BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org

info@bcmongolia.org

Issue 127-128, July 23 2010

This is a double issue, giving all the news from last week when we did not publish because of Naadam.

NEWS HIGHLIGHTS:

Business:

Mongolia watches as Rio-Ivanhoe relations sour;

Why tension rises between Rio and Ivanhoe;

Khan Resources claims victory in Mongolian court;

Petro Matad exploration well at Davsan Tolgoi-1 achieves success;

Energy Resources plans IPO at Hong Kong;

Ivanhoe adds to 'core lender' group for Oyu Tolgoi;

Hong Kong-listed companies rush to buy resource assets in Mongolia;

Voyager Resources starts drilling at Argalant Gold Project;

Mongolia Development Resources first investment holding company listed on MSE;

EBRD lends XacBank USD8 million in MNT for MSMEs;

Entrée Gold files new technical report;

Khan Bank team receives Best Bank award in Hong Kong;

Banks asked to reveal identity of major shareholdings and directors;

New fraud charges against Altan Dornod man likely;

Asia Pacific Investment Partners completes USD4 million convertible note offering;

Giorgio Armani opens store in Ulaanbaatar;

Morgan Stanley Chairman joins China's CIC as advisor;

Burberry sales jump 27%.

Economy:

Development is not wish fulfillment, says PM‟s advisor;

Social, economic data published;

Revised budget shows deficit at 6.4% of GDP;

Copper at 3-week high on China buying, lower stocks;

Processing plants to begin work by 2013, says Zorigt;

Government reviews preparations for establishment of industrial complex;

PM wants professional team to run Development Bank;

Arshad Sayed of World Bank talks of Mongolia‟s “date with destiny”;

NGO feels too much is left unsaid in the Tavan Tolgoi draft;

Citizens‟ shares in Tavan Tolgoi will be valuable assets, assures PM;

Russian Minister tells Mongolia of consortium‟s interest in Tavan Tolgoi;

Monitoring Board sends advisory to Central Bank administration;

Bank loans, both outstanding and non-performing, rise y-o-y;

Business cycle won't be normal for next ten years, says Rio Tinto CEO;

Industrial and service cooperatives‟ association turns 20;

Mongolia wants to boost ties with China's Xinjiang region;

Import bottleneck contributes to price rise;

Mongolian Stock Exchange offers ray of hope;

NEA chief defends State policy in uranium sector;

Updates on TVET ready;

3-day Mongolia Investment Summit in Hong Kong in October;

China passes U.S. as world's biggest energy consumer;

China denies IEA claim on energy consumption;

China's dubious energy accolade;

Chinese economy starts to cool down;

Managing China's economic trajectory is getting trickier;

Seoul calls on IMF to tackle volatility.

Politics: Parliament extends session to finish work;

MPs postpone decision on removing anti-corruption bosses;

U.S. Deputy Secretary of State pays a day‟s visit;

Mongolia-Russia meeting ends with reiteration of intents;

Ambassador sees steady growth in relations with Russia;

Russian Transport Minister pitches for aircraft sale;

Wagons, engines on new railway may be privately owned, Minister clarifies;

Construction of new Parliament building to begin in autumn;

Elbegdorj emulates Putin, dives to the bottom of Lake Baikal;

World Bank representative awarded medal;

U.S. move to ascertain source of “Mongolian” honey;

Senator to ask why Canberra 'lobbied against tax' in Mongolia;

Containing China from Mongolia to Vietnam;

Beijing revives the idea of „empire‟ with the New Silk Road;

Michael Kohn sees a sprinkling of new parks in Ulaanbaatar.

*Click on titles above to link to articles.

BUSINESS MONGOLIA WATCHES AS RIO-IVANHOE RELATIONS SOUR The close relationship between global miner Rio Tinto and Canadian company Ivanhoe Mines appears to be unraveling just as their biggest joint project starts moving toward production. At the center of the dispute lies a slow-motion tug-of-war over control of Mongolia's Oyu Tolgoi mine, the world's largest undeveloped deposit of copper and gold, due to start production in 2013. In a world where miners habitually bemoan the dwindling number of blockbusting discoveries, the site 550 km south of Ulaanbaatar stands out, with measured, indicated and inferred reserves of 81 billion pounds of copper and 46 million ounces of gold, worth around USD300 billion at current market prices. "Ultimately that is just such a fantastic asset, and [Rio Tinto chief executive] Tom Albanese has openly stated that they want to own more of Ivanhoe," says a mining analyst in Sydney. Rio said on July 9 it was seeking arbitration over a shareholder rights plan adopted by Ivanhoe's board in April. Rio said the plan was in breach of a private placement it agreed with Ivanhoe in October 2006, under which it has provided the Canadian company with USD1.73 billion, primarily for investment in Oyu Tolgoi. Ivanhoe retaliated by suspending restrictions on new strategic investors. In a statement on the issue, Ivanhoe highlighted that the shareholder rights plan "does restrict Rio Tinto ... whether acting alone or in concert with another party, from acquiring additional Ivanhoe shares in the market". "(Ivanhoe) are protecting themselves," said an analyst. "If Rio ever does decide to make a bid, they want to make sure they get a full price, not a cheeky price." The Mongolian government may also be wary of Chinalco's involvement. China would be the major consumer for the mine, but Ulaanbaatar is prickly about Beijing and Chinalco is a Chinese state-owned company. "The government is carefully analyzing the situation to make sure that the interests of Mongolia and its shareholding in Oyu Tolgoi are ensured and that strategic interests of the country are well protected," said Mr. D. Zorigt, Minister for Mineral Resources and Energy. A spokesman for Rio Tinto said the arbitration process was expected to be "quite rapid" but he didn't comment on the company's strategy. An Ivanhoe spokesman in Vancouver also didn't offer comment on the company's motivation, while Chinalco executives couldn't be immediately reached for comment. Read more…

Ivanhoe said in a statement on July 13 that the move would allow third-party strategic investors, "which could include major mining companies", to take stakes of at least 5%, in effect diluting Rio's own holding. Oyu Tolgoi is two-thirds owned by Ivanhoe and one-third by the Mongolian government. Rio, in turn, controls 29.6% of Ivanhoe, and is allowed to increase its stake to 46.65% by October 2011. Ivanhoe's executive chairman, Mr. Robert Friedland, holds another 22%. Some analysts say Rio is intent on retaining the option of increasing its holding in Ivanhoe to a majority stake, with Ivanhoe's board equally intent on capping its control at 46.65%, or even reducing it. Under the shareholder rights plan adopted by Ivanhoe's board in April, any party making an acquisition above 20% of the company would trigger a so-called poison-pill clause, allowing existing shareholders to purchase fresh shares and dilute the party's stake. Such poison-pill clauses are commonly used in the U.S. to prevent creeping stake-building by suitors. Ivanhoe‘s announcement would similarly risk diluting Rio's stake, keeping majority control out of its reach. One issue raised by several observers is that Ivanhoe may fear a third party taking out a stake as an informal proxy for Rio, thus boosting the Anglo-Australian company's effective position above 50%. Any such concerns would have been heightened by a recent Securities and Exchange Commission filing by Rio, in which the company said it was having "ongoing discussions" with Aluminum Corp. of China, or Chinalco, over the Chinese company acquiring a minority stake in either Ivanhoe or Oyu Tolgoi. Chinalco holds 9% of Rio's stock and acts as a joint-venture partner with the Anglo-Australian company in the Simandou iron ore project in Guinea.

Source: The Wall Street Journal Asia

WHY TENSION RISES BETWEEN RIO AND IVANHOE It is impossible not to perceive the suddenly visible tension between Rio Tinto and its vehicle for Mongolian expansion, Ivanhoe Mines. It is part of another move in the Anglo-Australian's progress towards control of the world's biggest undeveloped copper prospect, Oyu Tolgoi. Currently, Rio is a partner in Ivanhoe's Mongolian ambitions in everything but investment fact. Rio is already embedded in the technical and financial progress of Ivanhoe's proposed USD4 billion Oyu Tolgoi project. It also led the final rounds of negotiations that successfully ended five tricky years of debate over Mongolian mining law and the mining agreements that ultimately secured investment in the project. But the uncomfortable fact for the mining giant is that it has no direct skin in the Mongolian game. And that position would seem to be unsustainable, at least from Rio's perspective. Ivanhoe's most recent integrated development plan holds out the prospect that Oyu Tolgoi can sustain average production of 410,000 tons of copper and 455,000 ounces of gold over a 59-year mine life. Rio is an owner of three of the world's biggest copper producers. It owns all of Utah's century-old and still-going-strong Bingham Canyon and very healthy minority positions in the BHP Billiton operated Chilean monster, Escondida, and Freeport's Indonesian lesser-monster, Grasberg. Oyu Tolgoi, along with an ultra-deep US deposit called Resolution, has long been announced as Rio's copper future. It owns 60 per cent of Resolution. Its exposure to Oyu Tolgoi is through a still growing minority stake in Ivanhoe. So, when you boil it down, it would seem inevitable that Rio will attempt either to take control of Ivanhoe or move to meaningful level of direct ownership of Oyu Tolgoi LLC, the Mongolian company that owns the mining leases. As things stands, Rio has influence over Oyu Tolgoi through a 22.4 per cent stake in the Canadian Godfather of Mongolian mining, Ivanhoe. Rio is currently in the process of exercising USD393 million of warrants, converting them into a further 7.3 per cent of Ivanhoe. And, as soon as September 12, when a USD350-million loan along with USD108 million of capitalized interest converts into 45.8 million shares, Rio will control 42.9 per cent (fully diluted) of Ivanhoe. Incidentally, Mr. Robert Friedland, the legendary executive chairman and founder of Ivanhoe, owns 23 per cent of the business and has denied loud and often that his interest is, or will be, on the market. Read more… Rio says its "strong objection" to Ivanhoe's recently adopted shareholder rights scheme was ignored and it wants a third party to review an arrangement. The effect of the scheme is that Rio, or anyone else for that matter, is prevented from moving to control of Ivanhoe without making an offer for all the outstanding capital. Canadian takeover rules allow for a partial offer and, given Rio is headed for about 43 per cent, taking that one step further to control would have seemed logical. "We been talking this issue through for a while now and we are just not getting a lot of love," a Rio insider has commented. Rio says it chose arbitration over a court process because it would be settled quicker and because it is less harmful to what needs to remain a civil, constructive

relationship. What happens now is that an arbitrator has to be agreed on, or appointed by a court, within 30 days and then the process must kick off within 51 days. Talk about the shareholder rights scheme have been bustling on since April, when the independent directors of Ivanhoe proposed an idea ostensibly aimed at ensuring all shareholders might benefit from any attempt Rio might make at taking control of its bridge into Mongolia and beyond. Rio sees it quite differently, arguing that the scheme is a breach of its "contractual rights". The whats and hows of those claimed breaches have not been spelt out. In the meantime, though, Rio has been busy attempting to translate its investment in Ivanhoe into a direct stake in Oyu Tolgoi. The reality of these discussions, if not their detail, was confirmed in a statement to the US Securities and Exchange Commission. "Rio Tinto's discussions with the Company (Ivanhoe) about long-term structures, including the potential conversion of its subsidiary's equity stake in the company into a direct ownership interest in the Oyu Tolgoi copper and gold mineral development project in Mongolia's South Gobi region, continue." At the same time, Rio has been busy talking to Chinalco about both Ivanhoe and Oyu Tolgoi. In the same statement, Rio reported that Chinalco had "indicated an interest in acquiring a minority equity stake in the Company (Ivanhoe) or acquiring a direct minority ownership interest in the OT project. If any arrangement is agreed to, it may be a bipartite or tripartite arrangement with the Company and/or Rio Tinto," the statement said. Then, hidden beneath an explosion of legalese, Rio spelt out the options it is working on. The company said it might seek further representation on the Ivanhoe board before raising the prospect of "availing itself of its rights to acquire additional securities" in Ivanhoe. Rio then suggested it could yet approach Mr. Friedland "alone or jointly with a third party" with a proposal for the "long-term structure of its (Rio's) existing investment, a direct interest in the OT Project or other changes to the capitalization, ownership structure of operation of the company." How Ivanhoe has received this stuff, well, you can only guess. Mr. Friedland is no one's idea of a shrinking violet. But it might well be illustrative of the sort of pressures and tension now afoot that Rio says its senior appointee to the Ivanhoe board, global copper boss Andrew Harding, recently resigned to concentrate on chairing the technical committee steering Oyu Tolgoi. Mr. Harding's departure leaves Mr. Tracey Stevenson the only Rio representative on Ivanhoe's board. But it is understood Rio is now determined to lift its representation to the three it is entitled to under the investment agreements forged back in 2006. Mr. Harding's priorities could be instructive on two fronts. Rio might well be expressing its disappointment with being ignored in the discussion over the shareholders rights issue. And, the idea that Mr. Harding is going to spend time running the Oyu Tolgoi technical committee might well indicate, as has been rumored, that there is some discord between Ivanhoe and its shareholder over the planned shape of project.

