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               ASIA REGION

          Growth Potential for Mongolia
      The Zamiin Uud Free Economic Zone

                     Report by:

               Roger C. Bird, Ph.D.
               Avian Associates LLC

                Y. Lauren Kim, J.D.
               Winwheel Bullion LLC

                  April 27, 2006
TABLE OF CONTENTS                                         Page

  1. Introduction                                          1

  2. Strategic Importance of Northeast Asia                2

  3. Strategic Position of Mongolia                        4

  4. Economy of Northeast Asia                             6

  5. Economy of Mongolia                                   9

  6. Economic Commentary                                   13

  7. Minerals, Metals, Coal and Oil                        14

  8. Transportation and Communication                      17

  9. Structural Shift toward Trade and Commerce            19

  10. Free Trade and Free Market Orientation               20

  11. Zamiin Uud Free Economic Zone Development Project    23

  12. Conclusion                                           26

  13. Appendix : Maps                                      28


The economic integration of Northeast Asia has been a decade’s long

development ever since the opening of The People’s Republic of China [China]

to the market forces of globalization in the late 1970’s. Today, led and driven by

the extraordinary pace of China’s economic development, Northeast Asia is

seeing a re-birth of economic activity. Trade with China will dominate these

developments for decades to come. The economic impact on China’s neighbors

will vary depending upon their stages of development, their resource

endowments, and their economic policies. In this light, Mongolia is well situated

to capitalize on the development of China, as well as to open itself to the wider

world.   Ever since the election of a non-Communist government in 1990,

Mongolia has been forthright in pursuing policies of open markets and free trade.

This has allowed creative forces to emerge with new ideas for capitalizing on

Mongolia’s special situation in terms of location and economic freedom. The

Zamiin Uud Free Economic Zone is just such an innovative response to the

opportunities ahead.


The Northeast Asia Region combines China, Eastern Russia, North and South

Korea, Mongolia and Japan [Map 1 in the Appendix]. It contains about one-

quarter of the world’s population, and boasts a total economic size above $13

trillion, and some of the fastest economic growth rates in the world. China is the

central core of economic development, and most of its surrounding neighbors

consider China as their main trading partner -- displacing the U.S, in terms of

export shares in 2005. This last development means that a China-market focus

must dominate economic policy thinking.

Historically, however, the Northeast Asia Region has been the locus of numerous

conflicts, and for the whole of the 20th Century the region must be remembered

as the scene of some of the bloodiest warfare in terms of lives lost and

economies shattered.    That legacy lingers today in some of the international

behavior and attitudes among the countries in the region.       It is the hope of

continuing peaceful economic development, and the passage of time, that will

serve to remove these painful memories.        The example of war-torn Japan

emerging as the world’s second largest economy has inspired many other Asian

nations, including China, to undertake the effort of competitive economic

development in a free-market oriented world, in spite of the historical memories

of past conflicts.

U.S. policy makers also view the region hopefully as a dynamic success story. It

has been U.S. policy since the end of the Cold War, to encourage globalization

and liberal free market economic development in all of Asia. Prior to that, the

U.S. strongly supported the economic integration of the U.S with the Pacific

Region led by Japan and the Four Tigers [South Korea, Taiwan, Hong Kong and

Singapore]. Then, their example was emulated by other countries in Southeast

Asia [Thailand, Malaysia, Indonesia, Philippines] frequently with direct U.S.

support. In addition, as part of its deliberate effort of opening to China, it has

been the policy of the U.S. to engage the PRC as a large and important trading

partner. Recently, the U.S. applauded the economic policies of India and

Mongolia with personal visits by President Bush to recognize their progress, and

to give U.S support to their economic development efforts under democratic free

market principles.

