For many years, Mexico watched as China received significantly more foreign direct investment from companies around the world. I recently wrote about how, based on my experience doing business in both Mexico and China, the benefits of NAFTA for Mexico were muted due to the global rush to invest in China.
Now, it appears to be Mexico’s turn as many companies are looking to invest in the country as part of the recent nearshoring and “friendshoring” boom. Already this year there have been a multitude of announcements of companies from the US, Canada, Europe nations, and Asia investing in Mexico. Perhaps most surprisingly, there have also been a large amount of investments announced from Chinese firms in Mexico.
Just this week, the Chinese construction company LGMG announced a US $5 billion investment in Nuevo Leon.
In addition, China has begun to export a significant amount of vehicles to Mexico, and several Chinese auto companies are looking for sites to build plants in the country.
So is this a good thing for North America?
It’s a very complicated question, and the answer depends in part on how one views the relationship of Mexico (in fact all of North America) with China going forward.
Let me provide a few scenarios and present my thoughts on each.
Scenario 1: You believe that China and North America will soon return to “normal” relations in which there is good communication, trust, and cooperation between both regions
In this scenario, I would argue that the investment of China in Mexico is a good thing for the country. As most companies in many countries are trying to “de-risk” their supply chains, it’s only logical that Chinese companies wish to do the same.
If these companies choose Mexico as a destination for their investments, that’s a good thing for the country as more skilled employment opportunities would be created (leading to increased standards of living for Mexicans). Assuming in this scenario that good relations are restored between North America and China, the increased investment would be mutually beneficial and serve to reinforce the relationship with an increased flow of money, experience, and people – ultimately benefiting the citizens of Mexico.
Scenario 2: You believe that China and North America will continue to have “frosty” relations in which communication, trust, and cooperation between both regions remains low
In this scenario, I would argue that Mexico should still welcome the investments from China, but take important steps to ensure that they are “value added investment”.
In other words, pushing for not just the final assembly in Mexico of components made in China, but rather an increased portion of the entire supply chain being relocated to Mexico. This would force some de-risking of supply chains by having a more significant portion made locally in North America.
This scenario acknowledges that Chinese investments in Mexico should primarily benefit North Americans, and as a result the “terms and conditions” of the investments should be more stringent. In other words, not just welcoming any form of investment from China “with open arms”, but rather with some tougher conditions.
I think that, if this is done by North American governments in a coordinated and concerted effort, this could be successful and beneficial – despite the difficult relationship with China.
Unfortunately, the United States’ foreign policy focus is largely on conflicts in Ukraine and the Middle East, and discussions with Mexico often seem to focus on immigration and drug issues.
Scenario 3: You believe that relations between China and North America will continue to deteriorate and we are in for a long period of sharper competition and conflict
In this scenario, North American countries need to urgently get more serious and coordinated with a plan for Chinese investment into the region.
Looking at the automobile industry as an example, why would North America allow a flood of Chinese auto parts companies to come to Mexico and reap the benefits of local supply? Why would North America allow a wave of Chinese made cars into the region? And most importantly, why would North America allow Chinese car plants into the region?
Unfortunately, the discussion around autos in the United States is currently largely focused on UAW strike issues and ensuring that more US auto manufacturing doesn’t move to Mexico. If this scenario is the one most likely, the countries of North America need to urgently work together to develop policies that encourage non-Chinese companies from around the world to invest in Mexico and make it much more difficult for Chinese companies to do so.
Things are moving fast. It has been over three years since the start of COVID-19 and the beginning of a very different thinking about the North American relationship with China. Over these past three years, the relationship between North America and China has only worsened, while at the same time China has dramatically accelerated its investments in Mexico.
It is time for Canada, the U.S. and Mexico to have a coordinated policy with respect to investments from China. The existing framework of the USMCA trade agreement seems like the logical place to build this policy. It does no good for the U.S. and Canada to talk tough on Chinese investment – only to have it instead flow just across the border into Mexico. (Which is precisely what is happening right now!)
This issue could provide the perfect opportunity for further coordination, cooperation, and alignment between the countries of North America, given the quickly evolving geopolitical realities of the world. Perhaps a recent apparent cancellation by the Mexican government of a Chinese company’s lithium mining concessions in Mexico as well as recent cooperation between the U.S. and Mexico to encourage local semiconductor investment are signs of things to come?
Which of the three scenarios do you think is most likely going forward?
Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for over 27 years.
Thank you for bringing these scenarios to our attention.
Never ever trust a promise from the Chinese. #2 is most likely the future as I see nothing changing between cultures. Just ask yourself, How Many people from North America are trying to become residents of China? How many Chinese are trying to become residents of North America? Sleep with a snake and you will be bit.
I agree. China cannot be trusted on any level, they do not have the same underlying moral values as North America.
So very very true.
I have tried working with Chinese before I retired and they will break a contract every time.
it means nothing to them.
Mexico is making a huge mistake.
Suggest you investigate extensive reporting by NTD and EpochTimes covering CCP influence goals globally. They are too dangerous to observe naively.
