China and Mexico — burgeoning business bedfellows
The recent announcement by Bimbo, the world’s largest breadmaker, that it plans to continue expanding into China reaffirms the Mexican company’s commitment to boost its presence in the world’s most populous market. Yet, looking beyond Bimbo’s corporate strategy, the company’s commitment to the region is also part of a broader, accelerating trend of greater bilateral commercial interaction between both countries.
Current shifts in the US political climate are likely to have an impact on Mexico’s trade relations. With the renegotiation of Nafta looming, a potential border tax on imports into the US under discussion, and likely changes to US immigration policies forthcoming, it would be easy to discount Mexico’s pivot towards China as a reactionary tactic. However, while political uncertainty is undoubtedly discussed in Mexican boardrooms, to dismiss Mexico’s growing interest in China as new, tactical, or simply reactionary would — as the saying goes — fail to see the forest for the trees.
The current flurry of increased commercial activity between Mexico and China began nearly a decade ago. In 2008, Mexico and China agreed to enter into what is often seen as a first step towards a free trade agreement (FTA) — a Bilateral Investment Agreement (BIT) intended to “create favorable conditions for investment” between both countries. Eight years later, both countries signed an agreement seeking to expand the presence of Mexican agricultural products in China. Trade between Mexico and China has doubled since 2008, but a full-blown FTA between the countries has remained elusive. Nevertheless, China is currently Mexico’s second largest import partner and third largest export destination, and FTA or not, bilateral commercial relations continue to grow.
Chinese see plenty of opportunities in Mexico
Examples of a growing Chinese presence in Mexico abound. Having identified the importance of establishing a foothold in Mexico’s telecommunications market, Chinese telecom giant Huawei last year opened a flagship store in Mexico City’s upscale Polanco neighborhood. In February of this year, Mexico’s Giant Motors, China’s JAC Motor, and Chori Co. Ltd. agreed to jointly invest in the development of a manufacturing plant in the state of Hidalgo. China’s growing interest in the region has led to China’s Southern Airlines adding a new regular route between both countries.Mexican companies are also seeing an influx of Chinese capital, with the Mexican ministry of economy reporting that more than
Mexican companies are also seeing an influx of Chinese capital, with the Mexican ministry of economy reporting that more than 900 Mexican companies have received capital investments from China. Mexican infrastructure may also benefit from Chinese investment; it has been estimated that Chinese companies could potentially invest up to $3 billion in the next two years.
Mexican firms are also looking to the Chinese market to expand. In 2016, Mexican exports of beer to China grew 35% with Tequila exports growing by more than 8%. Seeking new consumers, producers of Mexican agricultural products, including avocados and plantains, are making concerted efforts to enter the Chinese market. The public sector is also eager to ramp up relations, last month, three governors of key Mexican states led a delegation to China in search of investors and expanding potential export opportunities. Accordingly, Mexican exports to China have increased from US$4.9 billion in 2015 to $5.4 billion in 2016.
Mexico and China have a long way to go to reach the full potential of their economic relationship. The negotiation and ratification of a free-trade deal would be an important step in solidifying the bilateral commercial relationship and spurring additional trade. Despite the absence of such an agreement, Mexican and Chinese commercial relations are growing, and while increased Mexican interest in the Chinese market cannot be wholly attributed to future US government actions, it may be providing a boost to the Sino-Mexican trade relationship.