The emergence of China as the dominant player in the Northeast Asia Region

should come as no surprise to knowledgeable observers.                 China, with it

population of 1.3 billion, is clearly the “800 pound gorilla“ sitting at the table, and

would be a major force even without its own dynamic economic growth, and its

development up the chain of industrialization from agriculture to manufacturing to

high-tech. The more surprising fact is that the Asian trading system works so

well in integrating China into the globalized world economic system. In spite of

deep political differences with Taiwan and Japan, for example, both of these

countries are moving into the Chinese orbit, with a majority of their exports now

going eastward, rather than west toward the U.S.     The same may also be said

for Hong Kong and South Korea, so now all of the original “Four Tigers”

economies have emerged as partners of China as much as, or more than, with

the U.S.


The strategic posture of the smaller countries in the region therefore depends

upon their geographic position vis-à-vis China, their particular resource

endowment and comparative advantage, and their economic policies.             The

strikingly favorable situation of Mongolia as an emerging economy is a case in


Mongolia shares its southern border with China, which extends 2,800 miles;

northern border with Russia, which extends 1,900 miles, North Korea is 500

miles to the east and Kazakhstan 25 miles to the west. The Appendix Map 1

shows this positioning of Mongolia in relationship to the territory and major cities

of the Northeast Asia Region.      Mongolia is in good relations with all of its

bordering and near countries including North Korea. From a strategic political

and economic standpoint, a stable Mongolia will contribute to the stability of

North East Asia and Central Asia. Since its emergence from the Soviet orbit in

1990, Mongolia has shown a remarkable resilience in overcoming the loss of

Soviet subsidies [substituted in large part by U.S. aid], debt repayment, export

diversification, and openness to free trade and commerce, with extraordinary

powers granted to foreign investors. All of this combined with its historically

important, and rejuvenated transit linkages of road and rail between the major

cites of China [Beijing, Tianjin, Baotou] through the capital of Ulaan Baatar, and

thence north to intersect with the trans Siberian road and rail system connected

to Irkutsk and the Lake Baikal region, positions Mongolia to become a

remarkable success story of free enterprise and opportunity.

The other key strategic circumstance surrounding Mongolia is that U.S.

policymakers have a deep interest in Mongolian success.           The U.S. needs

democratic allies in Northeast Asia in order to set an example for the more

dirigiste economies of Russia and China – as well as to show the struggling

former communist regimes of Central Asia that the market system works. To this

end the U.S, as already mentioned, is providing direct aid as well as encouraging

World Bank lending. In addition, the Overseas Private Investment Corporation

[OPIC] is encouraging direct foreign investment by U.S. firms, in the form of

subsidized loans and guarantees. As reinforcement of this policy, in the 2004

Joint Statement between U.S. and Mongolia, President Bush expressed the

United States’ strong support for Mongolia’s democratic transition and economic



The economy of Northeast Asia is large, encompassing over one quarter of the

world’s population, and highly dynamic, with an average growth rate exceeding

6.5 percent over the last five years [Table 1].

                              Table 1. GDP Growth Rates
                              2001     2002          2003   2004   2005
          North-East Asia      4.9      7.2           6.5    7.7    6.9
          China                8.3      9.1          10.0   10.1    9.6
          Mongolia             1.0      4.0           5.6   10.6    6.0
          Republic of Korea    3.8      7.0           3.1    3.1    3.8
          Japan                0.4      0.1           1.8    1.8    2.5

Led by China, with an average growth rate of 9.4 percent, the region’s

performance is remarkable by any standard.                             Inflation is generally low to

moderate [Table 2], gross domestic investment rates are high [Tables 3], current

accounts are generally in surplus [Table 4], and exports are growing strongly

[Table 5].