Source: The Australian

KHAN RESOURCES CLAIMS VICTORY IN MONGOLIAN COURT Khan Resources has won a court challenge to a Mongolian decision to invalidate a key mining license held by a subsidiary of the company, it said on Monday. The Mongolian Capital City Administrative Court has ruled in favor of Central Asian Uranium Company (CAUC), in which Khan owns 58%, ―and declared that the previous purported decision by the Mongolian Nuclear Energy Agency (NEA) to invalidate CAUC's mining license 237A is itself invalid and illegal‖, the firm said. In April, both CAUC and Khan's 100%-owned Mongolian subsidiary Khan Mongolia received notices from the NEA, which said that their respective licenses had been invalidated as of October 2009, based on unspecified violations of Mongolian law. CAUC holds the license for the Dornod uranium project, and Khan Mongolia has an exploration license for an adjoining property. Khan said at the time that it planned to challenge the notices in Mongolian court, and then-CEO Martin Quick suggested that Mongolian officials were acting under pressure from Russia, which wants to participate in the development of the Dornod project. "We are extremely pleased that the court accepted all of CAUC's claims and unequivocally affirmed that the NEA's actions were unlawful and illegal," Khan CEO Grant Edey said. NEA has the right to appeal the decision within two weeks. A separate case to consider the Khan Mongolia license is still pending, with a hearing scheduled for July 22. Although CAUC's mining license is no longer considered invalidated, the company will need to wait for it to be approved for re-registration under Mongolia's new nuclear energy law. CAUC applied in November last year to have the license reregistered. ―Khan continues to believe that it and its Mongolian subsidiaries have always operated in compliance with applicable Mongolian laws. Khan intends to continue to vigorously challenge the NEA's action, including any appeals the NEA may bring, through all legally available means,‖ the

company said. Read more… Last year, Russian State-owned miner Atomredmetzoloto (ARMZ), which owns 21% of CAUC, launched a hostile bid for Khan, which the company rejected as opportunistic. ARMZ backed off the offer in February, after Khan agreed to be acquired by China National Nuclear Corp. However, the CNNC offer was dropped in May, after the Chinese group failed to get regulatory approval in China for the CAD0.96 a share offer.

Source: www.miningweekly.com

PETRO MATAD EXPLORATION WELL AT DAVSAN TOLGOI-1 ACHIEVES SUCCESS The Petro Matad Davsan Tolgoi-1 (DT-1) exploration well reached a final measured depth of 1,220m on 14 July. The well passed through the Tsagaantsav formation from 1,075m to 1,146m, then entered metamorphic basement. The entire 71m section of the Tsagaantsav formation contained oil shows and elevated mud gas, with indications of live oil through six sandstone and conglomerate units totaling about 35m in aggregate. Several of these intervals included very good shows that included cut, fluorescence, oil staining and a strong petroliferous odor. Good reservoir quality is indicated by fast drilling breaks through all sandstone and conglomerate intervals. Wireline logging will be carried out on the DT-1 well and following completion of that process the drill will move to DT-2. Subject to Board consideration and approval, DT-2 is to be a 2,000m test of the lower Tsagaantsav that is located 4 km west of DT-1 within an independent structural closure, and adjacent to the Tamsag Basin generative area. CEO Douglas McGay said, "To have achieved success on the first well has been both a significant achievement for our company and Mongolia, and also a tribute to our technical teams. Although the scientific testing and analysis of the discovery is only just commencing, DT-1 has gone a long way towards proving that the Davsan Tolgoi Prospect is, in total, as viable a target as first hypothesized. Not only have we encountered significant hydrocarbons, the increase in our scientific knowledge will lessen the risks associated with further wells. It also adds confidence to our assessment of the other leads and prospects on Block XX, and the other 6 sub-basins in Block XX that are still to be explored and tested."

Source: Petro Matad Limited

ENERGY RESOURCES PLANS IPO IN HONG KONG Energy Resources LLC aims to raise between USD800 million and USD1 billion in a Hong Kong initial public offering by as early as September, three sources with knowledge of the matter have said. The Mongolian coking coal company, whose Ukhaa Khudag mine is roughly 245 km from the Chinese border, will be the first company listed in Hong Kong to be fully based and operated in Mongolia. The offering would be sponsored by Citigroup and JP Morgan, the sources said. Mongolia's domestic companies are seeking foreign capital to help them expand, and the government is trying to connect local companies and its stock market with the rest of Asia -- from Hong Kong to Korea to Japan -- hoping to turn domestic franchises into regional ones. Earlier this year, media reports said Energy Resources was seeking either a London or a Hong Kong IPO. The company's peers in Hong Kong -- Mongolian Energy Corp and SouthGobi Energy Resources -- operate mines in Mongolia but are headquartered offshore in Hong Kong and Canada, respectively. Hong Kong has long been a natural destination for emerging Mongolian champions, given its diversified investor base, proximity to mainland China, and China's hunger for Mongolia's copper, iron ore, gold and coal.

Source: Reuters.com

IVANHOE ADDS TO „CORE LENDER‟ GROUP FOR OYU TOLGOI Ivanhoe Mines has appointed BNP Paribas, Standard Chartered and Export Development Canada (EDC) to complete its core lender group of five financial institutions that will lead the arrangement of a project finance debt package for the Oyu Tolgoi complex. Ivanhoe said in May that it had signed a joint mandate letter with the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC) for evaluation of a major financing package for the project, which is expected to cost USD4.6 billion. "The completion of the assembly of the core lender group is a key step in the process of securing the Oyu Tolgoi financing package, which we expect to close in the first quarter of 2011," executive chairperson Robert Friedland said in a statement. "The five financial institutions have indicated that they are prepared to consider providing limited recourse loans that would total more than USD2 billion, demonstrating the high level of interest in international financial circles in participating in

the project and awareness of its game-changing significance to copper and gold markets," he commented. Mr. Friedland said that Ivanhoe had evaluated expressions of interest from 13 banks and selected Paris-based BNP Paribas and London-based Standard Chartered to work with the EBRD, the International IFC and EDC in arranging the financing. BNP Paribas and Standard Chartered have indicated that they are considering retaining a ―significant‖ exposure to the Oyu Tolgoi project debt through a mix of facilities, including EBRD and IFC 'B' loans, facilities backed by export credit agencies and commercial loans. Under the terms of the mandate letter signed earlier this year, the IFC and the EBRD will consider directly providing up to USD600 million, representing approximately USD300 million each, as part of a group of primary lenders in limited-recourse project financing. The EDC is also considering providing up to USD500 million in direct project financing capacity, subject to necessary approvals, including ensuring that the Oyu Tolgoi Project meets EDC's environmental and social impact review requirements. Read more… Significant support for the Oyu Tolgoi financing also is expected from commercial lenders under 'B' loan structures and under the guarantee schemes of other export credit agencies, Ivanhoe said, and the company continues to discuss additional financing options for the balance of its capital requirements. Ivanhoe is 29.6% owned by the world's third-biggest miner Rio Tinto, which can increase its holding to 46.6%. The two recently revealed a dispute over Ivanhoe's new shareholder rights plan, which Rio says breaches the terms of existing agreements between the companies. The firms are headed to arbitration to resolve the issue. Ivanhoe also announced last week it had given Rio Tinto 60 days' notice that it will terminate a covenant that has prevented it from issuing shares worth more than 5% of the company to so-called strategic investors. Although Oyu Tolgoi is Ivanhoe's most high-profile asset, the company also owns 65% of Mongolian coal-miner SouthGobi Energy Resources and a controlling interest in Ivanhoe Australia.

Source: www.miningweekly.com

HONG KONG-LISTED COMPANIES RUSH TO BUY RESOURCE ASSETS IN MONGOLIA Over the last 12 months, Mongolia has become an attractive investment destination for companies listed on the Hong Kong Stock Exchange (HKEx). In this period several such companies have acquired resource assets in Mongolia worth USD966 million in M&A deals. All recent Mongolia M&A deals in which Hong Kong companies were involved were completed through injection of resource assets into the existing publicly listed companies. Before acquisition, these companies engaged in a diverse range of activities and industries including agriculture, waterworks, IT, clean tech, plastic products and even manufacturing of toys and gifts. Following their acquisitions, the following HKEx-listed companies are now primarily Mongolia-focused resource companies:

Bestway International Holdings, an investment holding company engaged in trading of plastic products, acquired two tungsten mines in Mongolia for USD121 million in July 2009.

North Asia Resources Holdings, formerly known as Green Global Resources Ltd., acquired 100% of North Asia Resources Group Ltd., a private resource company in Mongolia, for USD227million in December.

Kiu Hung Energy Holdings, an investment holding company with businesses in energy, gift and toy industries, acquired coal assets in Mongolia from First Dean Holdings Ltd for USD180 million in March.

Solartech International Holdings, a manufacturer of cables, wires, connectors and terminals, has acquired an 87.9% stake in Sun Progress Ltd which owns a copper-gold-silver mine in Mongolia for USD193 million in May.

Ming Hing Waterworks Holdings, engaged in waterworks technology and engineering, acquired a number of coal, gold and copper mining and exploration licenses in Mongolia for USD245 million in June.

Mongolia Energy Corp, formally New World CyberBase Ltd., was the first HKEx-listed company to acquire a resource asset in Mongolia through asset injection. It paid over USD150 million for a coal mine in January 2007.

More Hong Kong-listed companies are expected to pursue M&A deals in Mongolia through asset injections. Some small-cap companies may find it too tempting to acquire resource assets in

Mongolia in order to revive their sagging fortunes and join the growing league of Mongolia-focused resource companies at the HKEx. At the same time, the private owners of resource companies in Mongolia might target small-sized HKEx-listed companies in their effort to seek "back-door listing" through lucrative reverse takeovers. Read more… Most of these companies would appear to have overpaid for these earlier stage resource assets. Poor post-acquisition share price performance only underscores investor concerns. For example, Solartech is down 75% since the announcement of its deal. Owners of target companies with Mongolian assets (primarily mainland Chinese and Hong Kong private investors) are clear winners as they have disproportionally benefited from these deals.

Source: www.eurasiac.com

VOYAGER RESOURCES STARTS DRILLING AT ARGALANT GOLD PROJECT Initial diamond core drilling has started at Voyager Resources‘ Argalant Gold Project in Mongolia. The program is designed to test highly anomalous geophysical targets that were delineated from a recent induced polarization (IP) survey conducted over the area. Argalant is about 900 km west of Ulaanbaatar. The property is 21sqkm in size and is in a similar geological setting to the nearby Golden Hills Gold-Copper Project. Voyager plans to complete about 1000 meters of diamond core drilling at Argalant in coming weeks. Voyager continues to focus on growing its gold business in Mongolia through the acquisition, funding and focused development of high quality gold projects. The start of drilling at Argalant is the second in a number of drill programs to be completed over the next six months, with reverse circulation drilling continuing at the high-grade Daltiin Ovor Gold Project and drilling to start at Voyager‘s Tsagaan Chuluut and Tsagaan Gold Projects.

Source: www.voyagerresources.com

MONGOLIA DEVELOPMENT RESOURCES FIRST INVESTMENT HOLDING COMPANY LISTED ON MSE Mongolia Development Resources (MDR) has become the first investment holding company listed on the Mongolia Stock Exchange (MSE). The company shares resumed trading on MSE on July 15, following the approval of the new charter and new prospectus by the Financial Regulatory Commission. MDR shares are now traded under new ticker MDR, instead of the earlier TSU, dating from the time when the company was known as Tuul Songino Water Resource. The main activity of MDR is to build and provide diversified exposure to the Mongolian economy for local and international investors. The main areas of investments are property, mining, oil & gas, infrastructure and financial services. The company launched its IPO on the Mongolia Stock Exchange in December 2007, raising MNT 13.7 billion in one of the largest IPOs in the history of MSE to date, with 90% of shareholders being international investors.

Source: Mongolia Development Resources

EBRD LENDS XACBANK USD8 MILLION IN MNT FOR MSMEs The European Bank for Reconstruction and Development (EBRD) has announced a synthetic loan worth USD8 million in local currency to XacBank for financing micro and small businesses in Mongolia. XacBank is the second largest microfinance bank in Mongolia, and the EBRD holds approximately ten per cent equity stake in it. Extended under the EBRD‘s Mongolia Financial Sector Framework, the loan will enable XacBank to meet the growing demand for local currency financing and increase further its outreach to entrepreneurs in remote areas. The synthetic local currency loan, the first one provided by the EBRD in Mongolia, will help XacBank increase the term of its local currency funding, and expand its portfolio of loans in MNT. This will enable XacBank‘s clients to repay their loans in the same currency as they earn from their operations. It is envisaged that a technical assistance program will accompany the loan financing to further strengthen the bank‘s MSME lending business by providing capacity building and strengthening risk management and internal control practices. ―With this transaction and in close cooperation with our partner bank XacBank, the EBRD is deepening its support for Mongolian micro and small enterprise sector which is an essential element for private sector growth in Mongolia. This local currency facility is the first the EBRD has executed in Mongolia and it will enable XacBank to mitigate the foreign currency exchange risks for its clients‖, said the Head of the EBRD Office in Mongolia, Mr. Philip ter Woort.

