We are delivering interview with economist B.Dulguun, who became acknowledges with his works of translations of books such as The Audacity of Hope by Barack Obama, Hot, Flat and Crowded by Thomas Friedman, Energy Autonomy by Hermann and The One Hour of China.
This time we talked about Chinese economy.
OUR ECONOMY LACKS LONG TERM PLANNING AND FORESIGHT POLICY
-How do you see current economic situation of Mongolia?
-It is very impotant to secure the sustanability of the economic development. For that it is not enough just to study domestic environment, we have to study our external environment as well and this should start with China. For the economic situation we need to look at five basic indicators.
As I see we have greater potential on the Chinese market. For last four years of doing analysis on Chinese market I have done studies on the products Mongolia can be supplying to China.
First, Statistics report. These reveal unemployment, inflation indeces. Second, External trade report from the customs. This report will tell how much we have imported and exported. Third, report from the Ministry of Finance, it tells us how much was the budget income and expenditure, which help us to determine whether there is deficiency or surplus.
Fourth, report from Bank of Mongolia, which reports on money supply, total bank loans, non-performing loans, in other words will give one a very definite picture of the total money flow on the market.
Fifth, tax report. This report will define which sector is having most income, how much taxes mining industry accumulates and so on.
-What will be the results of studying these data?
-Constant analysis of these will help to see the picture and will aid in forecasting the short term trends. For long term Mongolia definitely needs to have state policy based on those analysis. Any given country does the external environment analysis in order to do the long term development policy. For us it will be the studies and analysis of Russia and China. Third neighbors are as well need to be studied.
I believe China has much more impact on our economy. We should not be exporting raw materials to China just for the sake of increasing exports. We have to export value added prodcuts. As I see we have greater potential on the Chinese market. For last four years of doing analysis on Chinese market I have done studies on the products Mongolia can be supplying to China.
-Studies on China gained in understanding of which advantages Mongolia can have. Could you mention some of the results?
-There are many ooportunities as well as the risks that might become a disadvantage if not cared enough. For instance, let's take on the manufacture sector, which itself creates a lot of jobs. Former World Bank advisor emphasized that the 83 million jobs will move to another countries in the coming 15 years. During 1980- 2000 China prevailed at the manufacturing of the clothing and toys, which itself do not require any technological advancements and therefore do not require much funds.
Nowadays, Chinese manufactures are turning more to technology and are producing smart devices, solar panels, which in turn advance Chinese workers skills and abilities, resulting in increased income as well. In this regard, the clothing manufactures are moving to Vietnam, Phillippines, Mexico and so on. Out of this movement we can acquire only 150 thousand jobs, which will solve our unemployment.
Although jobs will migrate from China, the demand for those clothes still remains. Chinese will still be wearing those clothes. One example, China opened shoe factory in Addis Ababa, Ethiopia, which employs over 600 Ethiopians.
Many other factories and manufactures are relocating in Africa, India and Vietnam. One closing in China will lead to one opening in other countries. This trend will go on for several years.
This is our chance. We need to establish manufactures that will have more value for us. Manufactures in Ethiopia have Chinese owners. For Mongolia it should be us to decide whether Mongolians will ebe owners. Even if those will have foreign owners it is important for Mongolian workers, as they will be provided with jobs.
During this time of shifting of the work force it is crucial for us to establish several manufactures, which will lead to increase in exports to China with value added products. If we are not quick enough someone else will grab the opportunity.
-What are the main reasons of job shifting?
-In 2014 our GDP was at USD 4000, while in China the same number was at USD 7300. This indicates that China is richer than Mongolia. This also means that average wage in China is higher. Therefore economically it is profitable to move the factories to places with cheap work force.
Other reason for job shifting related with the population of China. As of 2012 work force percentage reached its peak and is to gradually drop over the coming years.
98 MILLION CHINESE TOURISTS WENT ABROAD AND SPENT USD 128 MILLION
-Does it meant it is profitable for us to open factories in Mongolia due to increasing wages in China?
-It has two sides. First, as the wages are increasing there is need to shift to markets with cheap labour. Secondly, middle class in China is expanding rapidly. We need to explore our advantages and establish manufactures on Mongolia targeting those middle class consumers. In past 30 years 300 million households have overcome poverty in China and shifted to middle class.
