China and Mexico: an economic relationship with growth potential

Although China is not expected to return to double-digit GDP growth, as it did in the 1990s, its economy will continue to show good numbers, agree César Fragozo, executive vice president of the Mexico-China Chamber of Commerce and Technology ( China Chamber Mexico), and Jesús Seade, Mexico’s ambassador to the Asian giant.

And although the relationship has had ups and downs, with moments like the cancellation of the Mexico-Querétaro fast train during the six-year term of Enrique Peña Nieto, bilateral trade is growing. “No region, regardless of whether the US or China is located in it, is close to being self-sufficient. Each major region has a level of imports of more than 25% of resources that they do not have domestically”, adds Seade.

The business relationship

Last year, bilateral trade reached 116,000 million dollarssays Sergio Ley, president of the Asia-Pacific section of the Mexican Business Council for Foreign Trade, Investment and Technology (COMCE).

The figure, he clarifies, will not be found in government data, since the council included what both countries buy through third parties. The manager points out that if this intermediation were eliminated, Mexico could increase its presence in the second most important market in the world.

If the country wants to reduce the trade deficit with China, it must encourage investment in Mexico and change from being an assembler to a “creator” through the use of technology and innovation, adds Ley.

The specialist sees an opportunity if the Mexican government invests in infrastructure to improve logistics and the private initiative does so to increase commercial ties.

For his part, Fragozo considers it difficult to increase exports because almost all production, especially food and manufacturing, goes to the United States.

“I worked in 2019 with a Chinese fund and they asked us for shrimp. We went with the shrimpers and they told us: ‘I’m already selling everything to the United States.’ The little they have left is to supply other markets, but not China”, he gives as an example.

Another risk is related to the lack of payment security on the Chinese side. Mexico, unlike countries like Chile or Peru, does not have a free trade agreement with Asia, however, through the Reciprocal Investment Promotion and Protection Agreement (APPRI) it is possible to provide greater certainty on the Mexican side, says Jesús Seade.

The investment

China is also known for the investment it makes in other countries, mainly developing countries.

However, in Mexico it has not been used in the best way, the interviewees point out. The cancellation of the Mexico-Querétaro train was one of the moments that marked the investment of the Asian giant in Mexico, says Ley.

“There is an issue of ideology here. They are not used to tenders,” says Fragozo, who adds that when China invests in infrastructure, it does so through direct contracts.

“We do want to export more, but I am convinced that the main emphasis must be placed on the side of Chinese foreign investment and nearshoring,” says Ambassador Seade.

And although the relationship with China in this six-year term has not deepened, there are Asian companies investing in projects, such as the trans-isthmian corridor, through associations with Mexican companies. The consequence of this type of participation is that Chinese investment arrives to a lesser extent, warns Fragozo.