China's Economic Diplomacy Toward Mongolia: Belt and Road, Currency Swaps, and the Politics of Vulnerability

Abstract

This study examines China’s contemporary economic diplomacy and its implications for Mongolia, with a particular focus on renminbi currency swap agreements, development financing, and the China–Mongolia–Russia Economic Corridor under the Belt and Road Initiative (BRI). Drawing on historical and contemporary developments, the paper argues that although Chinese financial instruments—especially the People’s Bank of China (PBoC) swap line—have provided Mongolia with short-term liquidity support, exchange-rate stability, and crisis-management capacity, they have simultaneously contributed to Mongolia’s mounting foreign-currency liabilities and structural vulnerabilities. Mongolia’s persistent dependence on mineral exports, heavy import reliance, high external debt, and fragile financial sector place it in the “high vulnerability” category according to international assessment frameworks. The analysis demonstrates that the swap agreement is less an instrument of “debt-trap diplomacy” and more an extension of China’s broader strategy to internationalize the renminbi and expand regional financial influence. For Mongolia, the swap serves as a temporary stabilizing tool rather than a sustainable solution. Long-term economic security requires deeper structural reforms, improved debt management, diversification beyond mining, and a balanced, transparent approach in cooperation with China.