One very important component that is not related to relationships is that after COVId and different natural and political things that can happen. Regardless of anything eles we must be prepared for contingencies. We must have better, stronger and rescilient regional supply chains in everything. We can not depend that much from other regions. We stopped many plants and were without many products due to our dependence.
Food, consumer products, everything.
Regradless of the relationships it is very important to ensure that we can keep going in our everyday life regionally.
The promise of global trade is that each nation/region will do what it does best — whether resource extraction, assembly labor or research and product development — in cooperative exchanges that are fair and beneficial to all.
The reality is that all nations will cooperate as much as they must, jockey for positions and occasionally cheat for their own advantage and security; China has been a past master of mercantilism and will continue to be one in this era, and only naive nations assume their largesse is without cost.
Mexico is doing what it can, and must, to provide for itself. If that requires accepting Chinese goods and influence, so be it; I doubt if they will let China ever have the power that foreign enterprises have had in the past. If Mexico can position itself in trade with S. America, Europe et al and reduce its own potential disruptions from over-dependence on the US…well done, you.
I very much enjoy your articles. They’re well-written and thought-provoking.
We are already in scenario #3! As the CPC becomes even more totalitarian and aggressive with its trading partners, we should lose no time in protecting NAFTA relations to the benefit of all partners.
Mexico should watch closely China’s efforts to undermine Canada’s democracy, shun our trade relationships, target our tourism sector, and spread false accusations of Canadian political leaders over anyone who stands up to its bully practices.
Wake up Mexico. You will never have a normal trade relationship with a China led by the CPC!
. . . from the article: ” . . . In other words, ( Mexican government officials & Mexican business people must ASSERT ) pushing for not just the final assembly in Mexico of components made in China, but rather an increased portion of the entire supply chain being relocated to Mexico . . . ” OR translated . . . parts manufactured IN CHINA, shipped ( supply chain ) from CCP to Mexico, FOR FINAL ASSEMBLY in Nuevo Leon, Mexico. ((( HOW ABOUT TOTAL PRODUCTION, MANUFACTURE & DISTRIBUTION originating IN MEXICO??? More jobs, not just assembly, but skilled operating and technical employment? )))
on a separate note, the CCP ( Chinese ) entered the honey bee harvesting industry and basically under cut the local producers with imported “honey” from mainland China . . . not a very eco-friendly gesture, hey China???
Excellent article!! This is the first I have seen about Chinese investment in Mexico. I live outside of Nuevo Leson, so I see this trade expanding all around me.
I think the second scenario is the most probable. Mexico should welcome Chinese investment in production, but avoid Chinese investment in infrastructure, which has proven to be an expensive rip off for many countries. Sri Lanka is perhaps the worst case.
Also, Mexico needs to understand that China will not export its key supply chain manufacturing. Never. Mexico should try to develop that with European and perhaps Indian manufacturers. India has a strong position in the farm equipment business. That might be a good place to start.
Sadly, all bets are off if there are more cartel wars, like the ones which ravaged Nuevo Leon a decade ago. Nobody wants to live in a country where they might get shot. Also, Mexico business leaders have to become less corrupt, at least when dealing with foreign companies.
Mexico also needs to make a major PR push in the US. In order to decrease commercial friction at the border, Mexico has to convince Americans that Mexican imports will bring down their cost of living. Unfortunately, American politicians love to hate Mexico, for a number of reasons.
What do you think about illegal immigration into the US? I have read interesting articles that say the immigration system is dysfunctional because it works. Allowing illegal labor to work in the US is a boon for US industry and for the Unions, which do not have to compete with illegal labor.
Maybe Mexico can make some money from efficiently preparing the paperwork for illegals looking to cross into the US. The US can’t do it. Maybe Mexico can. Don’t laugh. The system of auto ownership is incredibly efficient in Mexico and seems to be relatively corruption free.
There has been massive investment by China into Canada for more than 40 years. The problem is that the extent of it has gone unremarked or unnoticed until recently. And it is too late. I am convinced that the same thing will happen in Mexico. The pace of investment is insidious. Mexico needs to watch its flanks, as Canada did not.
Or consider a scenario that Peter Zeihan proposes. His prognosis based on China’s demographics and government mismanagement, is that the country as it currently exists will not exist within a decade. The working age population has declined enormously in the last several decades since the single child policy was initiated. Even though that policy has been rescinded the working age population will not grow. The country is a net importer of almost everything. Its infrastructure is in chaos. The Belt and Road policy is a disaster for the other nations involved with it. It makes very little sense for Mexico to get heavily involved with Chinese exports at this time simply because China may be a very different country before very long.
China is notorious for meeting with vendors of tools, devices, electronics, technology, etc., and then turned around and created the same, without buying any, and try to sell it back to the vendors.
Then there are the great, generous contracts to build stadiums, and other public structures, buildings, skyscrapers, bridges, etc. for countries and when the hidden costs made it unaffordable to maintain or finish, they “kindly” took ownership. That is one of many ways the Chinese now own so much around the world. If the deal is too good to be true…!