Source: Microfinance Focus

ENTRÉE GOLD FILES NEW TECHNICAL REPORT Entrée Gold has filed a comprehensive NI 43-101 Technical Report (ETR10) which outlines the history and exploration of the Lookout Hill Project and discusses various scenarios related to future development of the Oyu Tolgoi mining complex and, more specifically, the Entrée-Ivanhoe Joint Venture Property. ETR10 includes information from Ivanhoe Mines‘ integrated development plan (IDP10) prepared for the Oyu Tolgoi project. Entrée has supplemented the work in IDP10 with additional analysis specific to the company and its holdings in the Oyu Tolgoi project area. This additional work has been prepared to examine further aspects of the mineral reserve, metal price sensitivities, real options analysis, Heruga and additional production options. Entrée‘s president and CO Greg Crowe says, ―The nature and quality of the Oyu Tolgoi deposits allows the development team great flexibility in determining how and when individual deposits are brought on line.‖

Source: www.entreegold.com KHAN BANK TEAM RECEIVES BEST BANK AWARD IN HONG KONG The prestigious magazine Euromoney announced some time ago that it had chosen Khan Bank as the best bank of Mongolia for the 5th year in a row. A team from the bank received the award at a ceremony in Hong Kong on July 15. Explaining its choice, Euromoney has said, ―Khan Bank is still widely regarded by independent local securities firms and market participants as having the best corporate governance and the strongest balance sheet. In October 2009 it became the first Mongolian bank ever to reach MNT1 trillion in total assets, and is the first among its peers to convert all of its branches to an online real-time system. It has the largest ATM network in the country, and … is best poised to benefit in Mongolian financial and economic development.‖

Source: Khan Bank

BANKS ASKED TO REVEAL IDENTITY OF MAJOR SHAREHOLDINGS AND DIRECTORS The head of the Inspection Department at the Central Bank, Mr. B.Lhagvasuren, has said banks that have not revealed their shareholding pattern, names of directors, and other information as demanded by provisions of the new Banking Law will have to explain their failure. The Central Bank has all the information, but it cannot reveal them. The legal onus to do so is on the banks themselves. Some banks have said they are waiting for a final provision relating to the election of one independent member to the representative administrative board to take effect, but the Central Bank has told them that they must reveal the name of the other directors without delay.

Source: Ardiin Erkh

NEW FRAUD CHARGES AGAINST ALTAN DORNOD MAN LIKELY Investigations are believed to have revealed that Mr. S.B. Paushok, head of Altan Dornod Mongol, unlawfully siphoned off large sums of money the company kept in Anod and Zoos banks as security against supply of machinery and equipment from the Japanese Itochu Corporation. The Russian businessman, who has taken the Mongolian Government to an international arbitration court on the windfall profits tax issue, is already facing charges of tax evasion, and is now likely to be accused of benefiting from fraudulent bank transactions.

Source: Zuunii Medee

ASIA PACIFIC INVESTMENT PARTNERS COMPLETES USD4 MILLION CONVERTIBLE NOTE OFFERING Hong Kong-based Asia Pacific Investment Partners recently completed a convertible note offering, raising approximately USD4 million, according to Mr. Lee Cashell, Managing Partner of APIP. The round was led by a Singapore-based hedge fund and also included a number of other private and institutional investors. APIP holds market-leading positions in Mongolia's real estate development, cement, and mining industries and also has interests in transportation, luxury development, and infrastructure development. It owns Altan San Securities, one of the country's major stock broking firms with a seat on the small but rapidly developing Mongolian Stock Exchange. "The majority of the financing raised in the recent round will be allocated towards rapid capacity expansion of Central Asian Cement (CAC) and will be used to develop CAC's own clinker production facility as part of the company's vertical integration strategy. Additional funds will be used towards further exploration of the company's recent discovery of a large body of iron ore in a region bordering close to China," commented Mr. Cashell.

The company is planning an additional capital raising exercise of USD30 million later this year as a precursor to seeking listing on a suitable exchange.

Source: Asia Pacific Investment Partners

GIORGIO ARMANI OPENS STORE IN ULAANBAATAR Giorgio Armani SpA, the Italian fashion company whose clothes are worn by celebrities including Angelina Jolie and Leonardo DiCaprio, said it opened its first stores in Mongolia and Vietnam as it seeks to tap Asian demand. Emporio Armani boutiques opened in Ulaanbaatar and in Ho Chi Minh City, Vietnam, where the clothier also added a cafe, the Milan-based company has said in two e-mailed statements, without saying when the outlets began trading. Each country is ―ready‖ for Italian fashion and design, Mr. Giorgio Armani, the closely held company‘s founding president and chief executive officer, said in the statements. Armani is seeking to diversify its geographic sources of revenue after profit fell 28 percent last year because of the recession in North America and Japan. The company follows LVMH Moet Hennessy Louis Vuitton SA in opening stores in Mongolia and Vietnam. Sales of luxury goods in Asia Pacific, excluding China, may rise 10 percent this year, Bain & Co. estimated in April. Armani has 1,503 single-brand outlets worldwide.

Source: Bloomberg.com

MORGAN STANLEY CHAIRMAN JOINS CHINA‟S CIC AS ADVISOR China Investment Corp, the country‘s main sovereign wealth fund, has appointed Mr. John Mack, chairman and former chief executive of Morgan Stanley, to its 14-member international advisory council. The USD300 billion fund‘s choice of Mr. Mack as an advisor will further cement its ties with the Wall Street bank, in which it holds a stake of nearly 10 per cent. Mr. Mack is expected to step down as chairman of Morgan Stanley at some point in the next year or two and has been looking for ways to stay engaged in China, according to Beijing-based bankers. He will follow in the footsteps of Mr. John Thornton, the former Goldman Sachs president and current non-executive chairman of HSBC‘s North American unit. CIC has also named Mr. Joseph Yam, former head of Hong Kong‘s Monetary Authority, to the council. Current members include Mr. Nicholas Stern, a former World Bank chief economist, Mr. James Wolfensohn, a former World Bank president, and Mr. Taizo Nishimuro, chairman of the Tokyo Stock Exchange and a former chairman and CEO of Toshiba. Mr. Mack and Mr. Yam will both serve a term of two years on the council, which was set up more than a year ago as part of CIC‘s plan to be more transparent and accountable.

Source: The Financial Times

BURBERRY SALES JUMP 27% U.K. luxury fashion house Burberry PLC, which recently opened its own store in Ulaanbaatar, has reported a strong start to its fiscal year, with a 27% rise in first-quarter sales, and said it expects to remain unaffected by projected drops in consumer spending. The company said it is not overly concerned about the effect of potential macroeconomic headwinds on consumer spending as governments across the world take measures to cut public expenditure and rein in borrowing. "The Burberry brand continues to outperform irrespective of what the local economy is doing," said Finance Chief Stacey Cartwright. Burberry's better-than-expected increase in sales to USD427.4 million in the three months to June 30 was boosted by purchases of outerwear and non-apparel accessories, and a strong performance from Europe and Asia-Pacific. The Americas grew at a low single-digit pace as promotional activity was reduced, the company said. Retail sales rose 21% from a year earlier, with sales from stores open at least a year up 10% and new space generating 6% of total growth.

Source: The Wall Street Journal Asia

ECONOMY DEVELOPMENT IS NOT WISH FULFILLMENT, SAYS PM‟S ADVISOR Mr. N.Enkhbayar, Economic Advisor to the Prime Minister, has cautioned that optimal utilization of the Tavan Tolgoi resources would need much more than the present practice of just transporting and unloading across the border in small volumes. ―We shall now need more complex negotiations and shrewd analysts who know how the commodity market works,‖ he has said. Now that the Government policy on the railway has been approved by Parliament, work can start on determining

how the railway will be constructed, by whom and what the terms of the agreement would be. ―All this takes time and we should not expect trains to start running soon,‖ he has said. Mr. Enkhbayar feels Mongolia has to outgrow the mindset that is a legacy of the old regime. An inability to identify, evaluate and grab chances provided in a free market, ―to grasp the modalities of the market system as it works in most of the rest of the world, especially in the wealthy West‖ has led to international organizations sometimes criticizing Mongolia for producing ―wish lists‖, for preparing ―dream projects‖ that do not come true. ―Another problem with us is that we lack a proper understanding of the way things need to be done,‖ he has said, citing as example how all the talk about setting up metallurgical and processing industries sidesteps any concrete reference to how this can be done. ―No one publicly admits that a copper smelter is technologically complicated, requires large investment, and skills. We do not have any of these at the moment so a smelter is indeed wishful thinking. Where will the electricity and other basic requirements come from?‖ he asks. Mr. Enkhbayar recognizes that if foreign companies thought it would be commercially viable, they would not only have built a processing plant in Mongolia, but would also have started manufacturing cars here. They were deterred by the market size for the product and by the lack of skilled labor. These are preliminary considerations before building any large industry, whoever wants to build it. Mr. Enkhbayar has reiterated that the position of the Prime Minister is that the choice of the extracting contractor at Tavan Tolgoi will depend on the merit of the total package offered to Mongolia, not just on who will do the work at the least cost. ―Ultimately the project will be profitable depending on the quality of the coal and timely delivery. It is a fiercely competitive world and customers are not interested in whether the coal comes from a Mongolian state-owned company or an Australian private company. Origin has become secondary in a globalised world. The determining factor is commercial competence and it is up to Mongolia to make the most of its resources and opportunities,‖ he had said.

Source: The Mongolian Mining Journal

SOCIAL, ECONOMIC DATA PUBLISHED The National Statistical Office has revealed social and economic figures for June and, in some cases, for the first six months of the year. The point of reference will be corresponding figures in 2009, unless otherwise specified. Consumer price index The national consumer price index in June dropped 1.5 percent from May but was 11.4 percent higher than in June, 2009. Unemployment The number of registered unemployed reached 39,941 at the end of June, an increase of 1.1 per cent. Foreign trade Total turnover of trade with 120 countries in the first half of the year reached USD 2,664.9 million, an increase of 61 percent. Exports rose 71.5 percent and imports 51.9 percent. Trade deficit decreased by 63.3 percent. Industrial output Total industrial output in the first six months rose 12.4 percent (at 2005 constant prices) over that in the corresponding period last year. This includes a 4.4% rise in the manufacturing sector and a 6.5% increase in electricity, thermal energy, and steam generation. Construction Domestic entities accounted for 87.6 per cent of the total MNT55.9 billion worth construction and installation work in the first half of the year. Freight and passengers The volume of freight rose 17.9 per cent in the first six months, but passenger traffic fell 0.8 per cent. Both figures cover all types of transport. Budget

The deficit in the General Government Budget was MNT93.8 billion less in the first half of 2010, when compared to the same period last year. Tax revenue increased 66.2 per cent. Collection from the windfall profits tax rose 4.2 times, from corporate income tax 2.1 times, and from VAT 69.0 percent. Non-tax revenue in this period fell 26.2 percent year on year. Total capital expenditure was 57.0 percent higher but foreign financed capital expenditure decreased 87.4 percent. Social welfare Government organizations accounted for 41.8 percent of the 493,900 people covered by social insurance in the first half of 2010, with the rest 58.2 percent coming from the private sector. A total MNT166.0 billion was paid as pension from the social insurance fund in the first half of 2010, of which retirement pension accounted for 73.1 percent, pensions for the disabled for 12.8 percent, breadwinner loss pension for 7.4 per cent, and military pension for 6.7 percent. MNT12.7 billion was paid as social welfare allowances to 55,700 people in the first half of 2010. The amount is 5.7 per cent more than in the same period last year, while the number of beneficiaries is 4.7 percent higher. Altogether MNT169.8 billion was distributed to 2.4 million people from the Human Development Fund (HDF). Share trading A total 1.6 million shares valued at MNT1.2 billion were traded in 21 trading days in June. The number of shares traded was 4.1 times fewer than in May and 7.8 times fewer than in June, 2009.

Source: Montsame

REVISED BUDGET SHOWS DEFICIT AT 6.4% OF GDP Among the several draft laws hastily approved, in succession by the relevant Standing Committee and then by Parliament itself, without too much of a discussion in either forum, before Parliament went into recess after an extended session, was the one on budget revision. Revenue is now fixed at MNT2,645.7 billion, MNT145.3 billion less than earlier estimated, while expenses are MNT3,107.9 billion, down by MNT143.3 billion. The total deficit now stands at 6.4 percent of the GDP.

Source: Undesnii Shuudan

COPPER AT 3-WEEK HIGH ON CHINA BUYING, LOWER STOCKS Copper rose to its highest in more than three-weeks on Wednesday due to strong physical and Chinese buying and falling inventories, but traders said economic growth worries were likely to keep a lid on prices. Benchmark copper for three-month delivery CMCU3 on the London Metal Exchange touched USD6,874.75 a ton, its highest since June 28. "There was Chinese buying overnight, which triggered this rise," a trader said. "It then pushed through some stop levels; and it's been technical buying and short-covering after that." He said from a technical point of view, markets could go higher but he added: "Unless you see a serious tightening in the physical market, I just don't see how copper can sustain these kinds of levels." Copper has been stuck in a range of around $6,300 to $6,900 since early June. "You've got this tussle between positive and negative, and as a consequence I see these things trade range bound," said an analyst at Deutsche Bank. Read more… Continuous stock drawdowns underpin prices, but unexpectedly poor economic data from the United States, like Tuesday's new U.S. home construction hitting an eight-month low, is capping further gains and clouding the demand prospects. A mid-year metals price poll showed copper was expected to average USD6,878 a ton this year from USD7,077 a ton in the January poll. ] Investors also fretted over data showing China's imports of refined copper fell for a third straight month in June. Copper stocks fell 1,975 ton to 417,625 ton, down from near seven-year highs at 555,075 tons hit in mid-February. Industry data showed, in the first four months of the year the copper market had moved into a deficit of 67,000 tons, from a 74,000 surplus in the same year-ago period.