Middle class is the powerhouse everywhere, with most of the purchases. According to the McKinsey report 54 percent of the total middle class lived in North America and Europe as of 2009 and this number will decrease to 21 percent by 2030, whereas the majority, 66 percent, is residing in Asia.
Most of which will consist of Chinese middle class. For that forecasts we have to be ready to supply those middle class people with their clothing, toys, food and if possible with luxury items as well. If we are to export coal and copper even by 2030 it will indicate how incapable we are. We need to be sensitive what China is reducing n production and to what we can provide this huge market wth.
-For instance?
-it could be services as well, besides products. In 2012 over 83 million Chinese residents have travelled abroad, of which 60 percent have been in foreign country for the first time. This fact only suggests we can develop our tourism.
This number increased in 2014 to 98 million and have spent around USD 128 million. We can provide with quality tourist services only 1percent and that will equal to the exports of copper from Oyu Tolgoi. There are many opportunities, but we also have to take into account the risks.
-How do you foresee the exports of coal and copper by 2030?
-The reason why Mongolia exports copper, iron and coal to China in such big loads is the construction development in China. Coking coal is used in steel making. Many of the commodities are processed there and used in construciton sector.
Frankly saying, although many like to say that Mongolian economy is dependent on China, it is dependent only on factories located in the North of China only. There is no dependence from let's say Shanghai. According to the EuroMonitor report the construction development will reach its peak in 2024 and from that point it will decline. It is interesting how much will coal and copper cost by then. We have to be ready for that decline.
WE CAN LESSEN DEPENDENCY BY SECURING CHANGES IN TWO LEVELS
-Just by being a neighbour to China does not mean we will have economic advantage. More depends on how we use this location. What policy should be implemented?
-88 percent of the total Mongolian export goes to China. This shows how much dependent we are from this market. If China closes its borders our biggest currency flow will be blocked.
Export is one of the main four sources of foreign currency. We have to make changes in two levels to get rid of the dependency.
First, reduce the dependency of one country and diversify. In doing so, if we were exporting 88 percent of total exports to China, in next 5 years reduce it to 60 percent, after 10 years 30-40 percent and make those changes gradually.
Secondly, we need to diversify our export products. 51 percent of the products we export to China is copper alone. Oil, coal and copper are main products of export and they are 80 percent of total exports to China only. Diversification of export products is the way to reduce the dependency of mineral resources.
-When we say China it is already market with huge competition. But you are saying we have to use this market.
-It is indeed has huge competition domestically. But we do have opportunities there. These are facts. Firstly, we have to produce and manufacture by ourselves. It is not helping much if we are to sit and see.
Suppose we are looking as socks. May be we do not have advantage in socks, but we have to look at it differently, what kind of socks can we produce that will have winning features. It could be wool socks. We have raw materials and cheap labour. Intersection of these two with good management might become our power product. We have to learn to see our segment.
-How about the trades with Russia?
-90 percent of the imports from Russia is oil. But we are not exporting much in return. We are conducting trades with Russia with losses over USD 1 billion. If we reduce this gap our trade balance will have surplus. Russian import taxes may be high, but they have stopped imports from Europe.
According to the estimates it equals to USD 9 billion. This gap is now being filled by other countries. Imports from Brazil, Chile and Argentina have increased as a result. We are right beside them and we are not prepared at all. But Russia has approved of our meat exports. This is the beginning.
-Are there any other markets?
-Japan. We have spent USD 367 million just on imports of second hand cars and car parts in 2014 alone. While our exports equal to only USD 24 million. I hope this situation will change. Currently one company imports break parts from Japan and exports back the assembled break.
In China the same situation is with iPads and iPhones, parts are brought from Taiwan and Japan and are assembled in China. It is all about the percent of the added value. in 1980s for China it was 20 percent, while nowadays it reached 50 percent. Japanese GDP is USD 38,000.
Mongolian GDP is 10 times lower. It could be much cheaper to assemble parts in Mongolia and export back to Japan, reducing the costs.
MONGOLIA WILL REDUCE CUSTOMS TAXES ON 5700 TYPES OF 97 CATEGORIES OF PRODUCTS, WHILE JAPAN WILL REDUCE 9300 TYPES OF 97 CATEGORIES
-Japan and Russia have protected their domestic manufacturers with high import taxes.
