a link from the Tavan Tolgoi coal deposit, 200 km from the Chinese border, should go directly to its expected market, China, EurasiaNet.org said in an article posted on its website. Mongolia had been working with Deutsche Bahn AG to build a line using the Chinese rail gauge instead of the wider track used in Mongolia and Russia, the article said. Mongolian leaders feared that a direct link to China would leave the country with too much economic dependence, the article said. Mongolia has 2.6 million people while China, the world‘s second-biggest economy, has a population of more than 1.3 billion. China considered Mongolia part of its territory until the middle of the last century. ―Instead of shipping raw materials directly to one market, jobs and value-added production will be created in Mongolia,‖ the article cited Transportation Minister Kh. Battulga as saying. Mongolia also wants to sell some of the coal to Russia, Japan and South Korea, which would be made easier by a railroad linking it to Russia‘s rail network, the article cited Mr. N.Dashbaljir, head of the Transportation Ministry‘s Finance and Investment Department, as saying.

Source: Bloomberg News

CANADA‟S AMBASSADOR ENDS TERM HERE Mrs. Anna Biolik paid a farewell call on Prime Minister S.Batbold last week before returning home after serving as Canada‘s Ambassador since 2008. Noting that Mrs. Biolik was the very first Ambassador of Canada to be based in Mongolia, Mr. Batbold appreciated the significant contribution she made to the furtherance of bilateral relations and wished her success in her career. Mrs. Biolik expressed her happiness that she could contribute to the strengthening of these ties in the mining, economic and humanitarian sectors and said she would always try to be of help to

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Mongolia. Source: Montsame

CITIZENS FORCE SUSPENSION OF RAILWAY CONSTRUCTION WORK The Bold Tumor Yoroo Gol Company has been forced to suspend work on building a railway line in Yoroo district of Selenge province following strong protest by local citizens who have formed a movement called Khatan Yoroo Gol to press their demands. Their protest is against the way the company has operated, degrading pastureland and disrupting citizens‘ life.

Source: Undesnii Shuudan

FORMER STATE SECRETARY TO SPEND 4 YEARS IN JAIL Former State Secretary at the Ministry of Trade and Industry D.Surenkhor has been sentenced to 7 years in jail for misappropriating MNT91.3 million from the State in 2005. He had then fled the country. However, the amnesty law will apply in his case as the crime was committed before December 31, 2006, which means he will be released after 4 years. The judge also gave him less than the maximum punishment because this was his first offense, and also because he showed contrition and also paid back the money. Mr. Surenkhor admitted he took the money from the construction repair budget to meet his personal needs, but deplored the many wrong media reports. For example, he said he had returned to Mongolia on his own accord and had not been arrested in Austria after an Interpol alert. He apologized for his mistake and pleaded for clemency because he had two children and was in poor health.

Source: News.mn

N.KOREA SMUGGLING BANNED MATERIALS THROUGH MONGOLIA, SAYS SEOUL NEWSPAPER South Korea has secured evidence that North Korea has been smuggling banned materials which could be used for rocket and missile launches, often using forged documents to disguise their destination, through China and other countries, Seoul‘s Munhwa Ilbo newspaper has reported, quoting unnamed government officials. "North Korea has smuggled commodities related to weapons of mass destruction banned by the international community and luxury goods through detour routes such as China, Japan, Mongolia and Russia," it said. Illegal methods used by the cash-strapped communist country to evade sanctions have become more creative than before, the newspaper said. Pyongyang now favors Mongolia and Russia to smuggle banned goods because of tightened regulations in China, it said. This follows the detection in April of a Chinese company fabricating documents to export measuring equipment to the North that could be used for long-range rocket or missile launches. Two Japanese traders were caught by police in June for attempting to export second-hand digging equipment, which could be used as a missile launch pad, to North Korea. South Korea has also collected information about North Korean officials using diplomatic pouches to smuggle whisky, cigars and drugs, the newspaper said.

Source: AFP

MONGOLIA IS THE UNSUNG SUCCESS STORY OF ASIAN HUMAN RIGHTS As a regular visitor to Mongolia since 1993 and a resident in Ulaanbaatar over the past 18 months, I find the skewed depiction of life here (published originally in The Guardia, UK, and reproduced in the newswire of August 6 as ―Anti-Chinese sentiment fuels rise of Mongolian ultra-nationalism‖) to be demeaning and unfair to Mongolians. Certainly Mongolian society faces challenges. Yes, there is a small handful of malcontents who make up these rightwing fringe groups. Their influence, however, has been steadily on the wane for years. Yes, Mongolians are worried about China's economic might. Their past as a former colony of China and the present circumstances of their cultural cousins in Tibet give rise to justifiable concerns about the long-term intentions of their southern neighbor. Yes, there is a strain of prejudice against China, as shown in a hip-hop track Don't Go Too Far, You Chinks with its distasteful chorus "shoot 'em all". This hateful song, however, is not "widely played in bars and clubs" as the article suggests. Mongolians find it repugnant. Yes, Mongolians are a proud people. They have to be; there are precious few foreign Mongolophiles around who sing the praises of their culture and history. However, the description of rising xenophobia on the mean streets of Ulaanbaatar simply does not gel with my own experiences of an open and hospitable people who are keen to adopt international business standards, who share our values of free speech and participatory democracy, and who are