                              Table 2. Inflation Rates CPI Based
                                    2001          2002         2003           2004           2005
          North-East Asia            1.4            0.1         1.4            3.2            2.2
          China                      0.7           -0.8         1.2            3.9            1.9
          Mongolia                   8.2            1.5         4.6           11.0           10.0
          Republic of Korea          4.1            2.7         3.6            3.6            2.8
          Japan                     -0.7           -0.9        -0.3            0.0           -0.3

                         Table 3. Gross Domestic Investment Rates
                                              (Percentage of GDP)
                                     2001          2002         2003          2004           2005
          China                      38.5          40.2         43.8          45.3           42.3
          Mongolia                   36.1          32.2         29.0          36.6            …
          Republic of Korea          29.3          29.1         30.0          30.2           31.2
          Japan                      25.3          24.2         23.9          23.8           24.4

                              Table 4. Current Account Balances
                                              (Percentage of GDP)
                                    2001          2002         2003           2004           2005
          China                      1.5           2.8          3.2            4.2            6.7
          Mongolia                  -7.6          -9.6          -7.7           1.2            2.2
          Republic of Korea          1.7           1.0           2.0           4.1            2.3
          Japan                      2.1           2.8          3.2            3.7            3.5

                        Table 5. Merchandise Export Growth Rates
                                      2001         2002       2003            2004            2005
         China                         6.5          22.4      34.6            35.4            31.1
         Mongolia                      -2.4          0.2      19.7            39.1             4.8
         Republic of Korea            -12.7          8.0      19.3            31.0            12.3
         Japan                        -15.6          3.3      13.7            19.3             7.1

       [Tables 1 through 5 are from United Nations Economic and Social Commission for Asia and the Pacific
       (UNESCAP) based on national sources.; Japan is not included in North-East Asia aggregate figures.]

This solidly based dynamism is having global effects on trade patterns, energy

use, and the environment. It also ensures investor interest in the region for years

to come with the caveat that investors need assurances that they will not be

subject to arbitrary changes in laws, taxes and regulations. Neither Russia nor

China can offer such strong assurances with any credibility, which is one reason

why so many firms choose to locate in locales where their investments are better

protected. Thus, Hong Kong, Taiwan, Macau, Singapore, and, now, Mongolia

have become magnets for specialized foreign direct investment. All of these

locales have sufficient proximity to China [Hong Kong, Mongolia, Macau] or

traditional trade linkages with them through historic family ties [Singapore and

Taiwan], that they can operate safely and trade efficiently with China, while still

being outside China and Russia. Each of these special locales, in turn, has their

own unique attributes – both advantages and disadvantages. It is in this light that

investors should look closely at the special attraction of Mongolia’s economy for

future untapped opportunity.


The United Nations, The World Bank, the U.S. State Department and the U.S.

Central Intelligence Agency [CIA] have all come up with assessments of the size,

strength and composition of the Mongolian economy as a separate economy and

in relation to its neighbors. A sampling of the views of the State Department/CIA

and the UN is displayed and discussed below.

Economic activity in Mongolia has traditionally been based on herding and

agriculture. Mongolia has extensive mineral deposits; copper, coal, molybdenum,

tin, tungsten, and gold account for a large part of industrial production. Soviet

assistance, at its height one-third of GDP, disappeared almost overnight in 1990-

91 at the time of the dismantlement of the U.S.S.R. The following decade saw

Mongolia endure both deep recessions due to political inaction and natural

disasters as well as economic growth due to reform embracing free-market

economics and extensive privatization of the formerly state-run economy. Severe

winters and summer droughts in 2000-2001 and 2001-2002 resulted in massive

livestock die-off and zero or negative GDP growth. This was compounded by

falling prices for Mongolia’s primary-sector exports and widespread opposition to

privatization. Growth improved from 2002 at 4% to 2003 at 5.6%, due largely to

high copper prices and new gold production, with the government claiming a

10.6% growth rate for 2004 that is unconfirmed [now estimated at 10.6% with

6.05% in 2005]. Mongolia’s economy continues to be heavily impacted by its

neighbors. For example, Mongolia purchases 80% of its petroleum products and

a substantial amount of electric power from Russia, leaving it vulnerable to price

increases. China is Mongolia’s chief export partner and a main source of the

“shadow,” or “gray” economy. The World Bank and other international financial

institutions (IFS) estimate the gray economy to be at least equal to that of the

official economy (US$1.4 billion in 2003). The actual size of this gray--largely

cash--economy is difficult to calculate since the money does not pass through the

hands of tax authorities or the banking sector. Remittances from Mongolians

working abroad both legally and illegally constitute a sizeable portion. Money

laundering is growing as an accompanying concern. Mongolia settled its large

debt [$11 billion] to Russia at the end of 2003 on very favorable terms. Mongolia,

which joined the World Trade Organization in 1997, is the only member of that

organization [that is not also] a participant in a regional trade organization.

