“China is a merchant-minded nation. If a branch of the Bank of China opens in Mongolia, it will do transactions in CNY, not MNT, and this will eventually raise issues related to the economic independence of Mongolia. In other words, the possibility of China taking hold over Mongolia cannot be denied,” stated a foreign investor who has been residing in Mongolia for over 10 years.

Normally, this sort of comment would be ignored by the majority, as it has become cliche, but this time it has alarmed many economists and locals. A country as influential as China could take over Mongolia within a few years if Mongolians bid farewell to the MNT and acknowledged CNY as the new national currency. Lately, both the public and private sectors are engaging in more talks about opening branches of large foreign banks in Mongolia. The Bank of China’s experts formally requested setting up a branch in Mongolia earlier this year, in February, heating up relevant discussions and negotiations. Economists, on the other hand, are concerned about the potential threat these banks, particularly the Bank of China, could pose to Mongolia.

At present, five foreign banks, including Sumitomo Mitsui Banking Corporation (SMBC), Bank of Tokyo-Mitsubishi UFJ (BTMU), and Bank of China, have opened offices in Mongolia, but the reason they haven’t set up local branches is because evaluation results have shown that it’s not possible for them to operate profitably. Opening local branches of foreign banks that are transparent and meet international standards has been proven to immediately boost investment and the economy of the host nation. It’s difficult to pinpoint the Bank of China as a bank with an open system meeting international standards, as 67 percent of it is owned by the Chinese government and the rest by stockholders. The fact that the Bank of  China operates under Chinese state policy has raised concern among economists and researchers.


Active assets of the banking sector, which makes up 97 percent of the Mongolian financial sector, amounts to merely 12 billion USD, which is equivalent to 27.2 trillion MNT. In contrast, the Bank of China is one of the largest banks in the world, with overseas branches operating in 37 countries registered at the Shanghai Stock Exchange and Hong Kong Stock Exchange, and reportedly, its active asset accounts are at approximately 560 billion USD. It’s clear that opening a branch in Mongolia would set up monopolistic competition, considering the fact that the Bank of China has more assets than the entire Mongolian banking sector, not to mention greater than Mongolia’s GDP.

Mongolian banks offer loans with high interest rates, piquing Mongolian interest in opening foreign bank branches locally to lower the interest rates of loans. On the other hand, interest rates for the savings of individuals and companies are around 13.4 percent, which is considered too high. Simply put, loan interest rates aren’t falling below 19 percent because banks get their money from sources with high terms. This indicates that there is a systemic flaw rather than problems with commercial banks, says one economist.

A CEO of a large Mongolian bank said that if Bank of China opens a branch in Mongolia, it will attract major lenders with favorable and more reliable terms, threatening Mongolian banks and putting them in a difficult spot, which will eventually lead them to increasing loan interest rates, or to even go bankrupt.


The Bank of China, which established an office in Mongolia three years ago, chooses to operate in markets only when certain that it will succeed and profit. It invests in the mining, infrastructure, and energy sectors, which hold strategic significance. In this sense, many people fear that every major company in Mongolia would be swallowed by the Bank of China. Local commercial banks would have to compete for the remaining small-profit loans, such as salary, small and medium-sized enterprises, and mortgage loans.

Since most people prefer getting more secure loans from banks operating at an international level with high capacity, having a new foreign bank would negatively impact the competitiveness of local banks. Consolidating banks, cutting operational costs, and reducing loan interest rates by force might seem like the best options for maintaining competitiveness, but this could lead to unemployment, financial instability, and weak internal structure and capacity. It could even cause Mongolian banks to perish.


Since its foundation, the Bank of China’s Office in Mongolia issued a loan of 25.1 million USD to Tuushin Group for constructing new headquarters, and assisted its Hong Kong branch in completing a currency swap transaction of 350 million USD with Mongolia’s Trade and Development Bank. Two years ago, the Bank of China reported that around 40 companies had applied for loans amounting to a total of three billion USD through its office in Mongolia. Since then, it hasn’t made any announcements related to financing and investment.

As mentioned before, the Bank of China sent a formal request to establish a branch in Mongolia in February 2016. According to its office in Mongolia, the new branch hopes to invest in infrastructure projects and provide loans that don’t exceed 12 percent of the Mongolian banking sector’s active assets. This might sound acceptable, but we mustn’t forget that the Bank of China has taken hold of the economies of Malaysia, Indonesia, Kazakhstan, and Tajikistan with this exact method. Mongolia must be extra careful about the decisions it makes.

Mongolia shouldn’t take any opportunity that comes its way just because the economy isn’t in good shape at the moment, because the independence of Mongolia is at stake. Quite a few nations have lost control of their economy and have even lost some of their land to the Bank of China. For example, a branch was opened in Kazakhstan, with the bank saying that it would finance SMEs, but it ultimately sponsored several large companies. As for Tajikistan, their financial system is dependent on the Bank of China, and 40 percent of its land is owned by China. The Bank of China also controls 70 to 80 percent of India’s banking sector. If Mongolian companies are unable to repay their debt, their company could end up liquidated, and even raise serious issues related to the national economy and independence.


China is one of Mongolia’s largest trading partners, so the Mongolian and Chinese economies are already closely linked. Most of Mongolia’s export and import trading partners, as well as companies interested in investing and cooperating on infrastructure, energy, and mining projects, are Chinese. This is a huge advantage for the Bank of Mongolia.

Moreover, the Central Bank of Mongolia carries out swap transactions with the People’s Bank of China, now and in the past, and the Chinese side is interested in raising the amounts of the swaps. Many observers are concerned about this, fearing the potential risks and the control China could get hold of over Mongolia in the future if something goes wrong. They note that opening a branch of the Bank of China when the nation is facing economic difficulties could push Mongolia straight into a sovereign debt crisis. If Mongolia must open a branch of a foreign bank, it should select an internationally recognized private bank with transparent operations, some Mongolian economists and bankers recommend.

The nation is facing economic difficulties right now, but we shouldn’t throw the baby out with the bathwater. Opening a Bank of China branch might appear to be a reasonable option for enhancing the banking system and lowering loan interest rates, but it might put the hard-earned independence of Mongolia at risk.


  1. The part that say”Bank of China controls 70 percent of Indian Banking sector” is utter nonsense and baseless. Hope editor can back his/her claims where asked to prove it.