Source: Reuters.com

PROCESSING PLANTS TO BEGIN WORK BY 2013, SAYS ZORIGT Minister of Minerals and Energy D.Zorigt has said there is no provision in the Oyu Tolgoi agreement that gives a specific year by which Mongolia will recoup its investment in the project though he would expect this to happen within 7-8 years. He regretted that certain sections chose to ignore the reality and failed to appreciate how well work on the project was progressing, and instead

continued to criticize the agreement on imaginary grounds. He also told media that processing of raw minerals in the country will certainly begin by 2013.

Source: Udriin Sonin

GOVERNMENT REVIEWS PREPARATIONS FOR ESTABLISHMENT OF INDUSTRIAL COMPLEX Following a review of the preparatory work so far on establishing the Sainshand industrial complex the Government has asked Mr. Ch.Khurelbaatar, Head of the Cabinet Secretariat, to suitably amend the related laws and resolutions so that further and faster progress is possible. He was asked to create conditions so that national entrepreneurs got adequate opportunity to participate in this and similar projects. The Head of the National Committee of Development and Reform, Mr. Ch.Khashchuluun, was directed to select general and legal advisors for the project. The Sainshand industrial complex is planned to have coking coal plants, a copper smelter, an iron and steel plant, factories to produce construction material, and a petroleum refinery. All investment will come from the private sector. Sainshand in Dornogobi will come up as an environment-friendly city with all modern facilities and will center on the industrial complex. It will require over USD10 billion in five years to implement the project. The funds are expected to come from several sources in stages. The proposed factories will have to be linked with the sources for their raw material as also with the likely markets, both domestic and foreign, for their products. A skilled workforce will be needed to construct railways and other infrastructure. The Government feels an experienced advisor will be useful to coordinate all the technical and financial work.

Source: News.mn

PM WANTS PROFESSIONAL TEAM TO RUN DEVELOPMENT BANK A special meeting of the Government on Tuesday took the formal decision to set up a Development Bank and also adopted a set of directive principles that would govern its work. The Head of the National Committee of Development and Reform, Mr. Ch.Khashchuluun, and the Head of the State Property Committee, Mr. D.Sugar, were given the responsibility to get the bank working within the third quarter of 2010 and to select a team of qualified and independent professionals to run it. The bank‘s main job will be to act as the financial intermediary in business projects of strategic importance, to provide middle- and long-term finance, to widen collaboration with international aid and financial organizations, and to attract domestic and foreign investment in viable projects. The bank is likely to concentrate on infrastructure and heavy industry, especially processing units. Prime Minister S.Batbold has made it clear that the bank must be managed by an internationally acceptable team of professionals.

Source: Ardiin Erkh

ARSHAD SAYED OF WORLD BANK TALKS OF MONGOLIA‟S “DATE WITH DESTINY” Talking about ―Mongolia‘s Economic Growth: What‘s Next?‖ in something like a public valedictory address before leaving the country after four years as Country Manager and Resident Representative, Mr. Arshad M. Sayed of the World Bank told a selected audience at the Central Bank auditorium on Thursday that the much-touted trickledown effect ―does not always work‖ and that Mongolia‘s future would depend on its Government sticking to ―a policy of sustainable and equitable growth based on the future rise in mining revenue‖. He warned that instead of nurturing and encouraging ―expectations far ahead of reality‖, the Government and the people should settle for an informed social compact that would accept ―hard decisions in uneasy times‖. Recalling that his first public address in Ulaanbaatar, in October 2006, was entitled ―Mineral Resources: Blessing or Curse?‖, Mr. Sayed said four years and a global crisis later he was still in no position to give a definitive answer, and was not even sure if there was one. Every nation must fashion its own way of optimally balancing contradictory pulls. Mongolia has to ―transform its underground resources into tangible wealth‖, diversify its economic and revenue base, ensure that it does not succumb to populist temptations of extravagance during commodity price booms, maintain fiscal discipline in the awareness that busts are inevitable, lift the banking sector from its present vulnerable position, add more value to existing assets, and avoid installing a dependency framework. Mr. Sayed ended his address by reading out a poem he had written while working on the text of the talk. The poem in turn ends with the following words: ―Do not pity,/or worry,/or shed tears/ or rush in judgment/ for I am Mongolia/ and I have a date with destiny.‖ Taking part in a lively question-and-answer session, the Bank‘s mining specialist here, Mr. Graeme Hancock, said he found the Oyu Tolgoi agreement quite balanced and was optimistic about the

Government‘s policy on Tavan Tolgoi. However, too much must not be expected from an entity that has not yet been formed.

Source: BCM NewsWire

NGO FEELS TOO MUCH IS LEFT UNSAID IN THE TAVAN TOLGOI DRAFT Mr. N.Dorjdari, a researcher at the Open Society Forum, has complained that the Government has not revealed its thinking or decision on several aspects of the Tavan Tolgoi agreement. It has not specified how the sale price is to be fixed, whether the coal will be sold against orders or only on the spot, whether it can be used as collateral, or whether the Government can do any of these unilaterally with its share of the output. ―Many of the provisions of the agreement read very well in principle, but their failure to be specific is disturbing,‖ he has said, adding that this does not permit an informed public debate on the matter. He fears that the Government is so much in a hurry to get the project moving that it is leaving things vague. It will be much better, he thinks, to have terms that are unambiguous and will not be open to contradictory interpretations during implementation of the project. He also feels the Government is ―getting involved in many things beyond its competence‖. For example, he sees no justification for the state to be mining coal, an activity that should be left entirely to the private sector. In its haste to emphasize how it is delivering the people‘s property to the people, the Government is ignoring the more important point that it would be even better if the people could receive something more profitable. The people prefer direct distribution as they have no faith in the government investing the money on their behalf and then distributing handsome dividends. State performance has been so poor that people do not hope for anything from it and would like to get whatever is available, instead of waiting for more profits later. Read more… Elaborating his organization‘s objections to the State getting involved in mining, Mr. Dorjdari said it is rare that this is successful. ―We in Mongolia think Erdenet is a great success story, but production costs there are the highest among all comparable units in the world. Also consider this. Wouldn‘t there be a conflict of interest if Erdenes MGL is to wear two hats? It will oversee the operation and at the same time be an active partner in the operation. It will be expected to make the most profit for the state and also to ensure the utmost environmental protection and safety. I find it an impossible dichotomy. And as a state company it will be under the Prime Minister which may make things difficult to insist on proper professional management,‖ he has said. He feels the Government has chosen to keep the people in the dark about the main components of the agreement, perhaps because it does not wish to be stopped in its tracks by too many questions. ―It has given no figures, no projections. Not merely does it not ask for feedbacks, it closes all opportunities for people to participate in the decision making,‖ he says, adding that ―our concerns are not insubstantial, nor are the worries far-fetched‖. For example, he says, ―Nothing is quite clear about how, or if, the different companies will coordinate their operations. How will they sell the coal in all of which the Government will have a share? Depending on what price each company gets in the market, the Government may find its income fluctuating.‖

Source: The Mongolian Mining Journal

CITIZENS‟ SHARES IN TAVAN TOLGOI WILL BE VALUABLE ASSETS, ASSURES PM Prime Minister S. Batbold has reassured Mongolians that the free shares they will get in the proposed Erdenes-Tavantolgoi Company will not be just pieces of paper, but will gain more and more value as mining expands. He said, ―As Prime Minister, I give my word that everything to do with the company will be open and transparent.‖ He conceded that ―our knowledge of how stock exchanges work is not very deep or detailed‖, but said the Government would study how the rights of small stock holders are protected and their interests safeguarded in foreign countries and apply the required regulatory system here. ―Not just the small investors‘, but national interests have to be furthered as well, by ensuring that the controlling interest in a company is not easily transferred,‖ he said. He said Mongolia would like to introduce European standards in their commercial activities, ―as our old friends in COMECON have done‖. This would convince the world of the safety of investing in Mongolia.

Source: Onoodor

RUSSIAN MINISTER TELLS MONGOLIA OF CONSORTIUM‟S INTEREST IN TAVAN TOLGOI Russian Transport Minister Igor Levitin has reiterated that the Russian companies En+Group and Renova Group are interested in developing the Tavan Tolgoi deposit, together with Russian Railways

(RZhD). "We have passed on the information from the consortium to the working group of the Mongolian government on the integrated development of the deposit," Mr. Levitin said in a statement in Ulaanbaatar on Wednesday. In 2009, the Mongolian Government transferred 50 percent of Ulaanbaatar Railway (UBR) shares to RZhD for a five-year trust management. (This claim is based on information that has not been reported widely, if at all, in the Mongolian media.) UBR's priority project is the construction of a 1,100-km railway link between Tavan Tolgoi and the Russian border. Mr. Levitin said that the railroad would help transfer coal from Tavan Tolgoi to Russia's sea ports in the Far East, for export to other destinations.

Source: RIA Novosti

MONITORING BOARD SENDS ADVISORY TO CENTRAL BANK ADMINISTRATION The first meeting of the new monitoring board of the Central Bank decided to send an advisory to the Central Bank administration, recommending new procedures to prepare the budget, to identify and prioritize sources of income and items of expenditure as well as to ensure proper and timely implementation of the work schedule. The decision was taken after a review of reports on expenditure plans, risk management practices, and execution of administrative board decisions, submitted by three members of the board. The board suggested that the Central Bank should ask Parliament to clarify if the Law of Finances of Budgeted Organizations applied to it. If it did, the Bank would have to reveal details of foreign currency reserves, and many other details of its operations, excluding those that could impinge on customers‘ prerogatives.

Source: Ardiin Erkh

BANK LOANS, BOTH OUTSTANDING AND NON-PERFORMNG, RISE Y-O-Y The Central Bank reports that money supply (broad money or M2) at the end of June was 8.3 percent more than at the end of May 2010, and 44.5 percent more than at the end of June, 2009. Currency issued in circulation was 3.3 percent less than at the end of May, but 25.1 percent more than at the end of June, 2009. The volume of loans outstanding at the end of June was 1.0 percent more than at the end of May, and 12.6 percent more than at the end of June, 2009. Principals in arrears fell 11.6 percent from the end of May, and 25.9 percent from the end of June, 2009. Total non-performing loans stood at 2.9 percent less than at the end of May, but 35.2 percent more than at the end of June, 2009.

Source: Montsame

BUSINESS CYCLE WON‟T BE NORMAL FOR NEXT 10 YEARS, SAYS RIO TINTO CEO The business cycle will not be normal for the next ten years, feels Rio Tinto CEO Tom Albanese. Mr. Albanese, who has steered the company‘s large global diversified mining business through a series of challenging global financial meltdown circumstances since the dark days of late 2008, anticipates an uplifted demand circumstance for Rio Tinto's products, but within a volatile environment. He cautions that there is need to be careful about the ongoing global macro risks and the current structural difficulties in the global economy, and foresees that Rio Tinto will have to contend with two large forces as it goes about doing its overall long-term investment planning. The first is the good news of a broad anticipated uplift in the demand for the company's products in the next ten years, as a consequence of continued investment by China, South East Asia and an upcoming India, with discussion intensifying about when Africa will become part of the demand equation. But the second is the bad news of the anticipated demand uplift taking place within an environment of structural dislocation. He forecasts a more volatile environment within the uplifted demand circumstance. "That will mean that we'll see very, very nice highs, but pretty scary lows, and it will not be a normal business cycle, at least for the next ten years," he says, adding that Rio Tinto is thus readying itself for higher levels of volatility. "I've said this to each of our managers, ‗Be ready'." Read more… That readiness entails continuing to focus on large long-life low-cost ore bodies, as well as reinforcing the importance of a strong balance sheet and a single A credit rating. Rio Tinto currently has a triple B credit rating and an A minus credit rating, depending on the rating agency. "It also means that each of our managers has to recognize that while markets may be strong today, they are not necessarily guaranteed to be smooth sailing forever, and that they must not let up on creating very competitive operations,‖ he has said. Rio Tinto halved its debt to USD19.5 billion by the end of 2009 and by another USD4.5 billion by

April this year. It is now one notch away from attaining a single A credit rating. While it needs to reduce debt further, it is clearly also mindful of the need to begin bringing good projects forward, and has been approving new projects that will need capital injection in the coming years. A series of investment elections have been concluded with Ivanhoe, its investment partner at the rich Oyu Tolgoi copper/gold project in Mongolia.

Source: www.miningweekly.com

INDUSTRIAL AND SERVICE COOPERATIVES‟ ASSOCIATION TURNS 20 It is now 20 years since The Mongolian Association of Industrial and Service Cooperatives (MAoISC) was established, a landmark event in the country‘s transition from a controlled economy to one where private enterprises would dominate. The association has around 300 primary cooperatives as members, representing altogether 16,500 enterprises spread over all provinces. The changing demands of the cooperatives as the free market economy developed led to two amendments to the law on cooperative, passed in 1995, the first in 1998 and then again in 2002, and consultations have been held since 2007 on another amendment. Among the provinces that are most vocal in demanding the fresh amendments are Khuvsgul, Bulgan, Erdenet, Dornod, Sukhbaatar, Dornogovi, Govisumber, Khentii, and Uvs. The association works in close cooperation with the Mongolian Employers‘ Federation, and its representative is included in the tripartite National committee for Social and Labor Consensus Building. It also regularly names enterprises, in Ulaanbaatar and in the provinces, as the top national cooperatives, to generate healthy rivalry and competitiveness among its members, The German development organization, GTZ, has organized training courses for members of the MAoISC, and a UN agency has partnered it in conducting a national forum on microcredit. Several other consultative meetings have been held with other international organizations. MAoISC runs cooperative support centers in Bayankhongor, Bayan-Ulgii, Zavkhan, and Dornogovi provinces. One of its main achievements in improving the management of cooperatives has been in capacity building, with 40 cooperative auditors and 13 national consultants working nationwide at present.