-We have signed the EPA with Japan and in scope of this agreement we are to sign trade agreement as well. The agreement provisioned that Mongolia and Japan to reduce the import taxes for 5700 types of product for Japan and 9300 types of prodcuts for Mongolia.
Those prodcuts will be imported and exported without taxes.
Out of those 825 products from Japan and 60 products from Mongolia are to be tax free from the day the agreement will be in effect.
I wish our businesses would go through the list and plan their activities. Because those prodcuts will be imported and exported without taxes.
We need to utilize those opportunities right away. We can develop manufactures with exports in our minds.
-It seems we can talk endlessly on how to improve the economy. Our main problem is implementation.
-Indeed. It is important that government will make it clear to the manufacturers and young entrepreneurs how the state can help them to lessen the burden. As of now we are lacking the fundamental research and analysis. Our businesses lack any proper information, besides having poor structural and managemental issues. We need to learn the experiences of other successful exporting countries.
-Do we lack export policy?
-Yes we do. We only have Foreign Investment Agency. We need to establish agency responsible for the exports as well. It is impossible for instance for GOBI to study European market by themselves as it bears high costs. Instead exporting companies could establish joint research and analysis institution, where the results can be shared. Our Business Development Association is working on this.
-As the spring approaches the construction sector is to revive its activities. Housing prices are high and it is explained with high imports. You have done research on this sector.
-Construction sector is very competitive and involves wide variety of materials to be used. For instance, cement, Mongolian construction companies have imported 4.2 million tons of it in last three years, worth of USD 300 million. Only three big Chinese cement factories are comprising 70 percent of Mongolian cement imports. Over 3000 entities and individuals are importing cement into Mongolia.
If our entities importing cement can join its forces, we have the full potential to reduce the price per ton. There are too many small entities importing cement, while there are only three supplliers. Therefore it is much profitable to unite and do negotiations as one.
On the other hand, there are many cement factories are opening in Mongolia, securing the cement prices at stable point.
-Thank you.
We are delivering interview with economist B.Dulguun, who became acknowledges with his works of translations of books such as The Audacity of Hope by Barack Obama, Hot, Flat and Crowded by Thomas Friedman, Energy Autonomy by Hermann and The One Hour of China.
This time we talked about Chinese economy.
OUR ECONOMY LACKS LONG TERM PLANNING AND FORESIGHT POLICY
-How do you see current economic situation of Mongolia?
-It is very impotant to secure the sustanability of the economic development. For that it is not enough just to study domestic environment, we have to study our external environment as well and this should start with China. For the economic situation we need to look at five basic indicators.
As I see we have greater potential on the Chinese market. For last four years of doing analysis on Chinese market I have done studies on the products Mongolia can be supplying to China.
First, Statistics report. These reveal unemployment, inflation indeces. Second, External trade report from the customs. This report will tell how much we have imported and exported. Third, report from the Ministry of Finance, it tells us how much was the budget income and expenditure, which help us to determine whether there is deficiency or surplus.
Fourth, report from Bank of Mongolia, which reports on money supply, total bank loans, non-performing loans, in other words will give one a very definite picture of the total money flow on the market.
Fifth, tax report. This report will define which sector is having most income, how much taxes mining industry accumulates and so on.
-What will be the results of studying these data?
-Constant analysis of these will help to see the picture and will aid in forecasting the short term trends. For long term Mongolia definitely needs to have state policy based on those analysis. Any given country does the external environment analysis in order to do the long term development policy. For us it will be the studies and analysis of Russia and China. Third neighbors are as well need to be studied.
I believe China has much more impact on our economy. We should not be exporting raw materials to China just for the sake of increasing exports. We have to export value added prodcuts. As I see we have greater potential on the Chinese market. For last four years of doing analysis on Chinese market I have done studies on the products Mongolia can be supplying to China.
-Studies on China gained in understanding of which advantages Mongolia can have. Could you mention some of the results?