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anxious to be seen as members of the international community. Mongolia is the unsung success story of Asian human rights. The country made a bloodless transition to democracy in 1990 and has never made any move to repudiate participatory politics. Attendances at Buddhist temples, churches and mosques reflect the complete revival of religious freedom. The good, the bad and the ugly of Ulaanbaatar's daily newspapers reflect the national commitment to freedom of expression. Mongolian business people wish to abide by international standards of conduct and are proud of a commercial environment where foreign investment is warmly welcomed. Mongolians have every right to feel proud about their country and often say that they are "the easternmost extension of Europe". In terms of our higher values, they are. (This riposte is by Mr. Michael Aldrich, partner, Hogan Lovells and advisor to GTs Advocates.)

Source: The Guardian

CHINA IS SEEKING TO PUSH U.S. FORCES OUT OF ASIAN WATERS The Pentagon's annual report on China's military power finally surfaced last week, five months overdue. Considering that the report tells us little that we didn't already know—not least that China is rapidly modernizing and expanding its arsenal of missiles, ships and aircraft—we'll put the delay down to the Obama Administration's reluctance to offend Beijing's sensitivities. That may be the most alarming fact of all. A shift is afoot in the People's Liberation Army's attitude toward the U.S. in Asia. As recently as a few years ago, Chinese officials acknowledged that the American military is a stabilizing force in the region. But while China's civilian leaders still want to enhance military-to-military ties, Chinese officers have become increasingly confrontational, in written statements and deeds. Exhibit A is the PLA's challenge to the U.S. Navy's right to operate in international waters near China's coast. In response to the announcement this month of new exercises in the Yellow Sea involving the aircraft carrier USS George Washington—something the Navy has been doing for decades—Rear Admiral Yang Yi told an Australian journalist that this was "some kind of challenge and humiliation to China's national interest and the feelings of the Chinese people". After similar protests last month the Pentagon caved, opting to deploy the Washington and its battle group on the other side of the Korean peninsula. Beijing has also decided to enforce its claim to almost the entire South China Sea as its "historical waters", identifying this as a "core interest" on a par with Taiwan and Tibet. Early last year, Chinese patrol vessels and trawlers mounted a coordinated effort to intimidate an unarmed U.S. Navy surveillance ship. China has been equipping its fisheries service with ex-Navy ships to enforce a summer fishing ban in the South China Sea. In June, one such ship was involved in a confrontation with the Indonesian Navy off the Natuna Islands. President Obama began his presidency trying to placate Beijing. He could put relations on a better footing, and diminish the risk of future confrontations, by leaving China's generals in no doubt that the U.S. has the will and wherewithal to defend its friends and interests in the region against all challengers. Read more… China's broader strategic goal is to keep the U.S. from operating freely in the waters bounded by Japan, Taiwan, the Philippines and Indonesia. Beijing's strategy, known as "access denial", involves fielding a large submarine force, developing cruise and ballistic missiles that could take out an American aircraft carrier, and deploying anti-satellite weapons that can disrupt U.S. communications. These and other forms of "asymmetric" military capabilities are intended to prevent the U.S. Navy from gaining access to these waters in the event that, say, China decides to bully Taiwan into accepting reunification on Beijing's terms. Underlying this assertiveness is an assumption that the day the PLA can take on the U.S. may not be far off. While the U.S. retains a technological edge, China has noticed that the U.S. Navy now fields fewer than 300 ships, or half of its numbers after the Reagan arms build-up, and that it is likely to suffer from further budget cutting under Defense Secretary Robert Gates, who in May warned that the Navy would "have to accept some hard fiscal realities". Much the same goes for the Air Force, which is flying decades-old bombers, fighter jets and refueling tankers as modernization programs are drastically scaled back (as with the F-22) or endlessly delayed (as with the KC-X tanker). Little wonder, then, that China's neighbors are increasingly nervous. Chinese assertiveness has so far created a diplomatic boon for Washington, with Seoul tightening its military alliance with the U.S., Japan backing down from its attempt to renege on an agreement to move a U.S. military base in Okinawa, and even Vietnam drawing closer to the U.S. But that will only last as long as the U.S. is seen as a credible guarantor of stability, which is ultimately a function of military strength. For now, the greatest risk is of Chinese miscalculation, particularly over Taiwan. Chinese missiles

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have become accurate enough to make precision strikes, leaving the island's airfields particularly vulnerable. A RAND study last year suggested that in a war the Taiwanese air force would be quickly overwhelmed by Chinese fighters. With air superiority lost, an invasion might begin before U.S. reinforcements could even arrive. Such belief is how nations blunder into war.