Source: Onoodor

MONGOLIA WANTS TO BOOST TIES WITH CHINA‟S XINJIANG REGION Prime Minister S.Batbold has told a visiting Chinese delegation from the Xinjiang Regional People's Congress that Mongolia wants to develop stronger ties with the Xinjiang Uighur Autonomous Region. Enhancing cooperation at the border areas of the two countries plays an important role in widening bilateral trade and economic cooperation, and Mongolia has been paying attention to this, the Prime Minister said. Mongolia and China have 13 ports at the border, four located in Xinjiang. Mr. Batbold said that Mongolia aims to resolve the questions concerning infrastructure, industry and services at the ports, and to boost ties with Xinjiang in developing agriculture, animal husbandry, ancillary sectors and working industries.

Source: Xinhua

IMPORT BOTTLENECK CONTRIBUTES TO PRICE RISE Initially blamed on the distribution of the ―motherland grace‖ allowance, prices have continued to increase months after that large sum of money was injected into the market, baffling economists. Finance Minister S.Bayartsogt feels the present decision to distribute smaller amounts on a monthly basis will keep inflation in check. He is confident there will be more positive news on the economic front. The economy is expected to grow 8%. The common man, having to pay MNT500 more for 1 kg of rice, MNT3,000 more for 1 kg of lamb, and MNT5,000 more for 1 kg of beef, compared to June, 2009, can only hope his confidence is not misplaced. It is not just economic policies that are at fault. Prices go up when demand exceeds supply. The head of the Financial Market Association, Mr. U.Ganzorig, has been repeatedly complaining that prolonged shortage of railway capacity has been responsible for less goods being imported from China, even though traders on both sides were ready to sell and buy. Unemployment nationwide is estimated to have surpassed 230,000, but official figures keep it at 38,000.

Source: Zuunii Medee

MONGOLIAN STOCK EXCHANGE OFFERS RAY OF HOPE Sentiment on the major stock exchanges around the world may be gloomy but there is always a ray of hope at the exotic market places of the so-called frontier markets, which have performed

surprisingly well in times of economic difficulties and uber-cautiousness in the rest of the financial world. The Mongolian Stock Exchange is housed in a building that was formerly a children‘s cinema. Despite such an unassuming headquarters, the MSE rose 85 per cent during the first half of the year, mostly due to rising prices of commodity stocks. However, stock trading in Ulaanbaatar is still restricted, especially for foreign investors. Turnover is low, and there are no stock certificates or funds listed. The exchange, founded in 1991 to implement "the centre of the reform program" which was set to privatize the state owned enterprises, is one of the smallest in the world. It has a market capitalization of less than USD600 million. Currently, the exchange has launched a cooperation treaty with the Singapore bourse "to collaborate for the benefit of the financial services industries in Singapore and Mongolia".

Source: GulfNews.com

NEA CHIEF DEFENDS STATE POLICY IN URANIUM SECTOR Prof. S.Enkhbat, Chairman of Nuclear Energy Agency, has said Mongolia has to take big strides in the field of nuclear science studies, and their application to industry. ―It is not enough to have just academics. We must also have a sizable number of our own professionals,‖ he says. Unfortunately, at the moment there are almost no proper research facilities in the country as no investment was made in this sector in the last 20 years. Asked how Mongolia plans to balance the specific interests of the several different countries that are interested in its uranium sector, Mr. Enkhbat said the Government‘s policy has been clear right from the start. ―Rather than working with any one country, we have opted for many partners,‖ and investment from Saudi Arabia and Kuwait is expected soon. ―The Mongolian Government will not have any shares in all these investment to control the interests of any of these countries; rather, the job of our Government is to define policy parameters, systemize regulatory principles, and provide fair and untroubled working conditions for them.‖ Referring to the issue of the cancellation of Khan Resources licenses, Mr. Enkhbat said the company has spread a lot of untrue information, which it should not have done as a respectable company. After CNNC of China withdrew its offer, there is nobody else to buy Khan Resources share and it is in a very difficult situation. However, ―this difficult situation was not caused by Mongolia, but by the company itself. It did not comply with the law, ignored a number of reminders to rectify its mistakes and, instead, chose to spread untrue information, showing disrespect for the Government and the law. We wrote to the Toronto Stock Exchange to take measures against Khan Resources and to inform the shareholders of the company about its wrongdoings.‖

Source: The Mongolian Mining Journal

UPDATES ON TVET READY The Mongolian technical vocational education training system (TVET), organized during the socialist era, broke down with the transition and does not meet the present needs of the market in terms of skill, quality and relevance. Some time ago, a number of reform initiatives were identified with the assistance of GTZ and other external partners. The TVET law was passed in early 2009, to help create the enabling environment for reforms in the sector. The National Council on TVET and the TVET Agency were established. While the institutional framework is now in place and the first steps towards reforms have been taken, these have to be complemented with a longer-term and comprehensive overhaul of the system as a whole. Only this will produce graduates with internationally recognized trades‘ qualifications. Two papers prepared in his capacity as Chairman of BCM's Education Working Group by Dr. Saha Meyanathan of Development Advisory Services -- TVET Issues in Mongolia: An Update, and Financing the TVET System in Mongolia: An Update –- are available on the BCM website, Education Working Group section. Both have been supported by GTZ. They are to be used by BCM for dissemination and further discussions.

Source: BCM

3-DAY MONGOLIA INVESTMENT SUMMIT IN HONG KONG IN OCTOBER Mines and Money Hong Kong will be hosting the Mongolia Investment Summit 2010, in association with the Foreign Investment and Foreign Trade Agency (FIFTA) of Mongolia on 14-16 October in Hong Kong. The meeting will showcase a range of Mongolia-based opportunities in the natural resources sector and beyond. With participants drawn from highest levels of the Mongolian government, the conference also offers investors the chance to meet key decision-makers within

Mongolia and to receive first hand insights into the key market drivers, risks and influencers that are shaping the Mongolian market. The speakers include:

Mr. D. Zorigt, Minister of Mineral Resources and Energy

Mr. D.Tsogtbaatar, State Secretary at the Ministry of Foreign Affairs and Trade

Mr. Ts. Bayarsaikhan, MP and Head of the Standing Committee on the Economy

Mr. D. Sugar, Chairman, State Property Committee

Mr. D. Batkhuyag, Chairman, Mineral Resources Authority

Dr. Ch. Khashchuluun, Chairman, National Development and Innovation Committee

Mr. B. Ganzorig, Chairman, FIFTA

Mr. O. Orkhon, First Deputy CEO, Trade and Development Bank

Mr. Jim Dwyer, Executive Director, Business Council of Mongolia

Mr. Masa Igata, CEO, Frontier Securities

Mr. Parmeshwar Ramlogan, IMF Resident Representative, Mongolia, and

Mr. Alexander Molyneux, President and CEO, SouthGobi Energy Resources. Source: www.minesandmoney.com

CHINA PASSES U.S. AS WORLD‟S BIGGEST ENERGY CONSUMER Powered by years of rapid economic growth, China is now the world's biggest energy consumer, knocking the U.S. off a perch it held for more than a century, according to new data from the International Energy Agency. The Paris-based agency, whose forecasts are generally regarded as bellwether indicators for the energy industry, said China devoured a total of 2,252 million tons of oil equivalent last year, or about 4% more than the U.S. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear, coal, natural gas and renewable sources such as hydropower. To be sure, the global recession hit the U.S. more severely than China and hurt American industrial activity and energy use. Nonetheless, China's total energy consumption has clocked annual double-digit growth rates for many years, driven by the country's big industrial base. Highlighting how quickly its energy demand has increased, China's total energy consumption was just half the size of the U.S. 10 years ago. "The fact that China overtook the U.S. as the world's largest energy consumer symbolizes the start of a new age in the history of energy," IEA chief economist Faith Berol said in an interview. The U.S. had been the biggest overall energy consumer since the early 1900s, he said. The IEA is an energy adviser to most of the world's biggest economies. China's voracious energy demand helps explain why the country—which gets most of its electricity from coal, the dirtiest of fossil fuel resources—passed the U.S. in 2007 as the world's largest emitter of carbon dioxide emissions and other greenhouse gases. The U.S. is still by far the biggest energy consumer per capita, with the average American burning five times as much energy annually compared with the average Chinese citizen, said Mr. Berol, who has been in his current role for six years. Read more… The U.S. is still the biggest oil consumer by a wide margin, going through on average roughly 19 million barrels a day—with China at a distant second at about 9.2 million barrels a day. But many oil analysts believe U.S. crude demand has peaked or is unlikely to grow very much in coming years because of improved energy efficiency and more stringent vehicle fuel-efficiency regulations. The decreased energy "intensity" of the U.S. economy is a key reason investors, such as General Electric Co., have increasingly looked to China as a driver of future growth. Mr. Birol said China requires total energy investments of some $4 trillion over the next 20 years to keep feeding its economy and avoid power blackouts and fuel shortages.

Source: The Wall Street Journal Asia

CHINA DENIES IEA CLAIM ON ENERGY CONSUMPTION China on Tuesday dismissed claims that it was the world‘s largest energy consumer, calling the latest estimates from the International Energy Agency ―not very credible‖. China‘s quick reaction underlines the sensitivities that surround China‘s thirst for energy, particularly as the government struggles to meet ambitious efficiency targets by the year‘s end. Mr. Zhou Xian, head of the general office of the National Energy Administration, dismissed the numbers. ―When the IEA came to China to publish its energy outlook a couple of days ago, they also overestimated China‘s energy consumption and carbon dioxide emissions,‖ he said. ―We think that

is because of a lack of knowledge about China, especially about China‘s latest developments of energy conservation and renewable energy.‖ The IEA‘s estimates of energy use and demand can change between the preliminary forecasts and the final data – sometimes by a big margin. The IEA‘s underestimation of energy demand in 2004 contributed to a global jump in oil prices. China‘s own numbers for its 2009 energy consumption are lower than the IEA‘s. But even those figures suggest that China and the US are neck and neck for the top consumption spot. One of the main differences between the IEA numbers and those of China is that the IEA includes China‘s consumption of traditional biomass. Mr. Fatih Birol, the IEA‘s chief economist, said on Tuesday, ―A Chinese person consumes only one-third of the amount of energy of someone living in the western world.‖ But he added that ―in terms of energy usage, these do not change the fact that China has become the largest energy consumer in the world‖.

Source: The Financial Times

CHINA‟S DUBIOUS ENERGY ACCOLADE News that China consumed more energy than the U.S. last year will be taken by many as another sign that a new epoch is upon us. Indeed, that's how the International Energy Agency, source of the data, described its findings Monday. But the headline numbers only tell half the story. The underlying data say a lot about the challenges facing both economies. China consumed half as much energy as the U.S. in 2000. Last year, it burned through slightly more. Yet the energy mix for each country couldn't be more different. Coal accounts for 22% of U.S. energy consumption, but a full two-thirds of China's, up from 57% in 2000. That says much about the nature of China's economic expansion, which has become over reliant on fixed-asset investment in, for example, export-oriented factories. The Chinese services sector's relative smallness shows up in the economy's energy intensity which is, dollar for dollar of gross domestic product, still three times that of the U.S. Little wonder Beijing has been reluctant to embrace efforts to curb carbon-dioxide emissions. The U.S. energy mix is more balanced, although oil remains pre-eminent at 37% of consumption. Like China, the U.S. must find ways of being more energy efficient. In the U.S., each person used energy equivalent to 7.1 tons of oil last year. That is down from eight in 2000, but still much higher than China's 1.7 tons per person. Unlike China, America's task doesn't involve altering the entire structure of the economy but instead changing consumption habits, such as driving more efficient vehicles. That is tough enough. For China, despite its new leadership position, balancing its energy requirements looks even harder.

Source: The Wall Street Journal Asia

CHINESE ECONOMY STARTS TO COOL DOWN The Chinese economy grew at 10.3 percent in the second quarter over the year before, down from the previous three months as government efforts to cool the housing market and infrastructure investment began to bite. The comparable first quarter figure was 11.9 percent, when many economists feared China was close to overheating. For the first half of the year, the economy expanded by 11.1 percent. Although the slowdown was expected, other figures suggested the economy could be cooling more quickly than forecast, including a drop in the expansion of industrial production to 13.7 percent in June, year on year, from the 16.5 percent increase in May. The government said it was relaxed about the reduced pace of economic activity. ―The slowing will help our economy avoid overheating and assist in the transformation of our economic model,‖ said Mr. Sheng Laiyun, spokesman for the National Bureau of Statistics. However, the weakness has unnerved investors at a time when many hoped China could help sustain a global economy that shows signs of faltering in the US and Europe. It could also put Beijing under domestic pressure to unwind some of its recent tightening measures, especially in housing. China publishes growth figures on a year-on-year basis but does not release a sequential, seasonally-adjusted growth figure which would give a more accurate impression of the direction of economic activity. Private sector estimates vary considerably, with Goldman Sachs putting the implied quarter-on-quarter growth rate at 8 per cent on an annualized basis, while Standard Chartered estimated 10 per cent. The weakening in activity appears to have blunted the recent surge in inflation, with the consumer price index falling from 3.1 percent in May to 2.9 percent in June and factory-gate inflation down from 7.1 percent to 6.4 percent. At the same time, exports and consumption have remained robust, with the government announcing that retail sales grew 18.3 percent in June over the same month last year, following a 44 percent increase in exports in June, year-on-year. Fixed asset investment

increased 25.5 percent in the first half of the year, which economists said implied an increase of 24.7 percent in June, year on year, slightly down from 25.4 percent in May.

