China has abandoned its attempt to buy a large coal mine in neighbouring Mongolia, bowing to political opposition to a deal that inspired the mineral-rich country to pass a tough new law on foreign investment.

The attempt by Chalco, China’s biggest aluminium producer, to secure a controlling stake in SouthGobi Resources for up to C$925m (US$938m) would have been the biggest Chinese investment in Mongolia, which harbours concerns about the influence of Chinese state-owned companies over its resources-dependent economy. In an effort to stop the SouthGobi deal, Mongolia’s parliament rushed to pass a new law on foreign investment just a few weeks after it was announced.

Hong Kong-listed SouthGobi, whose major asset is a coal mine in the Gobi desert, has seen its fortunes wane over the past five months as the deal unravelled. The company’s mines have been idle since the end of June due to uncertainties over mining licences and a flagging global coal market, while the price of its shares has plummeted 60 per cent since Chalco’s April offer.