Changes in global economics may usher in a period of increased Chinese-Mexican economic cooperation.
Though once considered the low-cost manufacturing venue of choice, China has been losing ground to Mexico in terms of strategic advantage and labor costs. While China’s cost of labor is still somewhat lower than that of Mexico, recent increases in oil and fuel prices necessary to transport China’s products to popular markets – the US, in particular – has offset this diminishing advantage to a large extent.
Mexico is not only next door to the world’s largest consumer economy, but it party to a rather convenient economic agreement with the US (NAFTA), as well as many other nations with whom it has forged bi and multilateral free trade arrangements. A report by AlixPartners outlined Mexico’s rise vis-à-vis China, noting that Mexico has now completely surpassed China as the cheapest country in which to manufacture for US markets when taking “total cost of ownership” into account. Flexibility, speed, and quality are also factors that demonstrate just why American trade with Mexico is up 30% since 2010, while commerce with China has moved in the other direction.
China is not oblivious to this development, however. On the contrary, Chinese-Mexican economic cooperation, as manifested through foreign direct investment, has increased over the last several years. In fact, rather than view one another as competitors, Mexican and Chinese officials have been engaged in discussions related to partnering in order to export more goods to US markets. In the past few years, Mexican President Enrique Peña Nieto and Chinese President Xi Jinping have signed a number of agreements on development and exchange, and plan to meet again in November of this year to further map out how to stimulate further Chinese-Mexican economic cooperation.
The development and modernization of infrastructure is of key interest to Mexico. This may be a very specific and fertile area in which to amplify Mexican-Chinese economic cooperation. For example, China imports much of its energy, and Mexico has a wealth of oil and gas reserves – China could very well invest in upgrades to Mexico’s petroleum industry infrastructure in exchange for expanded access to some of of its energy resources. In fact, such a relationship already exists to in a stage of infancy, as Chinese national companies have been providing technical services to Mexico’s upstream oil market, and Mexico has been exporting oil to China since 2009.
Another motivator for Mexico as regards the expansion of Chinese-Mexican economic cooperation is the extreme trade deficit Mexico has with China. More than fifteen percent of Mexican imports (valued at US $57 billion) came from China in 2012, yet China received less than two percent (valed at US $5.7 billion) of Mexico’s exports. According to Mexico’s foreign minister, the country is planning to export more tequila and pork to China and attract investment in industries such as energy, infrastructure, and tourism. The two manufacturing giants may have been fierce competitors in the past, but the future of the two country’s relation ship may be cooperative and mutually beneficial.