China-Mexico Relations are Growing
With all of the talk in the US of the incoming administration disrupting international trade, two countries on different sides of the planet are strengthening their economic ties. China-Mexico relations have been friendly for many years, and some would even call the relationship a kind of alliance in the making. But their partnership is strengthening in recent months and years. Many Chinese companies are eyeing the unique opportunities afforded by offshoring in Mexico.
In light of recent uncertainty on the global marketplace, US trade partners, China and Mexico, are taking proactive steps to increase their alliance. Already trade partners for over four decades, China and Mexico have a long history of economic cooperation and partnership.
- China is Mexico’s second largest trading partner.
- China needs energy, and Mexico needs infrastructure to exploit their energy resources.
- Chinese firms might make up for any US firms that may go back home.
- Mexican integration with the US economy provides the perfect gateway for Chinese businesses to strengthen access to the US market.
- Diplomatic talks between the two manufacturing countries are increasing.
As news stories continue to announce Asian companies setting up shop in Mexico, this alliance becomes more of a reality and less of a vision. For example, China’s Hisense Co. announced they were doubling their Mexican investment less than a year ago, and many other technology brands in China are following suit.
What Is Attracting Chinese Firms to Mexico?
It’s no secret why China-Mexico relations are strengthening. While China’s manufacturing boom is slowing down, Mexico’s remains vibrant. Chinese companies setting up operations in Mexico can expect closer and more integrated access to US markets for similar costs. And Mexico has made great strides in the recent past to sweeten the deal. Among the incentives attracting Chinese firms are:
- Recent Reforms: Mexico’s reforms over the past few years have overhauled transportation infrastructure, access to energy resources, commercial law and labor laws, and security.
- Trade Deals: In addition to providing access to the US consumer market, Mexico offers access to virtually every regional market in the world, with over 44 trade deals in place.
- Integration with US Economy: China-Mexico relations become more advantageous to China as Mexico-US economic ties grow stronger and more integrated. The two countries do not just sell finished goods to one another – they create them together. Approximately 40% of inputs for Mexican manufacturing comes from US labor. Chinese firms stand to gain more business with US firms in both directions by strengthening their alliance with Mexico.
- Cost of Labor: Chinese companies are searching for ways to save costs as the price of their labor steadily rises. What they find in Mexico is rising productivity with stationary wages.
China-Mexico relations stand to benefit both countries regardless of which direction US trade policy turns. If the US scales back trade with Mexico, Chinese trade will fill the gap as Chinese firms gain access to countries around the world via Mexico’s trade deals and cost-efficient labor base. If US policy continues to favor trade with Mexico, Chinese firms stand to gain far more access to US markets through a Mexican alliance.