Saturday, May 18, 2024

Chinese investment in manufacturing on the rise in Mexico

Chinese investment in Mexico continues to grow as more and more companies from the world’s most populous nation seek to take advantage of the country’s proximity to the United States and its free trade agreement with its northern neighbor.

Jalisco Governor Enrique Alfaro announced Monday that Solarever Group, a Chinese solar panel manufacturer, would invest US $1 billion over the next four years in an electric vehicle battery plant in the state, while Nuevo León Governor Samuel García met on Tuesday with executives of the Lingong Machinery Group (LGMG), which is investing $140 million in a boom lift plant in the northern border state.

Not to be outdone, Guanajuato’s Sustainable Economic Development Minister Ramón Alfaro Gómez said Wednesday that a Chinese company, which he didn’t name, was building a plant in León where products for the corporate and housing sectors would be manufactured.

This week’s announcements are indicative of the increased interest in Mexico among Chinese companies that export to the United States, the world’s largest economy. Investment from China (including Hong Kong) reached a record high of almost $500 million last year, according to the Economy Ministry, up from just under $300 million in 2020 and just over $200 million in 2019.

Solarever Group's display at the Mexico City Green Expo 2022 in early September.
Solarever Group’s display at the Mexico City Green Expo 2022 in early September. Facebook / Solarever

The investment from the world’s second largest economy looks set to increase further as an increasing number of Chinese firms relocate to take advantage of tariff-free trade with the U.S. and Mexico’s proximity to their main export market.

“If you want to do good business with America, you must have something close to the market,” Simon Huang, Mexico manager for Chinese furniture company Kuka Home, told the Bloomberg news agency. 

That company and and nine other Chinese firms including an auto parts maker and a garden equipment manufacturer have plants in the 850-hectare Hofusan Industrial Park, which opened on the northern outskirts of Monterrey, Nuevo León, in 2016. According to the Hofusan website, the industrial park is “the first Chinese industrial park in North America” and an “investment platform for global clients to explore the North American market.”

A Bloomberg report published this week under the headline “Chinese manufacturers get around U.S. tariffs with some help from Mexico” said that “Hofusan has become a haven for Chinese manufacturers looking to sidestep U.S. tariffs and shorten supply chains that have been strained to a breaking point during the pandemic.

Hofusan officials say that the number of Chinese companies with operations in the park is expected to increase from 10 to 35 in the space of just two years. César Santos, a real estate lawyer whose family owned the land on which the industrial park was built, told Bloomberg there’s already “more than $1 billion in investments here.”

In his conversation with Bloomberg, Huang explained one of the key benefits of setting up shop in Mexico. Due to the USMCA, the free trade agreement between the United States, Mexico and Canada, a chair made by Kuka Home in Nuevo León can be shipped to the U.S. duty-free whereas one made in China is subject to a 25% tariff, he said. 

Bloomberg noted that materials and labor generally cost more in Mexico than China, but “the gap has been shrinking over the years, with wages in China growing at a more rapid clip.”

David Martínez Garza, who’s supervising the construction of a new $80 million furniture factory at the Hofusan park, said that higher operational costs are offset by lower costs for delivery to the U.S., which for obvious reasons is much quicker from Mexico than from China. 

ManWah México celebrates the start of construction on their new facility in Nuevo León's Hofusan Industrial Park, in August.
ManWah México celebrates the start of construction on their new facility in Nuevo León’s Hofusan Industrial Park, in August. Facebook / Hofusan Industrial Park

Bloomberg said that the Holley Group, a Hangzhou-based company that is a part owner of the park, is looking for sites to build two or three additional industrial parks in Mexico. Other Chinese companies are doing the same thing. 

Nuevo León is one state particularly intent on attracting Chinese investment. State Economy Minister Iván Rivas told Bloomberg that Nuevo León is building two “superhighways” to Mexico’s border with the U.S., including one to serve Hofusan. The state also offers tax incentives to companies that meet certain requirements.

“I can tell you that now between 15% to 20% of investment is from China. Before it wasn’t even 5%,” Rivas said.

Among the benefits of the investment for Mexico is job growth, with Chinese companies hiring locals to fill most positions.

LGMG executives said Tuesday that their plant in the Nuevo León municipality of Marín will employ 1,400 people, while Governor Alfaro said that Solarever’s battery plant in the Jalisco municipality of Zacoalco de Torres will create 3,000 new jobs.

During the meeting with executives of the former company, Rivas said that Mexico’s proximity to the United States “gives us a great competitive advantage,” while Gómez, the Guanajuato economic development minister, said that logistics and the trade pact with the United States and Canada makes Mexico an attractive destination for Chinese investment. 

“These are the main reasons why [Chinese companies] are turning to Mexico,” Gómez said, adding that there has been a “significant increase” in Chinese-funded projects in Guanajuato, which is part of the Bajío region, an industrial hub.    

With reports from AM, El Economista, El Universal and Bloomberg

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