China’s exports of auto components to Mexico also increased in volume, increasing 2.6 times in 2023 compared to the eve of the US-China trade war in 2017.
These numbers are consistent with the global trend toward “inshoring,” whereby manufacturers move their business operations or production to a neighboring country or close to a major market.
The same trend is observed in China’s exports of batteries to Mexico, especially lithium batteries used in electric vehicles.
China’s battery exports to Mexico rose 35 percent year-on-year in 2018, followed by 32 percent in 2021 and 11 percent in 2022. Last year, the figure saw a 6 percent decline, according to the General Authority of Customs.
China reduces customs duties on 143 Argentine products amid tense bilateral relations
China reduces customs duties on 143 Argentine products amid tense bilateral relations
Overall flows to Mexico, a leader in the global auto industry and a country with a large, young and relatively inexpensive workforce, are on a similar path.
Direct investment from China to Mexico, which reached a one-year high of US$587.2 million in 2022, fell by US$21 million in the first three quarters of 2023 according to Mexican government data.
But in 2018, Chinese direct investment in Mexico doubled compared to 2017 numbers.
The investment landscape in Mexico is also transforming. More Chinese companies are investing in the state of Nuevo Leon, which borders the United States, moving away from the capital, Mexico City.
In 2018, Chinese investments in Nuevo Leon rose to 3.4% of total investments in Mexico, compared to 0.16% in 2017. Last year, Chinese direct investment flows to Nuevo Leon amounted to 48.3% of net flows to Mexico.
“One senses that the lion’s share of this trend is enabling these companies to maintain access to the US market and follow key suppliers in the US supply chain,” said Evan Ellis, a research professor of Latin American studies at the US War College. Institute of Studies.
“While also certainly recognizing that the Mexican market remains important.”
China is “more investable than ever” for the Middle East and Latin America, and the West is wary
China is “more investable than ever” for the Middle East and Latin America, and the West is wary
Monterrey, the capital of Nuevo León, was one of the first cities in Mexico to develop an automobile industry and hosts factories for several multinational companies, including Elon Musk’s Tesla Inc.
The site, located about 220 kilometers (140 miles) from the US border, “serves as an exceptional gateway to the North American and Latin American markets,” Lingong said.
The biggest hurdle to setting up shop in Mexico is that businesses will lose money initially
More outposts may be on the way. In November, the Investment Research Center at Cheung Kong Graduate School of Business in Beijing 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, “untrained” workforce, said Liu Jing, the center’s director, after a survey of interested entrepreneurs.
“The biggest obstacle to setting up shop in Mexico is that companies will lose money initially, because costs in Mexico are estimated to be 30 to 40 percent higher than in China,” he said. “a lot [have] He expressed his willingness to set up a store [there]But not on a large scale.”
Besides high start-up costs, Chinese manufacturers will have to deal with Mexican labor groups and possibly crime, said Ilaria Mazzocco, chief curator of Chinese business and economics at the Center for Strategic and International Studies, a Washington-based think tank.
“Companies will need to be flexible and adapt quickly to adapt to the Mexican environment, but there are clearly big attractions for them when they make plans to enter the U.S. market,” Mazzocco said.
Latin America expert takes over as president of China Friendship Association
Latin America expert takes over as president of China Friendship Association
China’s total outward direct investment grew by 11.4 percent in 2023 to reach US$130.1 billion, the Ministry of Commerce in Beijing said on Thursday.
The population is large and it is a young demographic, both of which indicate great market potential
Mexico, on the other hand, has urbanization close to the level of developed countries, at a rate of 81% – about 15 percentage points higher than China. This means Chinese companies can sell to a population of 129 million, with per capita income rising steadily since 1990.
Access to the United States remains the main motivation for most Chinese investors, but the Mexican market also offers an “insurance policy” because of a rising middle class, says Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.
Chinese cars represented 19.5 percent of the Mexican domestic market early last year — an increase of 5.8 percent from 2018 according to research by José Ignacio Martinez Cortés, coordinator of the Trade Laboratory at the Center for International Relations of the National Autonomous University of Mexico.
“Cheap Chinese products will be able to compete there,” said Yun Sun, director of the China program at the Stimson Center think tank in Washington. “The population is large and it is a young demographic, both of which indicate great market potential.”
Chinese automakers are also looking to take advantage of Mexico’s preferential tariff status in the North American market.
The Mexican government will be particularly sensitive to pressure from Washington
The United States-Mexico-Canada Trade Agreement (USMCA), which was ratified in 2018 and took effect in 2020, requires auto companies to manufacture 75 percent of their components in Mexico, the United States, or Canada to qualify for a full exemption from… customs fees.
“This has been one of the most prominent and dynamic impacts of the relationship between Latin America and China in the past decade,” he said.
However, tensions between the US and China may eventually spill over into Mexico, a long-time US ally.
“The Mexican government will be particularly sensitive to pressure from Washington because of the close relationship with the United States,” Mazzocco said.
“I don’t think there will be a blanket ban or restrictions on Chinese investment,” Sun 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
Rules under the US-Mexico-Canada Agreement encourage sourcing from North America, so if Chinese investments prioritize Mexican sourcing over domestic sourcing, “they could avoid potential risks,” said Hale Otar, an associate professor of international economics at Grinnell College in the US. “.
China’s Ministry of Commerce said at a press conference in December that its cooperation with Mexico on new energy vehicles is “normal business activity between two sovereign countries,” adding that the United States has no right to interfere.
Officials in Beijing will support offshoring to Mexico as long as it brings revenue home, said Chung Ja-ian, an associate professor of political science at the National University of Singapore.
“A lot of Chinese companies will be more keen to invest in overseas markets because domestic demand is slowing,” Zhong said. “China will not see that as [loss of] Growth momentum, because location is not as important as ownership.