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CWA # 1319, 18 May 2024
NIAS China Reader
China in Mexico: What, How and Why

  Femy Francis

On 06 April, an opinion in the South China Morning Post looked into the Chinese rush into Mexico as their new hot destination for small merchants. The op-ed stated that there has been a shift in perception of Mexico. China viewed Mexico as an unruly state with several gang wars. Now, within the last four years, Fujianese businessmen have built a “Chinatown” in Mexico. For many Chinese merchants, Mexico has become the new hot destination and this has led to an influx of Chinese expatriates. This influx has also sparked protests by the Mexican communities with signs saying “Go Back Chinese” calling out unfair competition. According to Mexico’s Secretariat of Tourism, the government has granted over 5,018 visas to Chinese immigrants in 2023. There has also been an increased exposure to Chinese brands where in 2023, Mexico became China’s second largest car importer and major Chinese companies like Oppo, Honor and BYD have found their place in the Mexican market.

What is China doing in Mexico?
1. Foreign Direct Investment by China
There has been a substantial increase in Chinese investment in Mexico. The surge is evident from the growth observed in the figures which rose from USD 38 million in 2011 to USD 282 million in 2022. The Chinese firms have become the largest sources of foreign direct investment in Mexico. These investments are mainly made in the manufacturing sector for computer equipment, furniture, electric vehicles and construction equipment amongst others. In 2023, some states in Mexico received a record number of FDI from China for Nuevo Leon worth USD 36 million and Jalisco USD 11.7 million. The Chinese expatriates are finding Mexico to be their new hotspot, the firms are now developing industrial parks to host even more Chinese firms.

2. Making use of Mexico as the prime destination for nearshoring
The term nearshoring is a practice where business operations are transferred to a nearby country or neighbour country.  This would allow the firm to have access to onshore outsourcing and offshore outsourcing. Mexico being a close neighbour to the US was an attractive market for the firms in the US and Canada. China also realized the potential of Mexico with Chinese products and firms facing increasing risk of decoupling. By producing in Mexico, Chinese firms can sell and ship at a meagre cost and can avoid trade hurdles that they otherwise would have to face.

How is China establishing itself in Mexico?
1. Establishing a prominent diaspora and “Chinatown”
With Chinese firms and businesses establishing themselves in Mexico, an increasing number of Chinese communities are habituating themselves in the country. The neighbourhood is now littered with Chinese culture and communities. There is now a “Chinatown” in Mexico as well, where many expatriates from Europe and other countries are now establishing their business in Mexico due to slow growth in former countries. This has led to a flourishing and ever-growing Chinese community in Mexico, where Chinese culture is integrated into Mexican society.

2. Benefiting from USMCA
The above was for the Chinese communities for the Chinese firms, convenient trade policies between China and Mexico makes it attractive. Another reason why China sees Mexico as the “Backdoor” to the US and the Canadian market is because of the special relationship Mexico and the US share. USMCA also known as the United States-Mexico-Canada Agreement is a trade agreement that supports mutually beneficial trade, essentially a free market and trade between the three countries. Chinese firms established themselves in Mexico to make inroads into the US and Canadian markets which would otherwise be restricted or face dire hurdles. This agreement provides companies with soil access to the US and Canada without tariffs.

Why is Mexico, China’s “backdoor”?  
1. Geographical proximity to the US
The FDI made by Chinese firms came to Mexico to target one of the world's largest consumer markets, that is the US. This means cheaper shipping costs and additional benefits from Mexico being its neighbours. In 2023 Chinese investments in Mexico hold the lion's share compared to other countries, now they move to bigger projects of developing plants and industrial parks in the region. The sale of the products and services would be benefited by the closeness to the largest consumer markets.

2. Skilled and cheap labour
Mexico has both cheap and skilled labour who have technical knowledge making them apt candidates for hiring by the Chinese firms. The workforce from Mexico is best suited for the high-value manufacturing conducted by Chinese firms in the aerospace, electronics and automotive sectors. The wages and labour costs are significantly lower in Mexico than in other Asian countries after considering the transportation costs and taxes.

3. International decoupling from Chinese products
The exponential rise of Chinese influence and products has led to countries actively decoupling from China-made products and equipment. Through Mexico, it can remove that tag and sell the same products without being decoupled by the Western market. The international community and countries decoupled when they wanted to find an alternative to their dependency on Chinese products and in turn, Chinese firms are finding alternative ways to sell those same products through different means. 

4. To station itself in the US’s backyard Latin America
With the US stationing itself in the Chinese neighbourhood and holding substantial influence in East Asia and Southeast Asia. China is also establishing itself in the US neighbourhood, and though the motivation is different, both can provide similar ends. For the US the presence has been hiked by the aggressive nature of China in the region and its aims to deter it, by stationing its army, military and technology donations. For China, the motivation to establish its business in Mexico is purely economical in nature, where there is no state motivation at first but with the growing influence and benefits it's not far when the CPC is involved.

References
“Nearshoring in Mexico: Some Basics for Chinese Companies,” Procopio, 15 March 2024
Ji Siqi and Igor Patrick, “Chinese expatriate entrepreneurs find a new gold rush destination in Mexico,” South China Morning Post, 06 April 2024
Will Grant, “How Chinese firms are using Mexico as a backdoor to the US,” BBC, 23 April 2024

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