Mongolia seeks to expand its participation and integration into Asian regional

economic and trade regimes.     [2006, and 2006 CIA -- The World

Factbook – Mongolia]

After growing at the rate of 10.6 percent in 2004, the economy of Mongolia

slowed sharply to 6 percent in 2005, primarily as a result of higher energy prices.

Before the slowdown, investment had surged to 36.6 percent of GDP in 2004

from less than 30 percent in 2003 as demand for metals and minerals stimulated

new investments in the mining industry. Strong external demand, principally from

China, had given a boost to the mining sector. Agricultural production picked up

significantly in 2004 and this had a favorable impact on poverty reduction.

Industry, after growing at a healthy rate of 15.4 percent in 2004, a significant

increase over the performance in 2003, slowed in 2005 in response to higher

energy prices and other factors. The textile and garments industry suffered a

heavy blow as Mongolia lost ground to other competitors with the expiration of

the Multifibre Arrangement in January 2005.          This led the Government to

approach the United States and the European Union to secure bilateral treatment

in order to safeguard its textile and garment exports to these two important

markets. The service sector showed only modest growth in 2004 and 2005 after

having performed well in 2003.   [United Nations Economic and Social Survey of Asia and

the Pacific, 2006]

The facts of the Mongolian economy from the U.S. State Department for

reference purposes are detailed below, and key indicators in comparison with

countries in the region are shown in Tables 1 to 5 mentioned above.


GDP (2003 est.): $4.877 billion.

GDP growth (2004): 10.6%. [5.5% (2005)]

Per capita GDP in PPP (2003 est.): $1,800.

Natural resources: Coal, copper, molybdenum, iron, phosphates, tin, nickel, zinc,

wolfram, fluorspar, gold, uranium, and petroleum.

Agriculture (32% of 2003 GDP, livelihood for about 40% of population): Products-

-livestock and byproducts, hay fodder, vegetables.

Industry (23% of 2003 GDP, includes mining, manufacturing, utilities and

construction): Types--Minerals (primarily copper and gold), animal-derived

products, building materials, food/beverage.

Trade (2003): Exports--$615.9 million: livestock, animal products, minerals, and

textiles. Markets--China 46.6%, U.S. 23.2%, Russia 6.7%, Korea 4.3%, Japan

1.2%. Imports--$801 million: machinery and equipment, fuels, food products,

industrial consumer goods, chemicals, building equipment, vehicles, textiles.

Suppliers--Russia 33.1%, China 24.3%, Japan 7.9%, U.S. 2.9%, Germany 4.4%.

Aid received: It is estimated that donors have given one and half billion dollars in

aid, loans, and technical assistance over the past decade.

Fiscal year: Calendar year.

[June, 2005 www.state gov]


As the above renditions show, the recent past history of Mongolia’s economy has

been erratic, subject to the vagaries of several external shocks – both favorable

and unfavorable -- due to climate and weather, world trade policies, and world

market prices of fuel imports and commodity exports [especially minerals, and

textile fibers such as cashmere].    As long as Mongolia remains primarily a

commodities producer, it is unlikely to be able to avoid these swings in its

economic fortunes, which have serious spillover effects upon employment and

incomes.   This in turn has lead to the search by younger and/or not-fully-

employed workers for employment in the “gray” or underground economy, or in

neighboring countries. Thus, the real income per capita of the Mongolian people

is not as low as recorded above. More importantly, the inherent market volatility

