What the Impact of Chinese Investments Could Mean for Mexico

Share on Facebook Share on Twitter Share on LinkedIn Share in Email Print article
Written by Jacqueline Christ

Move over, America. China is now taking a stake in Mexico’s infrastructure. In the past couple years, China has invested billions of dollars in Mexico and other Latin American countries. This year, Chinese President Xi Jinping announced that China would invest $250 billion in Latin America between 2015-2018, with the goal of $500 billion in trade with Latin American countries. In Mexico, Chinese imports have steadily increased since 1999, with nearly $70 billion in imports in 2015, according to data from Atlas.

China is geared to take an even bigger cut of Mexico’s foreign domestic investment as the United States threatens negotiations in the North Atlantic Free Trade Agreement (NAFTA). Earlier this year, President Donald Trump announced that he would renegotiate the terms of NAFTA, affecting US-Mexico trade agreements. Mexico heavily relies on trade with the US, particularly agricultural trade. Mexico’s meat and corn exports have steadily increased since the implementation of NAFTA in 1994. These exports are essential to Mexico’s economy. A revised trade deal with the United States could jeopardize the intra-bloc trade that has skyrocketed between the two nations for 20 years. According to a 2014 study by the Review of Economic Studies, Mexico’s intra bloc trade increased by 118% since NAFTA.

However, NAFTA could also be one of the reasons Mexico’s welfare has steadily decreased in the past two decades. According to a study by the Center for Economic and Policy Research, the number of Mexicans living below the poverty line has increased since the start of NAFTA in 1994, with 14.3 million more Mexicans living below the poverty line in 2012. While seasonal labor in export industries in Mexico increased by nearly 3 million from 1991-2007, 4.9 million Mexican farmer families were displaced. The lack of a strong economy in Mexico has led to the influx of Mexican migrants to the US, with the number of immigrants increasing from 4.5 million in 1990 to 12.6 million in 2009.

Chinese investments could be the solution Mexico needs.

The Chinese National Oil Company (CCNOC) has already made at pass at oil stakes in Mexico. Of the ten oil blocks Mexico put up for auction in December 2016, CCNOC bought two of them, while other blocks were secured by US companies Exxon Mobil and Total.

Along with this deal, the Chinese Mexico Fund was the largest stakeholder in the Altán Redes telecommunication project that was signed in January. The project will create a wireless network that is set to cover 92.2% of the Mexican population.

Despite cooperation in recent years, there have been setbacks that have spoiled Mexico-China relations. In November 2014, Mexico withdrew from a billion-dollar deal with the Chinese Railway Construction Corporation to build a 130-mile bullet train from Mexico City to Queretaro.

China has also competed with Mexico in the US Market. In 2002, nearly a year after China joined the World Trade Organization, 200 maquiladoras closed in Mexico, according to a study entitled “How China is Eating Mexico’s Lunch” by Daniel Rosen. In the same time period, Mexico dropped in the Global Competitiveness Report by 12 places, while China moved up.

Today, in light of shaky US-Mexico relations, China is starting to jump on the Mexican market. On June 28, the Chinese Ambassador to Mexico, Qiu Xiaoqi, said too Xinhua Net news agency that he was considering a new trade agreement with Mexico.

“Mexico is China’s second-largest trading partner in Latin America and China is Mexico’s second-largest trading partner in the world. This is a highly important relationship and we have great interest in deepening and broadening these ties,” said Qiu. “I think any agreement to make trade easier is very worthy.”

Mexico is now in the position to increase foreign investments in infrastructure. According to the 2013 Investment Climate Statement- Mexico by the US Department of State, Mexico is open to foreign direct investments. Of the 704 activities recognized by the Foreign Investment Law, about 93% of them are open for 100% FDI stakes. ProMexico, a government agency tasked with promoting Mexican exports and foreign trade, has attracted a staggering number of projects in recent years. In 2011, the agency boosted projects that totaled to $13.52 billion, a 27% increase from the previous year. In just the first quarter of 2012, ProMexico attracted investments worth $7 billion.

Although the country has received a surge of investments, Mexico has a long way to go to compete with other countries. In the 2016-2017 Global Competitiveness Report, Mexico moved up 6 positions from the previous year, but still ranked 51 out of the 138 countries. The report found that Mexico improved in domestic and foreign competition, but suffered from lapses in primary education, institutional quality, falling oil prices and weak global trade. In the scores of institutions, Mexico ranked 116 out of 138.

In Mexico’s National Infrastructure Program 2014-2018, the Mexican government called for a $300 billion plan for 48 projects, focused on energy, urban planning, communications and transport. The plan outlined 50.3% of the investments for Energy and 24% of the budget to target urban housing and development. The funds for the program will be contributed from the public and private sector, with the private sector supplying nearly 37% of the budget.

Along with growth in internal infrastructure, Mexico has improved in the automobile manufacturing industry, exporting cars worldwide. Mexico is the seventh largest automobile manufacturer in the world, according to a 2016 report from ProMexico.  Although China tops the list of manufacturers, the report indicated that exports to China have increased between 2013 and 2015. China is Mexico’s sixth most-important export destination, due to Chinese demand for luxury hi-tech vehicles.

In February 2017, Reuters reported that Chinese company Anhui Jianghuai Automobile sprung a $212 million investment in Mexican company Giant Motors. The investment could produce 10,000 vehicles in the next four years.

In addition to trade in the automobile industry, Mexican diplomats have relayed interest in Chinese investments in agricultural commodities. On June 24, 2017, Mexico’s director of international trade negotiations at the Ministry of Agriculture Adriana Herrera Moreno told Chinese national news agency Xinhua that both countries could benefit from a deal in the agriculture industry.

“Agriculture is one of the sectors that would win, because China offers a growing market that demands products that Mexico can supply, such as meats, fruit and high value-added products that offer our producers opportunities to diversify their incomes,” said Moreno.

Mexico City’s Secretary of Labor Amalia Garcia Medina also told Xinhua that the country is exploring new deals due to unstable relations with the US.

“The positive side of our current situation is the possibility of opening up trade exchange and building substantial ties with China,” said Medina.

Although no major steps have been taken, a trade deal between Mexico and China is approaching. While China’s growing interest in Latin America expands, Mexico remains void of trade and investment needed to compete in the global market and secure better business and quality of life. As US relations with Mexico dwindle, new opportunities for essential investments in Mexico’s infrastructure and economy become available for nations worldwide. In the current political climate, the countries are in the best position to strike a deal.