Mongolia has huge reserves of copper, gold, uranium, coal, iron and zinc, many of which remain unexplored. As their appetite for resources grow, a number of countries, including Russia, the United States and Japan, have become embroiled in fierce competition over Mongolia's mineral resources.

While Russia leads the pack in developing Mongolia's resources, the United States has turned itself into a "strategic trading partner" of Mongolia. In 2007, it signed the Millennium Challenge Compact with Mongolia, promising a grant of $285 million by 2012.

Japan, Mongolia's biggest creditor, has become its fifth largest trading partner and foreign investor. Since 2009, the International Monetary Fund, the World Bank, the Asian Development Bank and Japan have extended $384 million in loans to Mongolia to help the country cope with the financial crisis. Russia has also granted a loan of $300 million.

By providing loans and assisting with infrastructure projects, these countries aim to seize a sizable share of Mongolia's strategic resources.

China's investment in Mongolia, however, is not distributed equally across the Mongolian economy. A large proportion of Chinese investment is found in catering, retailing and agricultural product processing industries. And most of the Chinese companies are small, with low technological standards. From 2003 to 2005, China invested $360 million in mineral resource development in Mongolia, accounting for 53 percent of total Chinese investment in the country. But iron and zinc are the only mineral resources in which China has invested more than $100 million. Its investment in Mongolia's strategic resources, such as oil and uranium, are also insignificant.

After adopting a law on the mineral industry in 1997, Mongolian authorities revised the law in 2001, 2006 and 2009. Frequent revisions have raised concerns among foreign investors over the stability of Mongolia's legal environment. Another challenge for Chinese investors is Mongolia's inconvenient transportation conditions. In Mongolia, there is only one major railway line linking Ulan Bator and Erenhot in China's Inner Mongolia Autonomous Region, as well as a couple of minor lines linked to the main line. The system's annual transportation capacity is 20 million tons, falling far short of needs.

Historical issues also tend to complicate bilateral cooperation. After relations between China and the Soviet Union deteriorated in the 1960s, Mongolia sided with the Soviet Union, leading to a suspension of bilateral exchanges between China and Mongolia from the 1960s to the 1980s. During this period, Mongolia changed its writing system. As a result, residents in Inner Mongolia cannot read written Mongolian texts before learning the new script.

Despite these challenges, the two countries appear set to advance business relations by exploring new areas of cooperation. For instance, Chinese companies could invest more in infrastructure projects in Mongolia to help enhance the country's transportation capacity.

Environmental protection is another important area. In recent years, the exploitation of mineral resources has resulted in declining forest coverage and grassland degradation in Mongolia. China could offer a helping hand with its extensive experience in tackling desertification and grassland protection.

Regional economic integration looks promising, too. Both countries are eager to promote trade between the Erenhot border trade area in China and the Sainshand Industrial Park in Mongolia. Meanwhile, they should give priority to economic integration in the Greater Tumen River region, which consists of China's northeast and Inner Mongolia, North Korea's Rajin-Sonbong economic zone, Mongolia's eastern provinces, coastal cities in eastern South Korea and parts of the Russian Far East region of Primorsky. If the border areas of China, Russia, North Korea and Mongolia are connected by highways and railways, trade between China and Mongolia will surely receive a boost.

The author is an associate research fellow with the China Institutes of Contemporary International Relations