When China held its Belt and Road Forum for International Cooperation in Beijing May 14 to 15th, China’s President Xi Jinping welcomed Mongolia’s efforts to help link the European and Asian economies.
China welcomes cooperation with Mongolia in areas of trade and investment, agriculture, industrial growth, and energy development. President Xi suggested that China Belt and Road Initiative complements Mongolia’s own Prairie Road development initiative. Cooperation is also important to promote a China, Mongolia, Russia economic corridor.
President Xi advocated for a study of establishing a Free Trade Zone on the Border wth Mongolia, and increasing economic cooperation between the countries, including cooperation on major mineral industry programs and infrastructure.
Prime Minister Erdenebat of Mongolia indicated cooperation with China is a Priority for Mongolia, and said China’s Belt and Road initiative is important for promoting development in Mongolia. According to Erdenebat, Mongolia may play an important role as a link between Europe and East Asia.
Mongolia is well placed between major powers Russia and China to serve as a conduit for economic and cultural exchange. Mongolia suffers from a lack of population compared to its large southern neighbor, however, Mongolia’s rich mineral resources mean Mongolia will be able to generate foreign interest and income for years to come. With budgetary reform in Mongolia well underway, further integration with China and Russia is one more positive development for the future of the Mongolian economy.
Mongolia Minister of Finance B. Choijilsuren presented to the Speaker of Parliament M. Enkhbold a set of planned amendments to the 2017 state budget. These amendments have been designed to better ensure the government’s ability to meet its obligations under the International Monetary Fund’s extended fund facility program from which the government will receive substantial loans.
The amendments are intended to stabilize the national budget and the fiscal outlook financial environment, by reductions in budget deficits, and imposing discipline.
The primary changes in the new budget include:
- Increasing taxes on alcoholic beverages and imposing tariffs on imported cigarettes;
- Increasing taxes on gasoline and diesel fuel;
- Increasing taxes on imported vehicles, in accordance with engine capacity;
- Dividing personal income taxes into three brackets and increasing personal income tax for people with higher incomes;
- Charging a ten percent tax on interest earned from savings accounts;
- Raising social insurance fees;
Of these, the biggest and the one that caught the attention of our China lawyers is the changes proposed for the personal income tax. The exact income levels which will be cut off points between the three tax tiers is not yet known, however it is likely that many expatriate employees in Mongolia may be affected by higher taxes on their income.
In addition to the above, the amended budget will impose several new measures intended to reduce the government’s overall operational sending levels and bring expenditures in line with government revenues.
- Increase the efficiency of tenders being carried out in the medical sector;
- Raise the retirement age every two years;
- Promote the Meat and Milk Campaign to develop Mongolian meat and dairy industry;
- Provide the state’s monthly welfare allowance of 20,000 MNT for children and other state assistance only to targeted groups;
- Repeal existing laws that put pressure on the state budget.
The government will aim to limit deficit spending to 10.6% of overall GDP, with revenue expected to be 23.1 percent of GDP, and overall spending to be 33.7% of GDP.
Of the above measures, LehmanLaw Mongolia is pleased to see efforts to promote the Mongolia meat and dairy industry included. Mongolia’s large expanse of green pasture land, clean water and fresh air should provide excellent opportunities for entrepreneurs and foreign investors seeking to establish meat and dairy production operations in the country. Exports of such products to China should find a willing market, as Chinese meat and dairy consumption is expected to continue rising trends.
The other good news is the general commitment to eliminate old laws that cause unnecessary financial strain on the government. This review process is necessary and is expected to help the government identify new areas where spending can be reduced by smart changes to the law. This is the kind of reform needed to stabilize the Mongolian economy and prepare for long term growth.
In May this year, China’s Minister of Commerce Gao Hucheng led an economic and trade delegation from the PRC in a visit to Mongolia. The delegation met with Mongolian Prime Minister Saikhanbileg to discuss facilitation of trade between Mongolia and China. During the meeting of the China-Mongolia Economic and Trade Joint Committee, the two sides reached broad consensus as to several areas of cooperation.
At the meeting, Minister Gao indicated that China would like to actively promote cooperation, accelerate the establishment of a China-Mongolia-Russia economic corridor, and promote the construction of free trade zone with cross-border economic cooperation zones, and generally promote the sustained and healthy development of bilateral economic and trade relations.
The Mongolian side noted that Mongolia attaches great importance to relations with China, and regards China as a good neighbor, good friend and reliable partner. Mongolia will strengthen cooperation with China is several areas, including to accelerate the establishment of a free trade zone, and promoting cooperation in the development of mineral resources, energy and animal husbandry. Mongolia and China will work to facilitate trade.
The parties expect the construction of a Free trade zone between Zamiin Uud and Ereen hot (aka Erlian) to be completed by the end of this year, 2016. The Free trade zone will cover almost 18 sq.m on Mongolian and Chinese border. About 50 business entities from China and Mongolia will operate in the zone. According to the bilateral agreement on establishing cross-border economic cooperation zone, Mongolian and Chinese export and import taxes will be zero within the zone.