Frontier city runs into challenges building trade zone on China’s border with Mongolia

By Chu Daye in Erenhot Source:Global Times Published: 2017/5/2 20:33:39

Northern exposure

The border city of Erenhot, North China's Inner Mongolia Autonomous Region, is being developed as China's foremost trade city with Mongolia, China's neighbor to the north. The city's border trade zone is a key component of the autonomous region's "Open to the North" strategy and serves to advance the country's "One Belt and One Road" (B&R) initiative. However, the zone's development has run into challenges, including a slowing economy and a trading partner that has few exports to speak of. Still, local investors and merchants remain hopeful that government support and a pioneering spirit would make the trade zone a success.

A Mongolian driver on Saturday stands beside a truck at the entrance to the city of Erenhot. She is waiting at the port entry to go back to Mongolia. She transports goods between China and Mongolia, and she can earn about 100,000 yuan ($14,505.4) a year. The truck she drives has been used for almost 40 years, but still runs. Photo: CFP


A sign marks the gate to the Erenhot border trade zone on April 26. Photo: Chu Daye/GT

Few of the booths were manned and many others were still waiting to be leased on April 26 at a market in the border trade zone in Erenhot, North China's Inner Mongolia Autonomous Region.

Other than a lone Mongolian worker, who quickly departed, there were few visitors to the zone on that day.

Located 700 kilometers north of Beijing, Erenhot is being developed as China's foremost trade city with Mongolia, China's neighbor to the north.

The zone is a key component of the autonomous region's "Open to the North" strategy, which was put forward in 2013 to supplement China's "One Belt and One Road" (B&R) initiative. Among its many goals, the initiative aims to improve trade ties among China, Mongolia and Russia.

For its part, the local government regards the zone as crucial to its own development.

"The city sees the border trade zone and a cross-border economic cooperation zone under construction as key drivers heralding its development and opening-up moves," Erenhot Mayor Tian Yong told the Global Times on Thursday.

After more than three years of preparation, the first phase of the border trade zone opened in September 2016, hosting 56 booths and 20 vendors, most of whom were Mongolian.

However, the zone's development has run into challenges, including a slowing economy and a trading partner that has few exports to speak of.

Still, trade is all the city has, said Ye Ping, a major investor in the city.

"With a population of just 70,000 people, no manufacturing, and sweeping winds across the plateau that makes six months out of the year unsuitable for construction, the only way to develop Erenhot is to capitalize on the city's inherent strength as a border city," he told the Global Times on April 26.

Ambitious plans

Ye, a resident of Hangzhou, capital of East China's Zhejiang Province, has worked as a merchant in the manufacturing city in Yiwu, Zhejiang, and also owns a trade zone in South China's Guangxi Zhuang Autonomous Region on the border with Vietnam.

He has invested 350 million yuan ($50.77 million) in Erenhot's 100,000-square-meter trade zone, which encompasses a marketplace, a clearing center and a warehouse overseen by customs officials.

Ye sees Erenhot as a logistics hub and wholesale center for Chinese-made merchandise on the China-Mongolia border. He envisions the trade zone's influence spreading as far as Eastern Europe.

Ye has a multifaceted recipe for success: Milk every drop from the central government's policy for enriching the border regions and boosting cross-border trade, improve the quality and reputation of the Chinese-made merchandise sold at his marketplace, and create jobs for unemployed locals under the central government's call for mass entrepreneurship.

Ye hopes his marketplace can meet Mongolian demand with supply from China's manufacturing centers. "I came from Yiwu, so I know there are companies there under a lot of pressure to de-stock," he said. "And I know customers here will like those products."

Trade troubles

On the ground, however, Ye's goals face ­challenges.

Erenhot residents told the Global Times that the Mongolian economy has slackened in recent years, with trade down from its peak around 2007-09, when the country was in the midst of a construction boom and runaway economic growth.

Erenhot traders have also been hurt by the depreciation of the Mongolian currency against the yuan. In 2013, the tugrik was worth 0.004 yuan. On Tuesday, it was trading 25 percent weaker at 0.003 yuan.

"Mongolians used to be generous customers, but they have become much more thrifty," a resident surnamed Guo told the Global Times on April 26.

Ma Shuchun, a merchant who sells bicycles in the city's traditional marketplace, said he would think twice before opening a stall in the border trade zone.

"I am cautious, so I first want to see the characteristics of the border market," he told the Global Times on Thursday.

The central government has created incentives to boost Chinese demand for Mongolian products. In line with the policy, Chinese inhabitants of the border area can buy up to 8,000 yuan worth of imported products a day tax free. Chinese citizens from elsewhere, such as tourists, can receive a tax exemption on the first 2,000 yuan worth of goods they buy in the border zone each day.

The problem is that there isn't much for them to buy. Ye noted that Mongolia is a country that imports almost everything, but exports little besides meat products.

In addition, it's difficult to find Russian goods at the market, which further reduces the trade zone's appeal to tourists and local shoppers.

Ye has also acknowledged several other challenges, including a limited flow of people and underdeveloped regional logistics.

The situation has caused many merchants from Zhejiang to abandon the city, he said.

Holding out hope

Despite the challenges, there are merchants holding out hope for Erenhot's border trade zone.

At one booth in the market, Mongolian merchant Ch Odgerel showcased products ranging from dried meat and canned foods to soft drinks and camel-hide shoes.

"I chose this booth to bring products from my meat processing plant to more customers, including Erenhot's residents and tourists from other parts of China. Of all the things I sell, meat sells best," she told the Global Times on April 26.

She thanked the Chinese government, and specifically the customs authority, for building the trade zone.

As of December 31, 2016, there have been 12,000 visits to the Erenhot trade zone, according to a report on China National Radio's website in January. The visitors spent 10.86 million yuan, of which 9.73 million yuan cleared customs.

Experts have said that the success of the B&R initiative hinges on whether it can bring prosperity to cities like Erenhot, and whether it can nurture a generation of entrepreneurs. 

Ye said building a prosperous border trade zone requires people to be willing to go against the grain.

"People should dare to take risks," he said.

Posted in: INSIGHT

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