Source: The Financial Times

MANAGING CHINA‟S ECONOMIC TRAJECTORY IS GETTING TRICKIER In the corn-growing hamlet of Dashmien in northern China, signs are emerging that the nation's supercharged economic growth may be reaching its limit. A bottomless pool of inexpensive migrant labor has long been one of China's greatest resources, fueling its manufacturing boom. But all the able-bodied workers have left this village already, leaving mostly the elderly. "All the young men have gone out to work," says Wang Shuzhen, 58 years old, whose two sons left town, one to work in construction, the other as a driver. With the Chinese economy continuing to grow at record rates, World Bank Chief Economist Justin Yifu Lin tells how it got there and how it can avoid the calamities that have tripped up other fast-growing nations. Fewer migrant workers are heading to China's manufacturing zones along the coasts because villages like Dashimen are tapped out, putting pressure on wages and sparking worries about labor shortages. Job centers in the Pearl River Delta, the manufacturing heartland of southern China, had 9% more vacancies than applicants in the first quarter, according to a survey by China's labor ministry. The Chinese economic juggernaut is still outrunning these trends. Some big engines of long-term growth look unlikely to sputter: consumer spending by China's newly affluent, and the migration of hundreds of millions of people to the nation's cities. Chinese industries from sheet glass to automobiles to electronics are emerging as potentially deadly rivals to American, Japanese and European champions. But managing China's economic trajectory is getting trickier, Chinese officials and economists say. "The growth rates of the past can't be sustained forever," says Li Shantong, an economist at the Development Research Center, a government think tank in Beijing. China needs to adapt to a future where exports and infrastructure are less important, and more growth comes from technology and innovation, she says. "It may not be as fast as in the past. But we can't continue with the same resource-intensive pattern." Read more… Higher wages at home and low-wage competition from other countries will make it harder for China, already the world's largest exporter, to maintain rapid export growth. Real-estate bubbles have developed in places like the tropical island province of Hainan, prompting the government to take steps to try to cool those markets so they don't threaten the financial system. The favorable demographics that have supplied manpower for economic growth are changing. China's working-age population, age 15 to 64, has grown continuously. But partly because most families are limited to one child, growth of this working population is slowing, according to the United Nations. The labor pool is expected to peak around 2015, and then decline, according to U.N. projections. In China, manual laborers tend to stop working before age 65, due both to the demands of the work and to employers' preference for younger workers. China‘s favored tool for supporting growth—vast, bank-financed investments in infrastructure—may not work as well in the future, as it becomes harder to find worthwhile projects. China's great economic challenge is likely to be ensuring that a transition to slower growth is gradual and manageable, rather than sharp and disruptive. Growth here has stemmed in part from China's drive to catch up with wealthy nations on technology, infrastructure and education. Japan, South Korea, Taiwan and Singapore went through similar periods, and the rapid growth there eventually slowed. "No country grows at 8% to 10% indefinitely," says Dwight Perkins, a Harvard University economist who correctly forecast the Chinese economic boom ignited three decades ago by market reforms. "In all countries, that growth rate comes to an end." China's economic growth has averaged more than 9% a year since 1978. Mr. Perkins figures the high-growth phase has, at most, a decade left to run. Diminishing growth in China would have profound consequences for the global economy. Resource-rich countries in Latin America and Africa depend on expanding Chinese markets. Mature economies such as the U.S. and Europe look to China as an export market and a new place to invest. Inside China, sustained high growth has made it easier for the government to put off dealing with a host of problems, from bad loans created by state-controlled banks to sharp social divisions between rural and urban residents. The country's grand political bargain has been simple: Communist Party rule in exchange for increased prosperity and higher living standards. Government officials are giving voice to the need to plan for a different kind of economic future.

"The international financial crisis has caused a major change in the external conditions for China's development," Vice Premier Li Keqiang said earlier this year. The government needs to accelerate overhauls to the structure of the economy, he said, in order to lay a foundation for "stable and rapid economic growth over the long term." The most anticipated problem is an end to some 35 years of steady growth of the working-age population, which fueled the expansion when China liberalized its economy. The demographic changes added about 1.8 percentage points of economic growth annually since the late 1970s, according to the Center for Strategic and International Studies, a Washington think tank. But by 2030, the CSIS predicts, the contraction in the working-age population will reduce growth by 0.7 percentage points a year. In places like Dashimen, in the hills in northern Hebei province, everyone who can physically labor is already working in jobs in the cities. Yin Zhen, the 61-year-old husband of Ms. Wang, says he was a migrant worker himself until employers started passing him over for younger men about five years ago. With growth of the labor force slowing, migrant workers are in a stronger position to bargain with employers. A central-bank survey this year showed average wages for migrant workers, who traditionally fill the least-skilled slots and have little economic power, rose 17.8% from a year earlier. Those gains will improve the lives of the poorest urban workers. They also will make it tougher for Chinese exporters of low-end merchandise like apparel and toys to continue to compete mainly on price. Exporters will have to keep boosting productivity to make up for higher wages, and start making higher-end products that are less price-sensitive. That puts trade, one of China's great growth drivers, under pressure. China's exports have grown by an average of 21% a year over the past decade. With markets in Europe and the U.S likely to grow slowly over the next few years, China will be hard-pressed to sustain that pace. Qi Lihong, import-and-export department manager of Tonglu Spring River Knitting Group, a garment maker in Hangzhou, says higher wages and government-mandated benefits have pushed her labor costs up about 10% this year. To attract workers in the tightening labor market, the company is building nicer dormitories. The higher costs complicate Spring River's effort to rebound from the global economic slump. Annual revenues dropped to $28 million last year, from a peak of $40 million in 2006. For labor-intensive products like textiles and clothing, there are now cheaper places to manufacture than China. Average wages in Vietnam and Pakistan are just one-third of China's. "We can see that more orders are flowing to the low-cost countries," Ms. Qi says. On the beaches of Hainan, off China's southern coast, another threat to China's continued growth has risen. The office buildings in downtown Haikou, the provincial capital—evidence of a real-estate boom and bust in the early 1990s—now are dwarfed by new luxury apartment buildings and resorts. Apartments at the Serenity Coast development in the resort town of Sanya start at around $1 million. "Chinese people are getting rich and learning how to consume," says Xu Nengli, director at Kinderly Real Estate, the project's sales agent. Serenity Coast's sales averaged more than $400 million a month in 2009, and more buildings are still going up. "Everyone thinks this business is easy to do and wants to jump in the market," Mr. Xu says. New investment in Hainan real estate has more than doubled this year, according to official figures, and prices are up an average of 50%. Concerns are mounting about a real-estate bubble in Hainan and many other places where the rush to profit from real estate has pushed up prices. Attempting to head off a crisis, Beijing is requiring banks to tighten mortgage-lending standards. Many cities have restricted purchases by nonresidents. Partly as a result, sales have cooled somewhat, especially in the hottest real-estate markets. But if Beijing applies too many restraints, it could hurt construction, a major source of jobs. So far, the government has been successful in shielding China from the worst of the global financial crisis, thanks in part to a surge in construction projects such as roads, bridges and airports. Even before the stimulus, investment accounted for 44% of China's economy, a higher level than Japan or South Korea ever reached in their modernization drives. The returns on those investments matter enormously for how China grows. The latest round of public works, however, might not boost the economy as much as core first-wave infrastructure projects, such as the national highway system, did in earlier years. In Qingdao, a thriving port city in Shandong province, the construction boom is in full swing. The city is squeezed onto the eastern edge of Jiaozhou Bay, with the only room for expansion to the north and west. A highway curves around the bay, but it is often choked with traffic. In response,

the local government has begun building a 17-mile bridge across the bay. The cost: $1.4 billion, mostly covered by bank loans. "Economic development drives traffic, and traffic drives economic development," says Shao Xinpeng, chief engineer of Shandong Hi-Speed Qingdao Expressway Co., the state company building the bridge. But the bridge will face competition from a much-shorter tunnel also linking downtown Qingdao to the bay's west side. Min Zhengliang, an economist at Qingdao University, is skeptical. "To spend so much money to save only 20 minutes of driving time is just not worth it," he says. China's banking system, which is mainly state-controlled, has financed many such projects. Banks made loans last year worth one-third of economic output, and this year they are on track to hit 20% of GDP—a total of roughly $2.5 trillion in new credit over two years. (At the peak of the U.S. credit boom, new borrowing through banks and credit markets amounted to 18% of GDP, though China is growing much faster.) That credit load could limit China's ability to drive future growth through such spending. Yet China has flourished the past 30 years by constantly reinventing its economy, abandoning failed experiments and pursuing successful ones. Xiao Geng, the Beijing-based director of the Columbia Global Center in East Asia, ticks off a number of must-do policy fixes: improve the social safety net, ease price controls on energy and capital, and alter the dominant role of state enterprises. "It really requires very dramatic, deep and consistent reforms to have sustainable growth in the future," he says. "I'm worried about it, but still quite confident they will manage to do it.

Source: The Wall Street Journal Asia

SEOUL CALLS ON IMF TO TACKLE VOLATILITY The International Monetary Fund should come up with a detailed and realistic plan for tackling the volatility that can arise from rapid international capital flows, thereby ensuring global financial stability, South Korea's Finance Minister has said. "I believe the IMF has an important contribution to make, by proposing and enacting concrete and realistic measures to strengthen financial safety nets around the globe," measures that the Group of 20 leading nations are aiming to finalize at their summit in Seoul in November, Minister of Strategy and Finance Yoon Jeung-hyun said in a prepared welcoming speech for a three-day IMF-South Korea Asia 21 Conference. The conference, co-hosted by South Korea and the IMF, is designed to repair the latter's image in a country where the assistance it gave during the Asian financial crisis remains controversial at best. Mr. Yoon called for a change in the Washington-based body to reflect the growing voice of the increasingly important Asian economy by speeding up its efforts to overhaul quotas. IMF Managing Director Dominique Strauss-Kahn said Monday that Asian policy makers need to be prepared for further possible shocks given downside risks to the global economy including the recent turmoil in Europe. With Europe and U.S. expected to witness a potentially extended period of lower growth rates, Asia needs to increase its domestic investment and consumption as a long-term policy issue, he said. "As Asia's economic weight in the world continues to rise, its stake in the economic performance of other countries is rising, too," Mr. Strauss-Kahn said. "In my view, the macroeconomic, financial and corporate sector reforms put in place over the last decade have played an important role in the region's resilience. So, despite being hit hard initially, Asia was able to bounce back quickly from the global financial crisis."

Source: The Wall Street Journal Asia

POLITICS PARLIAMENT EXTENDS SESSION TO FINISH WORK Pressure of unfinished business led to the Spring session of Parliament being extended for six days. Its final meeting was held on July 16. The Autumn session will begin after a two-month recess. Before announcing the break, Speaker D.Demberel noted that 67 percent of items on the agenda had been disposed of. Some 130 draft laws and protocols had been discussed and approved. The most important among these were the national livestock program, the policy on the railways, and proposal for the exploitation of the Tavan Tolgoi coal deposit. Parliament also approved the Government proposal for a budget revision to increase salaries of government employees and pensions by 30 percent from October 1. A fiscal stability law was also approved. Not all MPs were, however, happy with the haste with which Standing Committees approved draft laws in the last days. Some drafts were discussed for less than five minutes. The heads of the two party groups in Parliament – Mr. D.Lundeejantsan of the MPRP, and Mr. Ch.Saikhanbileg of the DP – held a joint press conference, for the first time in Parliament‘s 20-year

history, to review the session. Mr. Saikhanbileg said the effect of many decisions made during the session will become apparent as time goes by. Mr. Lundeejantsan said there had been major differences between the two groups on several issues, making consensus difficult.

Source: News.mn

MPs POSTPONE DECISION ON REMOVING ANTI-CORRUPTION BOSSES Even after sitting for six days beyond its scheduled break, Parliament could not take a decision on whether to remove from their job Mr. Ch.Sangarragchaa, head of the Anti-Corruption Authority, and his deputy, Mr. D.Sunduisuren, as demanded by State Prosecutor General D.Dorligjav. By law, a decision should have been taken within two weeks of the request, but MPs could not agree on their course of action in the three weeks between the request and the end of the Spring session. Mr. Dorligjav wrote a second letter to Speaker D.Demberel about the urgency of the issue, expressing unhappiness that Mr. B.Bat-Erdene (MPRP), head of the Standing Committee on Justice, ―had erred in interpreting the law in a way that allowed him not to take a decision within the stipulated time on the ground that Parliament would be going into recess soon‖. The Standing Committee met several times to discuss the issue, but did not announce a decision. Since all the meetings were held in camera, no details have emerged on what the MPs said, but Mr. Bat-Erdene told media that a Special Control Sub-committee had been set up to evaluate some of the charges the Prosecutor General had brought and would need time to submit a report. Also, he said, the case was being investigated by a joint working group established by the Investigation Department of State Prosecuting Authority and the General Intelligence Authority. ―So we decided to wait for their reports,‖ he said. Mr. D.Lundeejantsan, head of the MPRP group of MPs, later said the group does not intend to take sides and wants the law to take its own course. Mr. Ch.Saikhanbileg, leader of the DP group, felt the Standing Committee should have settled the issue within the 14 days given by law. ―I do not know what happens now. Will the director of the Anti-Corruption Authority, D.Sangaragchaa, retain any authority if he is allowed to continue in his job? Does he command the respect of those working with him? The Anti-Corruption Authority is not just an agency. It has a special moral standing,‖ he said. Read more… After Parliament had gone into recess, the Head of the Standing Committee on Justice, Mr.Bat-Erdene wrote to the Prosecutor General asserting that the Committee had not willfully delayed taking a decision on the issue. The letter says the Committee ―heard the director and the deputy director separately, to get maximum information to help settle the case without politicizing the case‖. A review of documents and testimony from related officials led to the Committee deciding ―the issue was not clear‖. Members of the Committee ―also felt that dismissing officials appointed by Parliament without detailed scrutiny of all available material will adversely affect the morale of those working against corruption‖. Article 22.5 of the anti-corruption law ―is clear that anti-corruption officials must not be dismissed for reasons not indicated in law‖. The Standing Committee also wanted that Parliament‘s Monitoring Special Sub-committee must resume its own investigation into the matter without any hindrance from the anti-corruption organization.