of the mix of products that Mongolia currently exports and imports, is leading

toward the development of policies by both the Mongolian government and the

World Bank, to promote the growth of the service sector in order to diversify the

economy. This will help counter-balance the volatility in goods and commodities

markets.   However, this policy direction cannot yield results overnight, and

Mongolia will continue to be subject to world commodity price volatility for some

time to come. The recent upward swing of energy and minerals prices has led to

increasing costs of petroleum imports, as well as increasing revenues from

exports of minerals [mainly copper to China].        For the moment, therefore,

Mongolia is on a moderately good growth path, and is taking stock of this

opportunity to push toward greater diversification of the economy in several other

directions: downstream processing of mineral wealth, and diversification of the

types of minerals and fuels brought up to commercially viable production size;

development of a stronger transportation and communication infrastructure, and

the direct promotion of the facilities for commercial business.    Each of these

sectors is discussed below.


The mining world is fighting to meet China’s demand, as the biggest buyer of

metals, minerals, and hydrocarbons. With the proximity of Mongolia to China,

the stakes are high for Mongolia as well. In terms of potential for development of

world-class minerals industries, Mongolia stands out as one of the top ten

exploration destinations in the world, and the only one in Asia. It is cited as the

tenth richest country in mineral deposits having 8,000 deposits of 440 different

minerals. Couple this with the fact that the prices of metals and minerals have

been rising at double-digit rates since 2003 and the result is that, miners from

east and west are racing into what could be the world’s biggest mineral rush.

Almost one-third of Mongolia’s land mass has been licensed for exploration with

6,000 exploration and mining licenses granted to some 800 companies. Recent

discoveries in the southern Gobi Desert of 50 million tons of iron ore, 6 billion

tons of coal and what might be the world’s biggest deposit of copper and gold

has led to intense interest by China.

In 2003, China’s President visited Mongolia to announce that China had no

territorial claims to Mongolia and to promise $300 million in aid to help build

railways, power transmission lines and roads to facilitate the transport of

resources from Mongolia to China. Although Mongolia and China are currently in

negotiations regarding infrastructure, China is already building railways and

roads leading to the Mongolian boarder in anticipation of doing business with

Mongolia, and Chinese state-owned enterprises have been exploring mines with

success. It is strongly conjectured that the construction of new steel and smelting

facilities in the Chinese city of Baotou – about 100 miles from the Mongolian

border -- is connected to these prospective infrastructure developments.

The situation with petroleum and fuels is more complex. With its large Siberian oil

and gas reserves, Russia is emerging as the major oil and gas exporter to China,

Japan, Mongolia and the two Koreas. Now, with the latest discovery of vast coal

deposits in Mongolia, the northeast Asian region is well on its way to energy

independence. The coal deposit, Asia's largest, is located 250km from the

Chinese border and contains an estimated 5-6 billion metric tons of coal worth at

least $300 billion. High-calorie coking coal, the main feedstock of the steel-

smelting industry, accounts for 40% of the deposit's reserves.        One source

indicated that "Russian companies have been trying to obtain deposit

development rights for several years but Mongolia did not agree to hold direct

talks until now." [Vedomosti 4/10/06]. Russian experts have said that Mongolian

coal could be delivered to China, Japan and Russia, but that a 400km access

route was required to link the deposit with the Ulaan-Baatar railroad.        This

railroad goes through the heart of the region set aside for the Zamiin Uud Free

Economic Zone development project already mentioned.

Thus, transportation infrastructure is the key issue for development of Mongolia’s

mineral wealth, whether it be iron, copper or coal, but it also creates another

force for diversification of Mongolia’s industrial structure toward the support of

trade and commerce through development of transportation linkages. This should

not be considered a negative obstacle, but rather as an opportunity. As the

leader of one of Canada’s major mining companies has put it “We know countries

like we know stocks, and Mongolia is a Buddhist country with peaceful people,

with world-class resources beside the Chinese market. What could be better?”


