Mongolian Foreign Minister Lundeg Purevsuren and US Secretary of State John Kerry hold a press conference following a meeting at the Ministry of Foreign Affairs in Ulan Bator, Mongolia, June 5, 2016. REUTERS/ Saul Loeb/Pool

U.S. Secretary of State John Kerry hailed Mongolia as an "oasis of democracy" sitting in a tough location between Russia and China as he made a rare visit by a cabinet-level U.S. official on Sunday.

Arriving from Paris, Kerry made the visit to Mongolia en route to Beijing to attend the eighth Strategic and Economic Dialogue, the high-level talks held between the United States and China each year.

The Obama administration has sought to cultivate Mongolia as a partner, given its location between two increasingly assertive U.S. rivals – China and Russia, countries Mongolia relies on heavily for trade and energy imports.

U.S. officials regularly tout Mongolia, a country of three million people, as an inspirational story of democratic transition since winning independence from the Soviet Union a quarter-century ago.

"You really set a great example," Kerry told Mongolian and American embassy staff at the U.S. ambassador's residence.

"You've got China on one side of you, and Russia on the other side of you, and there are always a lot of pressures, and here you are in this oasis of democracy fighting for your own identity."

But Mongolia's democratic and human rights records have come under scrutiny.

The 2015 State Department report on human rights in Mongolia noted "vague laws and a lack of transparency in legislative, executive, and judicial processes" that "undermined government efficiency and public confidence and invited corruption."

Parliamentary elections are to be held this month, and democracy advocates have criticized a rule change by parliament last month that is expected to disadvantage smaller parties.

The lack of transparency in business regulations has hampered foreign investment, officials say, badly needed in an economy where growth has all but halted, far from a peak of 17.5 percent in 2011.

Falling prices for its chief exports, coal and copper, and weak demand from China, by far Mongolia's biggest trading partner, are behind the slowdown.

Kerry said it was important the Mongolian government implement a transparency agreement with the United States, which would provide greater business confidence to foreign investors.

The Mongolian and U.S. governments signed the agreement in 2013 after years of negotiations but its final implementation has been mired in red tape.

The agreement would commit Mongolia to publish in English an explanation for proposed regulations, and allow for public comments on those regulations, among other measures.

"The implementation of this agreement is really key, a very important step to be able to attract foreign direct investment," Kerry said.