Source: English.News.mn

U.S. DEPUTY SECRETARY OF STATE PAYS A DAY‟S VISIT At a meeting with visiting U.S. Deputy Secretary of State of James B. Steinberg on Monday, Prime Minister S. Batbold said Mongolia-U.S. relations are getting stronger and the two countries have made progress in social, political and economic sectors. He appreciated the ―staunch support‖ the USA has consistently given to Mongolia in its transition to a market economy and to social as well as political democracy. Assistance programs managed by the U.S. Millennium Challenge Corporation are being implemented successfully in the country. Mongolia would continue to protect international and regional security and has dispatched peacekeepers to several global hot spots in partnership with the U.S. and many other countries, the Prime Minister said. Mr. Steinberg said the U.S. values its relationship with Mongolia and will expand cooperation with the country by training Mongolian students and specialists in America. Mr. Steinberg arrived in Mongolia after visiting Kazakhstan, Uzbekistan and Kyrgyzstan, and flew on to Japan on Tuesday to participate in a trilateral dialogue involving Japan, Australia and the United States. During his one-day stop here, he also held talks with Foreign Minister G.Zandanshatar and visited a totally U.S.-equipped mobile field hospital that will be deployed at the UN military base in

Sudan. Source: Xinhua, Montsame

MONGOLIA-RUSSIA MEETING ENDS WITH REITERATION OF INTENTS The 14th meeting of the Mongolia-Russia Inter-governmental Commission on Cooperation in Trade, Economy, Sciences and Technology was held on Tuesday in Ulaanbaatar, with First Deputy Premier N.Altankhuyag and Minister of Transportation I.Ye.Levitin leading the two sides respectively. Mr. Altankhuyag said the meeting had a special significance as being the first since President Ts.Elbegdorj‘s last visit to Russia. The outcome of the meeting, or at least the account that was revealed to the media, however, did not live up to such expectations. The two sides agreed to make a thorough study of whether the terms of the 1949 agreement on Ulaanbaatar Railway need to be reviewed. They discussed revising the railway tariffs, reforming the UB Railway Association, and raising the railway‘s capital by a fresh investment of USD250 million. There was no reference to any concrete decisions being reached. All these issues have been under discussion for long, with no progress ever revealed. As at previous meetings, the two sides agreed to expedite establishment of the Dornod Uranium Company, without referring to any time frame, and expand and improve the operations of joint ventures such as the Erdenet factory and Mongolrostsvetment, hold further talks on reducing taxes on oil products imported from Russia, and increase livestock product exports. There was agreement to increase the number of Russian Government scholarships to Mongolian students in Russia.

Source: English.News.mn, Montsame

AMBASSADOR SEES STEADY GROWTH IN RELATIONS WITH RUSSIA Ambassador to Russia D.Idevkhten has said Russia was and will again be ―our key partner in foreign trade‖, carrying on a historical process that reached a peak in the last century. Radical changes in both countries led to some disruption in these traditional relations but recent years have witnessed a revival of the historical ties, with Presidents and other senior functionaries exchanging visits, increasing inter-parliamentary cooperation, and growing trade in the private sector. Mongolia now follows a multi-polar and multilateral foreign, and foreign trade policy, and the former pre-eminence of Russia in economic cooperation may not return, but since the signing by the two Presidents of the Ulaanbaatar Declaration, relations have been getting stronger and the partnership has taken on a new strategic role. As an example, he cited the very recent Russian Government decision to invest USD250 million on developing Ulaanbaatar Railway. The Mongolian Parliament‘s decision to use the Russian variety of gauge in its new railway also has important political implications. A joint company has been established to work in the infrastructure sector. There is enough scope, the Ambassador feels, for the two countries to go beyond traditional areas of economic cooperation such as uranium, minerals, and the railway.

Source: Zuunii Medee

RUSSIAN TRANSPORT MINISTER PITCHES FOR AIRCRAFT SALE Russian leasing company Ilyushin Finance is ready to sell AN-148 regional jets to Mongolian companies, Russian Transport Minister Igor Levitin said in Ulaanbaatar on Tuesday. The company is also ready to supply modern air navigation systems to Mongolian airports, he said. The basic AN-148 aircraft is designed to carry 70-90 passengers up to 5,000 kilometers and costs around USD20 million per plane. Ilyushin Finance is a subsidiary of Russia's United Aircraft Corporation.

Source: RIA Novosti

WAGONS, ENGINES ON NEW RAILWAY MAY BE PRIVATELY OWNED, MINISTER CLARIFIES Minister for Roads, Transport, Construction and Urban Development Kh.Battulga has expressed his happiness that Parliament adopted the State Policy on Railway as proposed by the Government, without any major change. Asked how the Government could be so sure of its adoption that it had arranged beforehand for souvenirs and gifts for MPs, Mr. Battulga said the policy had been debated for long and reflected a consensus. He called it a historic event as the decision to set up the existing Ulaanbaatar Railway had been taken in Moscow, while this time Mongolians in Mongolia formulated and adopted a policy aimed at establishing a railway network that will allow Mongolia to export its minerals directly through several points, create many workplaces, and help develop processing industries. He clarified that many countries are likely to be involved in the construction of the new railway.

The tracks will be owned by the state, but the carriages and locomotives can be owned by private companies. Work on the 1,100-km Tavan Tolgoi-Sainshand-Choibalsan section of the railroad will begin as soon as financing issues are settled. A preliminary feasibility study is ready and a more detailed study will take 3-5 months. It is easier to build a railway in the Gobi region than elsewhere in the country but maintenance work, especially what will need water, will be more difficult. The construction might take two years. The work will be done simultaneously in sections of 100 km. The Minister revealed that offers have been received from South Korea, China, Russia and Mongolia to build the railway and a choice will be made this year. The gauge will generally be of the broader Russian specification, but the National Security Council, the Government and Parliament may change this in places where the deposit is near the Chinese border.

Source: Business-Mongolia.com

CONSTRUCTION OF NEW PARLIAMENT BUILDING TO BEGIN IN AUTUMN Construction of a 12-story Parliament Building, with funds pledged by the Kuwait Government several years ago, will at long last begin in autumn. Answering questions on the landmark project, Secretary General of the Parliament Office, Mr. Ts.Sharavdorj, said the site finally selected is the garden to the north of Government House. Referring to the many protests against destroying the garden, he said there would be more trees and fountains in the area when construction is finished. The new building will offer spacious and separate offices for all 76 MPs. It will have two underground floors, and a general conference hall. The Kuwait Government has said there‘s no need to worry about the funding if costs overrun the USD12 million estimated several years ago. Bids from 10 Mongolian companies have been sent to Kuwait, where the selection will take place. One Mongolian company and one from Kuwait will be chosen to work together. The construction is expected to take 2-3 years.

Source: English.News.mn

ELBEGDORJ EMULATES PUTIN, DIVES TO THE BOTTOM OF LAKE BAIKAL President Ts.Elbegdorj last week became the first head of state to dive to the bottom of Baikal, the world's deepest lake, in a mini-submarine, following in the footsteps of Russia's adventure-seeking Prime Minister Vladimir Putin. Mr. Elbegdorj spent two hours underwater examining the unique flora and fauna of the lake and spoke to his wife and son via radio link-up during the dive, said Russia's Fund for Protection of Lake Baikal. "I feel huge joy and acute unity with nature," Mr. Elbegdorj said from the bottom of the Siberian lake. "I feel part of Baikal," he was quoted as saying by the fund.

Source: www.indolink.com

WORLD BANK REPRESENTATIVE AWARDED MEDAL Mr. Arshad Sayed, the World Bank ‗s Country Manager and Resident Representative in Mongolia, will soon be leaving the country after four years on the job. He was recently awarded the Medal of Honor of the city of Ulaanbaatar.

Source: Montsame

U.S. MOVE TO ASCERTAIN SOURCE OF “MONGOLIAN” HONEY The North American initiative formerly known as "Honest Honey" has changed its name to "True Source Honey". Four North American honey marketing companies and importers launched the initiative in May of this year and pledged to help protect the quality and reputation of the U.S. honey supply, and sought to call attention to illegal sales of honey in circumvention of U.S. trade laws. TrueSourceHoney.com is an educational resource providing information about where honey comes from and ways consumers, honey companies, food manufacturers and retailers can take action to eliminate illegally imported honey. ―We estimate that millions of pounds of Chinese honey continue to enter the U.S. from countries that do not have commercial honey businesses," said a spokesperson for the initiative. "For example, countries such as Indonesia, Malaysia, Taiwan, Thailand, the Philippines and Mongolia raise few bees and have no history of producing honey in commercial quantities, yet have recently exported large amounts of honey to the United States.‖

Source: The True Source Honey(TM) Initiative

SENATOR TO ASK WHY CANBERRA „LOBBIED AGAINST TAX‟ IN MONGOLIA Australian Senator Bob Brown has said he wants the Gillard government ―to clear the air on the government's role on behalf of Rio Tinto‖ in Mongolia "and also on if it influenced the Mongolian

authorities to legislate to overturn the super-profits (or windfall profits) tax." In reply to a question from Senator Brown last October on Mongolia's tax debate, Senator John Faulkner, representing Foreign Minister Stephen Smith, said, "The Australian government has made representations to the Mongolian government that a stable regulatory environment is essential to attract foreign investment." Mr. Brown‘s fresh move comes after the Chairman of the Mongolian Green Party and MP, Mr. D. Enkhbat, contacted him to express his concern that the presently anticipated returns to the Mongolian Government from the Oyu Tolgoi and such ventures will be inadequate for its social commitments, following the withdrawal of the windfall profits tax. Senator Brown has said, "There was a domestic campaign against the Oyu Tolgoi mine agreement. Clearly the Australian government lobbied for Rio Tinto against those Mongolians -- a number of whom were arrested and jailed after peaceful protests.‖

Source: The Australian

CONTAINING CHINA FROM MONGOLIA TO VIETNAM At first glance, Ulaanbataar and Hanoi may not seem to have very much in common. Some 3,000 miles apart at opposite ends of Asia, the people, culture and history are very different except for one element, having China as a neighbor. From having been allies in forming a communist alliance against the excesses of capitalism, Vietnam and China have found themselves estranged, a situation that has not sat well with the third and fourth generation Vietnamese-Chinese who had lived in the country for generations. Mongolia, sandwiched between the two superpowers of the Soviet Union and China, opted to side with the Russians after it became apparent in the early 1920s that maintaining independence from either was not going to be a sustainable option. On the basis of the Russian culture and looks being far less related with Mongolia‘s, the decision to join the Soviet empire was made in light of the viewpoint that had Mongolia sided with China, they would never have got their country back. Assimilation with China was a greater threat than assimilation by the Soviet Union. This proved correct. When the Russian troops upped and left in 1992, the Mongolians immediately began claiming back their country and reasserting their independence. These border disputes and historical alliances however have left an indelible mark on both Mongolia and Vietnam. Buddhist monks still wander the streets of Hanoi, and the Dalai Lama is a revered figure in Mongolia. In fact a previous Dalai Lama was born in the country, a situation likely to be repeated in the near future. Both Vietnam and Mongolia then are acutely aware of the Tibet issue, the assimilation of Tibet into China and the fate of any moves for Tibetan independence. China‘s superiority in the region has been duly noted in both Hanoi and Ulaanbaatar. In dealing with the repercussions however, both Vietnam and Mongolia have opted for a pragmatic solution – there are very little Chinese characters on display throughout both countries. Ulaanbaatar is almost exclusively devoid of Chinese, while in Vietnam it is restricted to trading houses near the main ports and the occasional restaurant. Even then the characters tend to be the complex traditional ones, rather than Mainland China‘s simplified version, a reflection of the fact that in Vietnam, it remains the southern Chinese Cantonese culture that historically has traded with the Vietnamese and not the Communist led era of 1950 onwards. Read more… Characters are to be found, but it is the signs of businesses from Japan and South Korea that dominate other Asian regional cultures in both Vietnam and Mongolia, not Chinese. This holding back on advertising a geographically close presence to China is a sign that neither the Mongolians nor the Vietnamese are particularly keen to allow a strong Chinese culture develop in their respective nations. Curiously, as the West, and especially the United States, has gone hell for leather for Chinese trade, and attracting Mainland China tourism is strongly on the agenda in many countries, for Vietnam and Mongolia, it is a culture that represents perhaps too strong an irrepressible urge. Holding China back by denying use of Chinese characters throughout your nation may seem odd when China is such mainstream international news and its currency reserves are feted over by many a government globally, but for these two nations, at opposite ends of the China, containment, and a more subtle arms length approach to doing business with the Chinese is emerging after decades of experience. China has a recent history of assimilating nations, and nowhere is this more apparent than along its remaining independent border neighbors. The lessons for the West to learn here may still yet be played out for decades to come.