There are long-standing efforts by many governments and international agencies

to promote the linkage of Northeast Asia by a network of highways and railways:

Achieving this common goal will deepen the integration between the countries of

the region not only in terms of development, trade and economic cooperation but

also link the regional transport sector to meet the emerging challenges of

globalization. The United Nations Economic & Social Commission for Asia and

Pacific (UNESCAP) has worked extensively in the transport sector with the most

significant transport projects being the Asian Highway and the Trans-Asian

Railway. The Asian Highway Network covers 27 countries and the Trans-Asian

Railway includes 27 countries. With the Asian Highway Network and the Trans-

Asian Railway comes new opportunities and further strengthening of economic

and social development.    The network not only connects the Northeast Asia

regionally but also connects the entire region to the rest of Asia and Europe. The

link will not only benefit tourism but will significantly cut the cost and time of

shipping between East and West with Russia being the bridge and Mongolia the

passage way from China to Russia.

The link through Mongolia [see Map 2 in Appendix] is crucial to this development

because it provides the most direct access from Russia to the business and

commercial heart of China, and is the only major highway and rail linkage to

Beijing, Tianjin, and Shanghai from Russia and Europe. Much of this link was

developed by the Soviet Union during their period of control over Mongolia, as is

shown on maps from this period at the Library of Congress.            At the border

crossing into China sits the forthcoming Zamiin Uud Free Economic Zone, and

approximately 70% of Mongolia’s foreign trade passes through the Zamiin Uud

port. The freight turnover is over one million tons annually. Clearly, with the

developments in the mining sector discussed above, this traffic can only be

expected to increase substantially. In addition, the planning for the Trans-Asian

Railway and the Asian Highway Network envisions using the Mongolian road hub

for two of the four demonstration runs for block containerization using Ulaan

Baatar as one terminus [Brest-Belarus-Ulaan Baatar, and Tianjin-Ulaan Baatar].

Soon it is expected that an additional 300 TEUs of containers per week will be

transiting this road network through Mongolia and the free trade zone. This will

surely be the main corridor of rail and highway linking Beijing/Tianjin to the trans-

Asian rail and road networks. As an historical note, this is also the ancient route

taken by Kublai Khan in the 14th Century as he governed the Mongol Empire by

traveling from Zhangjiakou [Xanadu], near Beijing, to Karakorum, near Ulaan

Baatar. Thus the rebirth of these transportation and communication networks is

like a rebirth of the first serious effort to integrate the Northeast Asian Region,

politically and economically, centuries ago.


There are three critical factors that will lead to structural shifts of Mongolian

development toward trade and commerce.          First is the strong desire of the

Mongolian policy leadership to diversify the economy away from the volatility

associated with an over dependence on commodities markets. Second, is the

locational advantage of Mongolia situated between Russia, the greatest energy

supplier in Eurasia, and China, the greatest energy and materials buyer in Asia.

Third is the fact of near-term transportation infrastructure developments in road

and rail that insure that Mongolia will have the physical capability to fulfill the

promise of serving as the major road and rail transit link between the heartland of

China and Russia and Europe. The final result is communications development

[Zamiin Uud has a super high-speed fiber-optic cable and VSAT system, cable

TV, FM radio, mobile telecommunication, internet connections and electronic

mail], wholesale distribution development, commercial office development and

financial institution development that will make the transit hub concept work at

the juncture with China – all notably encompassed by the Zamiin Uud Free

Economic Zone development shown on Appendix Map 2.              There are many

historical precedents for such development of transit hubs into commercial,

financial and entertainment centers.     The past growth of New York City,

Rotterdam, Singapore and Hong Kong, are clear cases in point. The remaining

questions might be “Are the Mongolians ready for this development?” and “Will

the money be there?”