-There are many ooportunities as well as the risks that might become a disadvantage if not cared enough. For instance, let's take on the manufacture sector, which itself creates a lot of jobs. Former World Bank advisor emphasized that the 83 million jobs will move to another countries in the coming 15 years. During 1980- 2000 China prevailed at the manufacturing of the clothing and toys, which itself do not require any technological advancements and therefore do not require much funds.
Nowadays, Chinese manufactures are turning more to technology and are producing smart devices, solar panels, which in turn advance Chinese workers skills and abilities, resulting in increased income as well. In this regard, the clothing manufactures are moving to Vietnam, Phillippines, Mexico and so on. Out of this movement we can acquire only 150 thousand jobs, which will solve our unemployment.
Although jobs will migrate from China, the demand for those clothes still remains. Chinese will still be wearing those clothes. One example, China opened shoe factory in Addis Ababa, Ethiopia, which employs over 600 Ethiopians.
Many other factories and manufactures are relocating in Africa, India and Vietnam. One closing in China will lead to one opening in other countries. This trend will go on for several years.
This is our chance. We need to establish manufactures that will have more value for us. Manufactures in Ethiopia have Chinese owners. For Mongolia it should be us to decide whether Mongolians will ebe owners. Even if those will have foreign owners it is important for Mongolian workers, as they will be provided with jobs.
During this time of shifting of the work force it is crucial for us to establish several manufactures, which will lead to increase in exports to China with value added products. If we are not quick enough someone else will grab the opportunity.
-What are the main reasons of job shifting?
-In 2014 our GDP was at USD 4000, while in China the same number was at USD 7300. This indicates that China is richer than Mongolia. This also means that average wage in China is higher. Therefore economically it is profitable to move the factories to places with cheap work force.
Other reason for job shifting related with the population of China. As of 2012 work force percentage reached its peak and is to gradually drop over the coming years.
98 MILLION CHINESE TOURISTS WENT ABROAD AND SPENT USD 128 MILLION
-Does it meant it is profitable for us to open factories in Mongolia due to increasing wages in China?
-It has two sides. First, as the wages are increasing there is need to shift to markets with cheap labour. Secondly, middle class in China is expanding rapidly. We need to explore our advantages and establish manufactures on Mongolia targeting those middle class consumers. In past 30 years 300 million households have overcome poverty in China and shifted to middle class.
Middle class is the powerhouse everywhere, with most of the purchases. According to the McKinsey report 54 percent of the total middle class lived in North America and Europe as of 2009 and this number will decrease to 21 percent by 2030, whereas the majority, 66 percent, is residing in Asia.
Most of which will consist of Chinese middle class. For that forecasts we have to be ready to supply those middle class people with their clothing, toys, food and if possible with luxury items as well. If we are to export coal and copper even by 2030 it will indicate how incapable we are. We need to be sensitive what China is reducing n production and to what we can provide this huge market wth.
-For instance?
-it could be services as well, besides products. In 2012 over 83 million Chinese residents have travelled abroad, of which 60 percent have been in foreign country for the first time. This fact only suggests we can develop our tourism.
This number increased in 2014 to 98 million and have spent around USD 128 million. We can provide with quality tourist services only 1percent and that will equal to the exports of copper from Oyu Tolgoi. There are many opportunities, but we also have to take into account the risks.
-How do you foresee the exports of coal and copper by 2030?
-The reason why Mongolia exports copper, iron and coal to China in such big loads is the construction development in China. Coking coal is used in steel making. Many of the commodities are processed there and used in construciton sector.
Frankly saying, although many like to say that Mongolian economy is dependent on China, it is dependent only on factories located in the North of China only. There is no dependence from let's say Shanghai. According to the EuroMonitor report the construction development will reach its peak in 2024 and from that point it will decline. It is interesting how much will coal and copper cost by then. We have to be ready for that decline.
WE CAN LESSEN DEPENDENCY BY SECURING CHANGES IN TWO LEVELS
-Just by being a neighbour to China does not mean we will have economic advantage. More depends on how we use this location. What policy should be implemented?
-88 percent of the total Mongolian export goes to China. This shows how much dependent we are from this market. If China closes its borders our biggest currency flow will be blocked.
Export is one of the main four sources of foreign currency. We have to make changes in two levels to get rid of the dependency.
First, reduce the dependency of one country and diversify. In doing so, if we were exporting 88 percent of total exports to China, in next 5 years reduce it to 60 percent, after 10 years 30-40 percent and make those changes gradually.