Source: The Wall Street Journal Asia FOR CHINA, WILL MONEY BRING POWER? ―When China awakes,‖ Napoleon is said to have warned, ―the world will tremble.‖ For more than a century and a half after his time, that prospect seemed remote. The ancient civilization became a byword for isolation and stagnation. China‘s decadent emperors were immured behind the Great Wall and inside the Forbidden City. Its vaunted invention of gunpowder had spluttered into firecrackers. Its art of printing had withered into the production of stereotyped editions of Confucius. Its navy was antediluvian: mandarins tried to emulate Western paddle-steamers with junks propelled by coolies turning treadmills. China was devastated by flood, famine, rebellion, warlordism, invasion, civil strife and, finally, a Communist dictatorship. It‘s all the more of a shock, then, that the sleeping dragon has now awoken with a vengeance. As the media have breathlessly reported, China has just overtaken Japan as the world‘s second largest economy, and bids fair to knock the United States from the top spot within 20 years. Ever since Deng Xiaoping embarked on his ―second revolution‖ in 1978, introducing free market reforms and opening up to the outside world, China‘s economy has grown by almost 10 percent a year — one of the most sustained expansions in history. Deng retained socialist control while permitting capitalist enterprise, a well-nigh miraculous achievement that resulted in the creation of another workshop of the world. The crucial question is: how will China use its new-found wealth? The traditional answer is that rich countries tend to equip themselves with the sinews of war in order to enhance their position at the expense of rivals. According to the dominant economic philosophy of the 18th century — mercantilism — wealth and power are interchangeable, each helping in the acquisition of the other. Read more... Recall that at the start of the new millennium, a consensus existed among China-watchers that the Red Menace was as much of a mare‘s-nest as the Yellow Peril. Like the United States before Pearl Harbor, China would concentrate on butter not guns, harmonizing its interests with those of its competitors through the peaceful mechanism of the open market. There was much talk of an entente between China and Japan, even of a Chinese-American alliance to maintain stability, fight poverty, tackle global warming and so on. Certainly this is an ideal to which China has at least paid lip service since the end of the cold war, asserting that globalization fosters international cooperation. No doubt much of this was wishful thinking. Indeed, such soft soap may well have been part of a charm offensive by China, culminating in the Beijing Olympics of 2008, designed to mask the true character of a monstrous tyranny that was made manifest on Tiananmen Square in 1989. Whatever the truth, informed opinion is now divided about Chinese intentions. Some pundits maintain that the fundamental assumption of China‘s leaders is that conflict is part of the human condition, the only way of resolving differences in a perilous world. A recent comprehensive survey of Chinese authors revealed that most anticipate a repeat of the ―warring states era in Chinese history.‖ Is not hostility toward ―foreign barbarians‖ China‘s default state? There are, at any rate, obvious signs that the awakened dragon is flexing its muscles. China‘s defense budget rose to be the second highest in the world in 2008, and its naval (particularly submarine) buildup has, in the opinion of the American journalist Robert D. Kaplan, caused ―the loss of the Pacific Ocean as an American lake.‖ In search of markets and natural resources, China is expanding its influence aggressively in Asia, the Middle East, Africa and South America. On the other hand, China‘s 6.6 percent share of global expenditure on arms is dwarfed by America‘s 46.5 percent. And, like the United States during and after the reconstruction era, modern China is preoccupied by the problems associated with rapid growth: pollution, corruption, rural poverty, urban overcrowding and troubled labor relations. Above all, its leaders have to keep the lid on the simmering political and ethnic cauldron, while at the same time preventing the economic bubble from bursting — as Japan‘s did. China may well keep its promise, for the moment at least, to follow the path of peaceful development. We can‘t know, of course. But doom-merchants predicting that China will topple America from its pre-eminence should recognize that history is not necessarily on their side. (This is part of an article by Mr. Piers Brendon, a fellow of Churchill College, Cambridge University.)