Are the Mongolians ready for these striking developments? Ever since 1990 they

have certainly proven their resilience, in their forthright, courageous acceptance

of the demise of the Soviet Union – and their dependence on it -- and their

willingness to charge full speed into the riskier world of market capitalism and

globalization. Moreover, the U.S. has explicitly recognized Mongolia’s speedy

transition and efforts toward a democratic and free-market society. As already

mentioned, in the 2004 Joint Statement between the U.S. and Mongolia,

President Bush expressed the United States’ strong support for Mongolia’s

democratic and economic transition and reforms. In recognition of Mongolia’s

strong performance in the areas of ruling justly, investing in their people, and

supporting economic freedom, President Bush has made Mongolia one of only

16 countries currently eligible for the Millennium Challenge Account, a

development funding program.       U.S. economic assistance funds are helping

Mongolia create sustainable, market-led economic growth by encouraging further

privatization and improved conditions for foreign investment, and building more

transparent, democratic institutions.

Moreover, Mongolia has created a predictable and enforceable legal climate for

foreign investors. Mongolia fully complies with the Trade-Related Investment

Measures Agreement of the World Trade Organization. Mongolia is a member of

the World Intellectual Property Organization and joined with eleven International

Conventions on intellectual property rights, including the Berne Convention on

Copyright, the Paris Convention on Protection of Industrial Property and the

Madrid Agreement on International Registration of Trademarks. Mongolia joined

the New York Convention on the Recognition and Enforcement of Arbitral

Awards and is a signatory of the Washington Convention of the Investment

Disputes between States and Nationals of other States, which ensure the

settlement of disputes in accordance with internationally agreed rules and

procedures. In particular, with reference to the Zamiin Uud Free Economic Zone,

Mongolia and Winwheel Bullion signed the Zamiin Uud Agreement to have any

controversy, claims, or disputes resolved through mandatory mediation. In the

event any such differences cannot be settled through the mandatory mediation,

then the matter will be settled and binding by and through arbitration in

accordance with the rules and through the International Court of Arbitration of the

International Chamber of Commerce. Any decision and/or award made by the

arbitrators will be final, conclusive and binding upon the parties and enforceable

in the court of law in the country of choice of an award by the arbitrators.

These safeguards are fundamental to business confidence and flows of foreign

direct investment. The prospects of trade, the openness of the economy, and the

safety of investment mean that businesses can grow in directions that they

choose without interference from authoritarian regulation, much in contrast to the

daunting hurdles that businesses must overcome in both China, and in the

Russian Federation. Accordingly, the business climate in Mongolia is ripe with

opportunity for entrepreneurs and they will choose new directions for capitalizing

on these special circumstances such as tourism and casino development, in

order to serve the cosmopolitan business groups and foreign personnel which

are flocking to the region.

Mongolia will thus be the choice locale in Northeast Asia for development of a

reliable, safe, commercial business and entertainment hub, in the middle of the

dramatic developments occurring in the mining, and transportation sectors. The

Zamiin Uud Free Economic Zone obviously becomes the most desirable

placement for such a hub right at the southern gateway to China on the road of

Kublai Khan.


Zamiin Uud is located at the border with China and is the closest point in

Mongolia to Beijing, about 350 mile distance. It is 5 miles from Erlian [Erenhot], a

border city of China with population over one million.      Within one-hour flight

distance, it covers about 100 million people, mostly Inner Mongolia with a

population of 6 million and Northeasterners of China, including major cities such

as Shenyang, Dalian, Harbin, Changchun, Qigihar, Jilin City, and Beijing. Within

two hours, it covers the Inchon-Seoul corridor with a population of 20 million.

Within three hours, it covers the entirety of South Korea with a population of 47

million. Also, within three hours, it covers Nanjing and Shanghai which is one of

the fastest economically growing cities of the world. Finally, within four hours

flight distance, it covers Tokyo and Osaka and much of Southeast Asia. [See

Map 3 in Appendix.]

