China’s exports of auto parts to Mexico also increased on a volume basis, increasing 2.6 times in 2023 compared to the eve of the US-China trade war in 2017.
14:45
A fight you can’t win?US-China trade war, first in 5 years
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These numbers are consistent with the global trend of ‘near-shoring’, where manufacturers relocate business operations and production to neighboring countries or countries closer to key markets.
A similar trend can be seen in battery exports from China to Mexico, especially lithium batteries used in electric vehicles.
China’s battery exports to Mexico increased by 35% year-on-year in 2018, 32% in 2021, and 11% in 2022. According to GAC, it decreased by 6% last year.
China lowers tariffs on 143 Argentine products as bilateral relations become tense
China lowers tariffs on 143 Argentine products as bilateral relations become tense
Overall inflows to Mexico, a pioneer in the global auto industry and a country with a vast young and relatively cheap workforce, are following a similar trajectory.
Direct investment from China to Mexico reached a single-year high of US$587.2 million in 2022, but fell by US$21 million in the first three quarters of 2023, according to Mexican government data.
However, in 2018, Chinese direct investment in Mexico doubled from 2017 numbers.
Mexico’s investment environment is also changing. More Chinese companies are moving out of the capital Mexico City and investing in the U.S. border state of Nuevo León.
In 2018, Chinese investment in Nuevo León rose to 3.4% of total investment in Mexico, up from 0.16% in 2017. Last year, Chinese direct investment inflows into Nuevo León amounted to 48.3% of net inflows into Mexico.
“A big part of that direction is for these companies to maintain access to the U.S. market and be in a position to follow major suppliers in the U.S. supply chain,” said Evan Ellis, a professor of Latin American studies at the U.S. Army War College’s School of Strategic Studies. I feel that way,” he says. Research Institute.
“We also certainly recognize that the Mexican market continues to be important.”
China, the Middle East and Latin America are ‘more investable than ever’, but the West is wary
China, the Middle East and Latin America are ‘more investable than ever’, but the West is wary
Monterrey, the capital of Nuevo Leon state, was one of Mexico’s first cities to develop an automobile industry and is home to factories for many multinational companies, including Elon Musk’s Tesla.
The location is about 220 kilometers (140 miles) from the U.S. border and “serves as an exceptional gateway to the North American and Latin American markets,” Ringon said.
The biggest obstacle to setting up shop in Mexico is that companies will almost always lose money in the beginning.
More outposts are likely to come. In November, the Investment Research Center at Beijing’s Changgang School of Management led a 40-person team of manufacturing and logistics executives on a business trip to Mexico.
Mexico still faces “rule of law issues” and investors may find a young but “untrained” workforce, said Liu Jing, director of the center, for interested entrepreneurs. stated after an investigation into.
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“The biggest obstacle to setting up shop in Mexico is that companies will almost always lose money initially, as costs in Mexico are estimated to be 30 to 40 percent higher than in China,” he said. “many [have] showed a desire to open a store [there], but not on a large scale. ”
In addition to these high start-up costs, Chinese manufacturers have been forced to rely on Mexican labor groups and, in some cases, He said they would also have to fight crime.
“Companies need to be flexible and quick to adapt to the Mexican environment, but there are clearly significant challenges when planning to enter the U.S. market,” Mazzocco said.
Latin American expert appointed as president of China Friendship Association
Latin American expert appointed as president of China Friendship Association
Beijing’s Ministry of Commerce announced on Thursday that China’s total foreign direct investment increased by 11.4% to US$130.1 billion in 2023.
It has a large and young population, both of which suggest a large market potential.
Mexico, on the other hand, has achieved urbanization close to the level of developed countries, at 81 percent, 15 percentage points higher than China. This means Chinese companies can sell to a population of 129 million people, and per capita income has been steadily increasing since 1990.
Jayant Menon, a senior fellow at Singapore’s ISEAS-Yusof Ishak Institute, said access to the U.S. remains the main motivator for most Chinese investors, but the rise of the middle class has made the Mexican market ” It also offers insurance policies.
At the beginning of last year, Chinese cars accounted for 19.5% of China’s domestic market, according to a study by José Ignacio Martínez Cortés, coordinator of the trade laboratory at the National Autonomous University of Mexico’s International Relations Center. This was an increase of 5.8% from 2018.
“Cheap Chinese products will be competitive there,” said Yun Sun, China program director at the Stimson Center think tank in Washington. “It has a large population and a large young population, both of which suggest a large market potential.”
Chinese automakers are also looking to take advantage of Mexico’s preferential tariff status in the North American market.
Mexico’s government will be particularly sensitive to pressure from Washington
The United States-Mexico-Canada Agreement (USMCA) trade agreement, which was ratified in 2018 and took effect in 2020, requires auto companies to manufacture 75% of their parts in Mexico, the United States, or Canada to qualify for full tariff exemption. It is mandatory to do so.
“This is one of the most significant and dynamic effects of Latin America-China relations in the past decade,” he said.
But tensions between the United States and China could eventually spill over to Mexico, a longtime ally of the United States.
“The Mexican government will be particularly sensitive to pressure from the United States because of its close relationship with the United States,” Mazzocco said.
“I don’t think there is a blanket ban or restriction on investment from China,” Son said.
China sees great potential and room for growth in relations with Mexico – Wang Yi
China sees great potential and room for growth in relations with Mexico – Wang Yi
USMCA rules encourage North American sourcing, so if Chinese investments prioritize sourcing from Mexico over domestic sourcing, they “avoid potential risks,” said Hale Uttar, associate professor of international economics at Grinnell College. said.
China’s Ministry of Commerce said at a press conference in December that cooperation with Mexico on new energy vehicles is “normal commercial activity between two sovereign countries,” adding that the United States has no right to intervene.
Chong Jia Ian, an assistant professor of political science at the National University of Singapore, said authorities in Beijing support offshoring to Mexico as long as it brings in revenue domestically.
“Many Chinese companies will be more keen to invest in overseas markets as domestic demand is slowing down,” Chong said. “China won’t think of it like this.” [loss of] Location is less important than ownership, which increases growth momentum. ”