Secondly, we need to diversify our export products. 51 percent of the products we export to China is copper alone. Oil, coal and copper are main products of export and they are 80 percent of total exports to China only. Diversification of export products is the way to reduce the dependency of mineral resources.
-When we say China it is already market with huge competition. But you are saying we have to use this market.
-It is indeed has huge competition domestically. But we do have opportunities there. These are facts. Firstly, we have to produce and manufacture by ourselves. It is not helping much if we are to sit and see.
Suppose we are looking as socks. May be we do not have advantage in socks, but we have to look at it differently, what kind of socks can we produce that will have winning features. It could be wool socks. We have raw materials and cheap labour. Intersection of these two with good management might become our power product. We have to learn to see our segment.
-How about the trades with Russia?
-90 percent of the imports from Russia is oil. But we are not exporting much in return. We are conducting trades with Russia with losses over USD 1 billion. If we reduce this gap our trade balance will have surplus. Russian import taxes may be high, but they have stopped imports from Europe.
According to the estimates it equals to USD 9 billion. This gap is now being filled by other countries. Imports from Brazil, Chile and Argentina have increased as a result. We are right beside them and we are not prepared at all. But Russia has approved of our meat exports. This is the beginning.
-Are there any other markets?
-Japan. We have spent USD 367 million just on imports of second hand cars and car parts in 2014 alone. While our exports equal to only USD 24 million. I hope this situation will change. Currently one company imports break parts from Japan and exports back the assembled break.
In China the same situation is with iPads and iPhones, parts are brought from Taiwan and Japan and are assembled in China. It is all about the percent of the added value. in 1980s for China it was 20 percent, while nowadays it reached 50 percent. Japanese GDP is USD 38,000.
Mongolian GDP is 10 times lower. It could be much cheaper to assemble parts in Mongolia and export back to Japan, reducing the costs.
MONGOLIA WILL REDUCE CUSTOMS TAXES ON 5700 TYPES OF 97 CATEGORIES OF PRODUCTS, WHILE JAPAN WILL REDUCE 9300 TYPES OF 97 CATEGORIES
-Japan and Russia have protected their domestic manufacturers with high import taxes.
-We have signed the EPA with Japan and in scope of this agreement we are to sign trade agreement as well. The agreement provisioned that Mongolia and Japan to reduce the import taxes for 5700 types of product for Japan and 9300 types of prodcuts for Mongolia.
Those prodcuts will be imported and exported without taxes.
Out of those 825 products from Japan and 60 products from Mongolia are to be tax free from the day the agreement will be in effect.
I wish our businesses would go through the list and plan their activities. Because those prodcuts will be imported and exported without taxes.
We need to utilize those opportunities right away. We can develop manufactures with exports in our minds.
-It seems we can talk endlessly on how to improve the economy. Our main problem is implementation.
-Indeed. It is important that government will make it clear to the manufacturers and young entrepreneurs how the state can help them to lessen the burden. As of now we are lacking the fundamental research and analysis. Our businesses lack any proper information, besides having poor structural and managemental issues. We need to learn the experiences of other successful exporting countries.
-Do we lack export policy?
-Yes we do. We only have Foreign Investment Agency. We need to establish agency responsible for the exports as well. It is impossible for instance for GOBI to study European market by themselves as it bears high costs. Instead exporting companies could establish joint research and analysis institution, where the results can be shared. Our Business Development Association is working on this.
-As the spring approaches the construction sector is to revive its activities. Housing prices are high and it is explained with high imports. You have done research on this sector.
-Construction sector is very competitive and involves wide variety of materials to be used. For instance, cement, Mongolian construction companies have imported 4.2 million tons of it in last three years, worth of USD 300 million. Only three big Chinese cement factories are comprising 70 percent of Mongolian cement imports. Over 3000 entities and individuals are importing cement into Mongolia.
If our entities importing cement can join its forces, we have the full potential to reduce the price per ton. There are too many small entities importing cement, while there are only three supplliers. Therefore it is much profitable to unite and do negotiations as one.
On the other hand, there are many cement factories are opening in Mongolia, securing the cement prices at stable point.
-Thank you.