The Mongolian Government has agreed to provide 42,000 hectares of land

[commencing with a first phase of 900 hectares] located in Zamiin Uud, to

Winwheel Bullion, a U.S. based corporation, for development as a free trade

zone, and with accommodations and plans to make Zamiin Uud Northeast Asia’s

new international business hub. This free trade zone development will include the

transportation and communication infrastructures already discussed. In addition

the list of planned uses includes hotels, casino hotels, convention center,

shopping mall complexes, duty free shops, office and commercial buildings,

banks and financial institutions, industrial complexes, stadium complexes,

recreation theme park, public parks, golf courses, hospitals, residential

community with schools, retirement community, and other supplemental

structures. Winwheel Bullion is the holder of the Master Casino License.

To further ensure and assist in the transition process toward free market and

democracy, a separate non-political body will be formed called Zamiin Uud

Economic Development Authority (ZUEDA). The ZUEDA Plan will be mutually

developed with Mongolian Government and Winwheel Bullion members making

up the ZUEDA Task Force Team. It will set policies such as transparent and

non-discriminatory administrative norms and legal standards in accordance with

international standards. These provisions will not only move along the transition

process for Mongolia but also accommodate the international market forces

requiring higher standards for the protection of foreign investment and investors,

and specific competition policies and trade facilitation to reduce the costs of

investors. This will provide a predictable comfort level for investors through the

non-political implementation body ZUEDA.

The Zamiin Uud Free Economic Zone is already functioning as a gateway to

Northeast Asia and as an international regional headquarters in a safe and

predictable environment. No excise, added value tax, or import custom duty is

levied on items imported to Zamiin Uud. Winwheel Bullion holds the right to give

concessions to individual casino resorts with full gaming options. Investment into

the construction of storage facilities, cargo terminals, and hotels in Zamiin Uud

businesses are exempt from income tax for five consecutive years beginning

from the commencement of operations and granted a 50% income tax

concession for three consecutive years thereafter. Zamiin Uud has a super high-

speed fiber-optic cable and VSAT system, cable TV, FM radio, mobile

telecommunication, internet connections and electronic mails. Presently, there

are 70 commercial and service providers, including 13 hotels and 6 banks. As

already discussed an international road network connecting Asia and Europe

intersects Zamiin Uud. 600 kilometer of the 1000-kilometer Asian highway (AH-3

standard) between Altanbulag (the northern border point), Ulaanbaatar, and

Zamiin Uud is completed. The remainder of the highway will be completed by



The economic development of Northeast Asia is remarkable by any standard.

Northeast Asia has about one-quarter of the Earth’s population, which includes

the world’s most populous country -China, the world’s second largest economy –

Japan, the largest country in terms of land size – the Russian Federation, and

some of the world’s largest untapped mineral deposits – Mongolia. The region as

whole could be considered a $13 trillion dollar plus economy, with a savings level

in terms of foreign reserves of $2.1 trillion. China, due to its size, is the

strategically dominant economic force in the area, but Mongolia, due to its

strategic positioning between Russia and China, its mineral resources, its

inherent status as a key link in the transportation network, and its free market

policies, has emerged as a natural business hub for trade and commerce in the

region going forward.

In this light, the Mongolian Government has helped to establish a special free

trade zone that will serve to coalesce all the natural economic advantages that

Mongolia possesses as the primary north-south transport and communication

linkage in the greater development of Northeast Asia. This Zamiin Uud Free

Economic Zone -- on the road of Kublai Khan -- will be the neutral zone in which

East and West can meet without concern or hesitation about doing business with

North East Asia. The time is now for more active U.S. government and business

involvement in order to gain vital strategic positioning in the area. With pressure

growing on both China and Japan to allow their currency exchange rates to float

upward more rapidly, waiting to invest in this new development will prove to be

more and more expensive as time goes by. Winwheel Bullion is embracing this

new market and has formulated the Zamiin Uud Free Economic Zone

Development project that will ensure U.S. companies a piece of the pie, and also

will provide the U.S. a strategic presence in this powerful region.


Map 1. Northeast Asia

Map 2. Mongolia

Map 3. Air Distances From Zamiin Uud


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