An Eastern Gaze


The distance between Asia and Latin America has narrowed over last few years thanks in large part to stronger ties between Mexico and China. In the last decade, there have […]

The distance between Asia and Latin America has narrowed over last few years thanks in large part to stronger ties between Mexico and China. In the last decade, there have been 13 presidential visits between the two countries, up from only six between 1973 and 1994. Representatives of the two countries have used these occasions to sign a number of commercial agreements that have eased trade.

The last presidential visit took place in November 2014, when President Peña Nieto visited China for the APEC summit and stayed for a few days afterwards to finalize several bilateral agreements. Mr. Peña Nieto and Chinese President Xi Jinping signed 14 agreements and investment contracts in spite of tensions following the Mexican Federal Government’s revocation of the Mexico City-Queretaro bullet train concession, which was granted to a consortium led by the China Railway Construction Company (CRCC).

The concession was revoked after the press exposed that one of the Mexican firms in the consortium had bought a luxury mansion for Peña Nieto´s wife. The government re-launched the bid, but the project was called off indefinitely as result of budget cuts to the National Infrastructure Plan, something that infuriated the Chinese company.

While the CRCC has fared poorly in Mexico, other Chinese companies have bolstered their presence in the Latin American country. For instance, Huawei announced in 2014 that would invest $1.5 billion in Mexico to build new ICT centers that will provide services to the Western hemisphere. This is the largest investment by a Chinese company in Mexico to date.

Furthermore, commercial trade between China and Mexico has increased by around 500% in the past decade alone. According to the Mexican Secretary of Economy, trade between both nations stood at around $15 billion in 2004. By 2014 trade reached $72 billion. Thus, China is now the fourth largest destination for Mexican exports and, on the other hand, about 17% of imports hail from China.

The trade balance between the two countries favors the world´s second largest economy, although Mexico working to correct this imbalance. Whereas Mexico imported about $66 billion in goods from China—mainly of the electronic variety—in 2014, the country only exported $6 billion to its partner.

Around 35% of Mexican sales to China are raw materials such as copper, iron, or aluminum, while there has been a surge in the exports of cars to the Asian country. In 2008, Mexico barely shipped 2,000 cars to China but last year that figure rose to 70,000 units, equaling nearly 3% of the Mexican auto exports according to the Mexican Association of the Automotive Industry (AMIA).

Mexico has plenty of opportunities to increase trade. Chinese consumers are developing an insatiable thirst for one of Mexico’s most iconic products—tequila. More pork products from Mexican are appearing on more Chinese grocery store shelves every day. “We have been present in the Japanese market for many years and the opening of the Chinese market will bring great opportunities for us,“ pork purveyor and executive director of Sonora Agropecuaria (SASA) Ángel Bours told TBY. In January 2015, Chinese regulators certified SASA pork products for the Chinese market.

By leveling the trade balance, Mexico expects to attract investment in key sectors of the economy such as energy, infrastructure, and tourism in order to become a destination for Chinese FDI. Even though Chinese direct investments in Latin America have averaged around $10 billion per year since 2010, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Mexico has largely been passed over. For instance, in the first half of 2014, Mexico received about $9 billion in FDI, but only 0.1% of that came from China.

A new legal framework should rectify this paucity in Chinese FDI. With the passing of the energy reform, Chinese companies are reconsidering Mexico’s economic potential. The TSC Group, a Hong-Kong based oil company, signed a $63 million contract with PEMEX in 2014 to build a new maintenance facility in Mexico to rebuild offshore platform rigs. TSC’s Regional General Manager for Mexico, Bill Lewis told TBY that, “there is an opportunity here to work not only with PEMEX, but also with the other drilling operators with which we have established worldwide relationships.“

Fostering relations with China and the APEC region should wean Mexico’s economy off sales to the US market. Chinese companies create a solid bridge to the Asian Markets. And now that investor-friendly laws are in place, much-needed FDI should help Mexico reach its full potential.