Amid the current China-fueled rush for resources, the strategy identifies Mongolia's mineral wealth as a security Achilles heel, citing the risk of "turning into a raw materials appendage to other countries." As part of that, China and Russia are each limited to a third of Mongolia's total foreign investment.
The government has kept foreign companies bidding to mine off-balance, drawing in U.S., Japanese, British as well as Chinese and other firms so that no one dominates. A $500 million low-interest loan from China for development projects sits untouched, because the government worries Beijing wants to use it to force mining concessions.
When the government-run Aluminum Corporation of China Ltd., known as Chalco, tried to take a controlling stake in a South Gobi coal mine near the Chinese border by buying shares from other foreign investors, parliament hurriedly passed a law this summer to stop it. Chalco dropped its bid.
By requiring Mongolia Mining, a private company listed in Hong Kong, to use a different railway gauge than China, the government is adding $2 to $4 in costs to every ton of coal, or about $120 million each year.
The railroad was debated for more than two years in parliament. A transport minister and other powerful politicians argued the railway should first connect with existing tracks to Russia.
In a compromise both are being built, though Russia doesn't need the coal and its nearest port is 4,000 kilometers (2,500 miles) away. The coal could be shipped via the port to Japan or South Korea, but the trip would add $100 to every ton.
"Mongolia's mining fever is driven by Chinese consumption," said mining company CEO Battsengel. On the wall of his 16th story corner office in the center of Mongolia's capital hangs a map of the northeastern China cities, railways and ports his company wants to tap into. "We have two big superpowers as neighbors. Virtually, we have one customer."
Even in the coal belt where the prosperity of the China boom is most evident, the China trade is unpopular.
Myadagmaagiin Zolzaya, a retired carpenter and herder, left the pasturelands to live in a traditional round tent known as a "ger" in one of the neighborhoods springing up on the fringes of Dalanzadgad.
The city, near where American explorer Roy Chapman Andrews made his much-heralded discovery of dinosaur eggs in the 1920s, is now Mongolia's richest because it's a staging ground for Tavan Tolgoi, a prized deposit estimated to hold 6.4 billion tons of coal, enough to meet Chinese demand for centuries.
Myadagmaagiin left his goats and sheep to his eldest son and followed his other children to the fast-growing city, where they found work: three sons in construction and his daughter as a cook.
Now, while looking after his grandchildren, the balding 58-year-old Myadagmaagiin fumes about the mines, the environmental damage and the throngs of Chinese workers they have attracted. Like many across Mongolia, he knows that a state-owned mining company is selling China coal at below international market prices — a fact repeated endlessly on the country's independent but highly partisan TV stations.
The mining company agreed to a relatively low price of $70 a ton in return for an upfront payment of $250 million that it used to develop the mine.
"Mongolians should get the jobs in Mongolia, and the benefits should go to Mongolia, not the Chinese. They will take the wealth and leave a big hole," he said.
Money is spilling out of the South Gobi, funding businesses and creating jobs elsewhere in the country. If growth holds, economists project that in a few years every able-bodied Mongolian capable of holding a job will likely be able to find one. Full employment means that Mongolia must import labor to keep growing. China is the handiest source.
In its desire for coal, Beijing has treaded carefully against Mongolia's push-back. In the pre-boom days of 2002, Beijing blocked freight trains from entering China for two days when the Dalai Lama — the exiled Tibetan leader reviled by the communist government — came to preach to Mongolian Buddhists. Last November, the Dalai Lama returned, and Beijing protested in words only. It did not cancel long scheduled Cabinet-level meetings.