Source: China Briefing

BEIJING REVIVES THE IDEA OF „EMPIRE‟ WITH THE NEW SILK ROAD

Thousands of years ago, trade caravans packed with spices and silk crisscrossed the Eurasian land mass along routes collectively known as the Silk Road. These caravans connected Constantinople to China‘s then-capital, Changan (now Xian). In those days, all roads led to China. Now with an audacious scheme to link 17 countries with more than 8,000 kilometers of high-speed railway—ultimately capable of transporting cargo as well as passengers all the way to London—China hopes to revive its role at the center of the universe. Even by larger-than-life Chinese standards, the plans seem mind-boggling. The first long-distance line inside China, linking inland Wuhan to coastal Guangzhou, opened in December, hitting top speeds of 350kph, faster than the speediest trains of Europe or Japan. Beijing hopes to have 800 bullet trains running across China by 2013 and, soon after that, across the border. Two networks will connect China to Europe—with terminuses in London and Berlin—and a third will link to Vietnam, Thailand, Burma, Malaysia, and Singapore. Chinese engineers have begun work in Burma, and Beijing says Central and Eastern European countries are keen for the building to start. The planned rail deals will vastly improve China‘s ability to transport crucial energy resources from suppliers in developing countries. ―If the system is completed, it‘ll be more convenient for us to tap into natural resources, especially oil and gas, in Myanmar, Iran, and Russia,‖ says Mr. Wang Mengshu, a consultant to China‘s high-speed-rail projects. China‘s rail network is a 21st-century, high-tech marvel married to a 19th-century view of the world as a hostile place, in which nations are well advised to secure their trade routes with exclusive deals—and arms where necessary. China‘s network is the first transcontinental project in Asia since Russia finished the Trans-Siberian Railway, from European Russia to Vladivostok, in 1916. The difference in the China project is that it is more extensive than all the earlier projects put together. Read more… China‘s vision is at odds with the hopes that opened this century for a world of free markets and open borders, and it animates many of China‘s latest mega-projects. A new gas pipeline from Turkmenistan to China‘s remote Xinjiang province has already siphoned off 50 billion of the country‘s 80 billion cubic meters of gas. China is helping secure its access to strategic ports in Pakistan, Burma, Bangladesh, and Sri Lanka. The Chinese leadership is intensely focused on securing and expanding its shipping routes. These new Silk Roads are a sign of how China sees the world of the future—less predictable and more dangerous. Threats, including a potential trade war with the West, and conflicts over energy security abound. Witness China‘s unease over U.S. threats of sanctions against one of its main oil suppliers, Iran. In this world, Beijing believes it will be better to have constructed strategic facilities—railways, ports, pipelines—especially in less developed countries that lack experience or financing for such projects. In return, China is eyeing important long-term transport or supply contracts for natural resources. In one such technology-for-resources deal, Beijing is building a rail system for Burma in exchange for Burmese lithium. Still, Beijing can‘t control everything that comes and goes on a network this big. If the ancient Silk Road was one of the first grand avenues of globalization, fueling trade from the Celestial Kingdom to medieval Europe, the new railroad will be the latest. All of its lines will carry both passengers and cargo, and are designed to keep China‘s economic miracle on track, as trade with Europe and the emerging markets grows. Thanks to China‘s energy hunger, its involvement with Mideast nations is also growing fast, and China‘s new Silk Road strategy is meant to fill the vacuum of ―strategic emptiness‖ that emerged in Central Asia after the fall of the Soviet Union, and could lead to bilateral tensions. Over the last decade Chinese economic influence has been slowly but surely eroding Russian power in what Moscow regards as its Central Asian backyard. Although Beijing has been careful to avoid public confrontation, its inroads in the region have riled Russians. ―By building their new Silk Road [railway], China is interfering in Russia‘s sphere of influence in Central Asia,‖ says pro-Kremlin Russian lawmaker Konstantin Zatulin, the head of the Commonwealth of Independent States committee in the Duma, Russia‘s parliament. The key to the new Chinese empire is not occupying turf but seeking reliable transport networks that aren‘t easily disrupted by powerful potential rivals, such as the U.S., Russia, or even India. Beijing‘s heavy involvement in developing infrastructure at Pakistan‘s port of Gwadar, for example, is linked to the fact that Gwadar is the downstream hub for pipelines linking Central Asia to China. In short, the new Silk Road is aimed at building a whole new world of infrastructure links that diminish Chinese reliance on traditional trade routes through the Strait of Hormuz (turf of the U.S. Fifth Fleet) and the Strait of Malacca (stamping ground of the U.S. Seventh Fleet). ―If [those waterways] were to become blockaded, it would be a big problem for Chinese sea transport,‖ says Chinese foreign-policy analyst Gao Heng, who believes authorities are very concerned about bottlenecks to energy imports. High-speed rail is part one of a backup plan to ensure energy

security. Because China is not intent on colonization, its domination can be much more subtle, achieved even through apparently minor technical tweaks. In the case of the railways, gauge is the key. A traveler who rides the rails from Beijing to Europe today must spend days on the Trans-Siberian Railway, built by Moscow a century ago. Russian railways—which still dominate in Central Asia as well—run on wider gauge than Europe‘s and China‘s, and that results in time-consuming delays at national borders to accommodate for the switch. All high-speed trains run on the European gauge, meaning that Central Asian nations will have to change over if Beijing lures them away from the old Russian models. The geopolitical fallout could be intense. ―Chinese projects in Central Asia sound threatening to Russia‘s economy, especially if China actually does build the railroad through Kyrgyzstan and Uzbekistan,‖ says Mr. Azhdar Kurtov, a senior researcher at the Russian Institute of Strategic Research. ―Russia has lost Central Asia,‖ says Mr. Yuri Krupnov of Moscow‘s Institute of Demography and Regional Development. While Russia was ―asleep‖ or distracted by conflicts with Ukraine and Georgia, China moved in—under the cover of the global economic crisis—to seal energy deals in Turkmenistan and Kazakhstan, and now the same will happen with rail projects in Central Asia, he predicts. Critics of Beijing‘s rail ambitions point to the high cost and question whether the scheme is simply a fast track toward centrally planned vanity and extravagance. While negotiating with many potential partners in Europe, for example, Beijing must convince powerful vested interests that its lower costs, and an impressive domestic record in promoting high-speed rail, can overcome technical challenges and potential grassroots opposition. Beijing says it‘s already conducted some surveys in Europe—but the only one of the three major rail lines on which its workers have actually broken ground is in Burma. (Indeed, Russian Railways spokesman Dmitry Pertsev says his firm isn‘t losing sleep over Beijing‘s planned ―mega-railroads‖ because ―they sound like dream-fantasy plans‖.) But high-speed train travel is green; its emissions are about one fourth those created by flying or driving. And the Chinese regime considers massive infrastructure projects a traditional source of job creation when economic times are tough. The Beijing-Shanghai high-speed rail project employs some 110,000 workers. The question is whether the outside world will see China‘s high-speed rail dreams as a win-win deal for the international community—serving to transcend national borders, promote free trade, and shrink the world. Or will it instead see Beijing‘s mercantilist pursuit of its own interests, in the form of proprietary involvement in key transport routes? The devil will be in the details of the many international deals that Beijing‘s rail planners, for the most part, have yet to pin down. If completed, the new Silk Road would accelerate China‘s trade with partners in Central Asia and Europe, possibly giving it an advantage over rivals such as Russia. Yet it could also help provide affordable low-emissions transport to countries that otherwise would face daunting financial or technological obstacles. Beijing is already building high-speed rail routes in Turkey, Venezuela, and Saudi Arabia. It‘s also signed preliminary agreements with the state of California and General Electric, reflecting China‘s hopes to provide technology, hardware, engineers, and some financing to build high-speed rail lines on the West Coast of the U.S., which now lags behind China in the field. Officially at least, Beijing authorities tout the mutual good that its global rail schemes will bring—as well as the advertisements such deals will represent for the ―Made in China‖ brand. The very process of negotiating its transcontinental rail deals could have a transformative effect on the Chinese regime. One reason why high-speed rail is so attractive domestically is that authorities can still largely push through massive infrastructure projects by decree, relocating entire communities and quashing labor unrest. By contrast, one of Beijing‘s target markets is India, where China‘s ruling mandarins will have to deal with a democratic process around infrastructure decisions, along with a feisty labor force. If Chinese authorities can‘t navigate such obstacles, their grandiose dream may be derailed. Whatever happens, Beijing‘s efforts to build a new Silk Road of iron offers a revealing peek at what the Pax Sinica may bring in years to come.

Source: Newsweek International

MICHAEL KOHN NOTES A SPRINKLING OF NEW PARKS IN ULAANBAATAR A handful of small parks have been popping up near Sukhbaatar Square. The best one is the plaza in front of the Shangri-La building. It has all the ingredients of an actual park - cobblestone walkways, a fountain, a grassy lawn and benches. Attached to the plaza (between the plaza and the Lenin statue) is a new park that seems to have been built with money donated from Turkey. It also contains new walkways and a fountain. The Turks actually built their park on top of an existing park, but it‘s a nice improvement. Lastly, the little park on the east end of Juulchin Gudamj (opposite the KGB office) has been

renovated. This park was built by one of Mongolia‘s retired sumo wrestlers, which is why it has a slightly Japanese tea garden feel to it. It had been falling apart in recent years and was spruced up earlier this month. I am holding out hope that the city of Ulaanbaatar will follow the example set by these private companies and donors and build some parks on its own dime. And hopefully the example set by Shangri-La, the Turks and the sumo wrestler will inspire other local companies to the same. My suggestion for any park builders out there – include a playground in your blueprints. UB's kids will thank you for it. This blog by the writer of the book on Mongolia in the ‗Lonely Planet‘ series can be read at ubchildrenspark.blogspot.com

NEW MONGOLIAN REGULATIONS

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

Date Laws 07.07.2010 Law on Medicine, medical equipment Annulment of Law on Medicine, medical equipment Accedence to Protocol Accedence to Singapore Treaty on Law on Trademark

14.07.2010 Law on trademark, geographical indication Amendments to Law on Special permits for economic entity activity Amendments to Law on Patent Annulment of Law on trademark, geographical indication

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 info@bcmongolia.org

ANNOUNCEMENTS

FRANCHISING & BUSINESS OPPORTUNITIES EXPO IN MELBOURNE, August 20-23, 2010 The Business Council of Mongolia (BCM) and Saki Partners (Australia) will be arranging for a Mongolian Business Mission to attend a Franchising & Business Opportunities Expo in Melbourne from August 20-23. The visit will be sponsored by the Australian Trade Commission. The Expo will feature over 100 businesses, in cosmetics, food and beverage, child care, home improvement, petroleum products and many others. Members of the mission will receive free business support as an international buyer. The benefits available to them will include: * Free admission to exhibits * Free Matchmaking * Free assistance in arranging and scheduling appointments with Australian exhibitors and

companies before and during the show * Access to the International Business Center, including a separate registration area to pick up

badges, and meeting rooms to meet with exhibitors * Special business side tour in Melbourne * Special franchising seminar and workshop * Assistance with travel and hotel bookings * Free assistance with logistics at the show * Local language support. Please call BCM at 976-11-332345 or email to serod@bcmongolia.org to register or for more information. The last date for registration is August 1. _____________________________________ 3 DAY INTENSIVE TRAINING DESIGNED FOR MINING COMPANY EMPLOYEES WHO FOCUS ON

COMMUNITY RELATIONS The Responsible Mining Initiative for Sustainable Development (RMI) and University of Queensland, Centre for Social Responsibility in Mining (CSRM) are organizing, for the second time, a 3 day intensive training designed for mining company employees who focus on community relations. We, therefore cordially invite you to participate in this training. Helping your employees work more effectively in the communities in which your company operates is a key to positive and productive community relations. This training will give your employee(s) the opportunity to learn from Australian experts and collaborate with peers also working in the mining industry throughout Mongolia. Please see attached for detailed background and description: When: August 30-September 1. What: ―Strengthening Community Relations in Mining‖ Presented by: The Responsible Mining Initiative, University of Queensland, Centre for Social

Responsibility in Mining

Cost: 1,200,000₮ /850$/ per person There are a limited number of seats available and enrolment is on a first come first served basis. To sign up, please contact before 16th of August 2010: info@rmi.mn; Tel: 7011-1767. ____________________________________ “BSPOT" on B-TV BTV (Business TV) now 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. ____________________________________ “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. As some of you might have noticed, 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

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]

June 30, 2010 11.4% [source:NSOM]

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

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 – July 22, 2010

Currency name Currency Rate

US dollars US 1,366.75

Euro EUR 1,761.26

Japanese yen JPY 15.68

British pound GBP 2,095.30

Hong Kong dollar HKD 175.74

Chinese yuan CNY 201.65

Russian ruble RUB 44.95

South Korean won KRW 1.13

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.