Source: The New York Times

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NEW MONGOLIAN REGULATIONS

The following new laws and amendments were published in the latest weekly Government bulletin. Unless otherwise decided by Parliament, they will take effect ten (10) days after publication.

Date Laws

25.08.2010 1. Law on Approval of Renewed Loan Agreement on Financing and Development

2. Law on Approval of Agreement on Financing

3. Law on Status of Foreign Citizens

4. Annulment of Law on Status of Foreign Citizens

5. Amendments to Law on Administrative Accountability

6. Amendments to Law on Government of Mongolia

7. Amendments to Law on Environmental Protection

8. Amendments to Law on Communications

Please visit BCM's website, Legislative Working Group, for a summary of new Mongolian laws. BCM members who wish to access complete versions of the laws and regulations in Mongolian language are welcome to call or email the BCM office: 332345 or [email protected]

ANNOUNCEMENTS

“DISCOVER MONGOLIA” (SEPTEMBER 8-10) ADDS NEW SESSION, PARLIAMENT HOUR This year‘s Discover Mongolia Investors‘ Forum will take place on September 8-10 in Ulaanbaatar. The Organizing Committee plans to have, in addition to the usual Government Hour, a new session, Parliament Hour, where current and prospective investors will be able to interact with the country‘s lawmakers, and to know about the legal framework that Mongolia wants to set up in the mining and exploration sector. Mr. Bernard J. Guarnera, President of Behre Dolbear Group Inc., will be the Keynote Speaker and will talk on a study conducted by the Group on ―Where not to invest‖. Among the other speakers is a Mongolian MP, Mr. D. Odkhuu, whose topic is ―Mongolia‘s Regional Development Concepts‖. The Premier Sponsor for this year‘s event is SouthGobi Resources, and the Gold Sponsors are Erdene Resource Development, Micromine Mongolia, Hunnu Coal, Geosan, and Prophecy Resources. The Regular Sponsors are: Aspire Mining, MoEnCo, Monnis, PricewaterhouseCoopers, Runge Group, Trade and Development Bank of Mongolia, and Energy Resources. _________________________________________ 1ST ANNUAL MONGOLIA INVESTMENT CONFERENCE The 1st Annual Mongolia Investment Conference on September 7 in Ulaanbaatar, co-organized by Eurasia Capital, will provide insight into the most promising sectors of the Mongolian economy through in-depth discussion of the market and the products. It will showcase a range of Mongolia-based opportunities in the natural resource and financial sectors and beyond. The conference also offers investors the chance to meet key decision-makers in Mongolia and to learn of the key market drivers, risks and influences in the frontier market. The session will be preceded by a trip to Oyu Tolgoi and Ovoot Tolgoi in the South Gobi on September 6. All efforts will be made to arrange any one-on-one meeting requested in advance by participants. Seats are limited and access is guaranteed only to those registered. For more information and applications, please contact Ms. Zhyldyz Sadyralieva at [email protected] or at 976 99061673. _________________________________________ “BSPOT" on B-TV

BTV (Business TV) will be broadcasting a 20-minute Mongolian-language news program on two evenings every week, based mostly on items in the BCM NewsWire that were published outside Mongolia. The program is called ―Through the eyes of others‖ and the first broadcast will be on Saturday, August 28, at 19.30. BTV (Business TV) already telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire.

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_____________________________________

“MM TODAY” on MNB-TV BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire.

____________________________________

NEW POSTINGS ON BCM WEBSITE‟S „MONGOLIAN BUSINESS NEWS‟

The draft Tavan Tolgoi Investment Agreement which was submitted by the Government to Parliament is posted in both languages to BCM‘s websites, (www.bcmongolia.org) and (www.bcm.mn), ‗Mongolian Business News‘ for your review.

We are now posting some news stories and analyses relevant to Mongolia on the BCM website's ‗Mongolian Business News‘ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‘s events.

SPONSORS

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ECONOMIC INDICATORS

INFLATION

Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)]

Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

Year 2009 *4.2% [source: NSOM]

July 31, 2010 *9.8% [source: NSOM]

*Year-over-year (y-o-y)

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CENTRAL BANK POLICY LOAN RATE

December 31, 2008 9.75% [source: IMF]

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

CURRENCY RATES – August 26, 2010

Currency name Currency Rate

US dollars US 1,302.87

Euro EUR 1,652.63

Japanese yen JPY 15.40

British pound GBP 2,012.41

Hong Kong dollar HKD 167.54

Chinese yuan CNY 191.65

Russian ruble RUB 42.22

South Korean won KRW 1.09

Disclaimer: Except for reporting on BCM‘s activities, all information in the BCM NewsWire is selected from various news sources. Opinions are those of the respective news sources.