Mexico increasingly important destination for Chinese overseas investments

In recent years, Mexico has emerged as a popular destination for Chinese outbound investment, with the cumulative amount reaching $2.3 billion between 2018 and 2023, according to Mexico's Secretariat of Economy. In 2023 alone, China's new investments in Mexico amounted to $150 million.

The deepening economic engagement between China and Mexico has triggered serious concerns within the United States, with senior officials from both the Republican and Democratic parties warning that Mexico could become a "back door" for Chinese companies to gain tariff-free access to the US market through the North American Free Trade Agreement.

However, this narrow focus on Mexico as a conduit for Chinese influence fails to recognize Mexico's appeal as a global economic powerhouse and its ability to attract foreign investment and develop its industrial capabilities, and overlooks the significant economic contributions that Chinese investments have made to the country and the broader Latin American region.

The long-standing economic interdependence between the US and Mexico has played a crucial role in enhancing the global competitiveness of US firms.

The high degree of specialization and integration of manufacturing and assembly operations on both sides of the US-Mexico border has enabled US companies to effectively leverage economies of scale and improve the global competitiveness of their products.

The Biden administration's near-shoring policy, launched in 2021, aims to position Mexico as a key component of the "US-Mexico-Central America" regional value chain.

However, Washington's efforts to leverage Mexico's cooperation in addressing supply chain issues have been accompanied by a lack of genuine concern for maintaining a stable and mutually respectful relationship with its southern neighbor.

According to analysts, the Biden administration has frequently exerted pressure on newly elected Mexican President Claudia Sheinbaum, urging her to review and even block Chinese investments, as part of the US-led push to "de-Sinicize" supply chains.

The Biden administration's efforts to leverage Mexico's strategic location and manufacturing capabilities as part of the "near-shoring" initiative have not translated into tangible economic gains or compensation for Mexico, as originally promised.

According to a Bank of Mexico survey, as of September 2022, only 16 percent of Mexican businesses reported that their operations had benefited from the "near-shoring" policy over the past year.

Furthermore, the Citibanamex survey found that the "near-shoring" policy has had a negligible impact on improving industrial real estate vacancy rates in Mexico, even in manufacturing cities like Tijuana, located along the US-Mexico border.

President Sheinbaum had campaigned on a platform that emphasized the importance of developing the country's new energy industries and technological innovation, while also expressing a desire for pragmatic cooperation with China to support Mexico's own industrial development.

However, since taking office, Sheinbaum has found herself caught between the competing geopolitical pressures exerted by the US, and has imposed temporary import tariffs ranging from 5 percent to 50 percent on 544 different products while also implementing additional tariffs on Chinese-made rigid PVC, steel and aluminum products.

These actions, driven by the US demand for Mexico to align with its decoupling and supply chain disruption agenda, have effectively bound the neutral Mexico to the US camp, damaging the already well-established economic and trade relationship between Mexico and China.

The US has repeatedly accused Chinese companies of leveraging Mexico's status within the North American trade agreement to circumvent US tariffs on Chinese goods, labeling Mexico as a potential "back door" for Chinese exports to the US market.

However, according to the manager of the first Chinese industrial park established in Mexico — Hofusan Industrial Park — the costs of setting up and operating manufacturing facilities in Mexico are actually around 15 percent higher than in China.

A firsthand investigation of Mexican manufacturing enterprises across various sectors, including automotive parts, small appliances, furniture, machinery and chemicals, has revealed that existing reports may have underestimated the significant rise of production costs in the country.

The higher costs associated with Mexico's infrastructure, labor, upstream and downstream supply chains, as well as raw material prices, have contributed to a substantial increase in overall manufacturing expenses, contradicting the US government's claims about Mexico's cost advantages.

The Mexican government's efforts to protect its domestic industries have further complicated the calculus for Chinese enterprises. Mexico has imposed temporary import tariffs ranging from 5 percent to 50 percent on 544 different product categories in two separate actions, first in August 2023 and then again in April 2024.

The reality on the ground is that Mexico does not host any large-scale Chinese automobile manufacturers. The 12 Chinese car companies operating in the country are primarily focused on importing and selling vehicles locally, rather than using Mexico as an export base to the US.

The only Chinese automotive manufacturer with an assembly plant in Mexico is Anhui Jianghuai Auto, but the facility does not export any Chinese-made vehicles to the US.

The stringent rules of origin requirements under the United States-Mexico-Canada Agreement have effectively excluded supply chains with a non-North American makeup from accessing the lucrative US auto market.

Despite the US government's efforts to intervene in Mexico's internal economic affairs and disrupt the operations and investments of Chinese enterprises in the country, data from a study conducted by the National Autonomous University of Mexico suggest that China's investment footprint in Mexico is relatively modest compared to that of the US.

According to the research, between 2020 and 2023, Chinese (including Hong Kong) companies invested approximately $7 billion in Mexico, while US enterprises invested a staggering $57 billion over the same period.

Furthermore, as of 2023, China's total investment stock in Mexico amounted to only $22 billion, a figure that pales in comparison to the colossal $315 billion the US investment in the country.

In contrast to the US' attempts to interfere in Mexico's internal affairs, China's investment in Mexico has been focused on actively promoting the development of key sectors, including transportation infrastructure, manufacturing, telecommunications, traditional energy and clean power, according to experts.

These investments, without imposing any undue restrictions or pressure, have brought about tangible economic benefits for Mexico, including economic growth, infrastructure improvements and increased employment opportunities.

According to the head of the Mexican subsidiary of State Power Investment Corp, prior to the company's entry into the Mexican market, Chinese enterprises in the country relied on fossil fuels for 60 percent of their energy needs. However, within two years of State Power Investment Corp's operations, the share of renewable energy usage has reached 68 percent.

Chinese technology and automotive enterprises, as shown by a firsthand investigation, are focused on expanding their foothold in the Mexican market and aligning their strategies with the overall development of the Latin American market, not on using Mexico as a platform to penetrate the US market.

The writer is an assistant research fellow at the Institute of World Economics and Politics, Chinese Academy of Social Sciences.

The views do not necessarily reflect those of China Daily.