Photo credit: Containers by tsuna72
Despite the global recession, Mexico is actively seeking out investment from Chinese companies. One of the major investment sectors being targeted is the automotive industry. With this in mind Mexico is participating in the Auto Shanghai annual event for the first time, to showcase Mexico’s suitability and meet with potential investors.
There have already been several commitments from Chinese companies looking to invest but many other companies have already begun researching and feasibility studies to determine whether setting up factories in Mexico would be a sound investment. The Shanghai event has allowed Mexico to begin talks with some of the largest Chinese automakers who attended a ProMexico seminar at the event.
Mexico has a number of advantages which would provide opportunities for Chinese companies, including the proximity to the United States. The U.S is the largest consumer of vehicles worldwide, which represents a huge market share. While Mexico also has a number of trade deals which allow privileged access for Mexican exports to over forty nations. Investment in Mexico for operations and infrastructure would save on logistical costs and delays to facilitate more efficient export to the United States and Canada.
Of course, the current economic climate has had an effect on Chinese investment. The automobile market in North America has halted or delayed a number of investment plans, but many companies look set to establish operations in Mexico should the situation improve. Mexico is currently the tenth largest producer of auto-motives in the world, but this could grow considerably should investment plans become a reality.
However, the Mexico-China relationship is not limited to the automotive industry. Many Chinese manufacturers have begun to establish operations in Mexico over the last ten years. China based firms in the textile, cellular telephone and electronics industries have set up operations. By 2005, there were over twenty Chinese manufacturers operating in several Mexican states. Many of these investments were considered small, but they have created thousands of job opportunities.
Mexico has also signed agreements with Chinese companies to cover equipment, technology and ships to support the Mexican oil industry. The line of credit from the Bank of China allows for the acquisition of equipment and ships needed for offshore activities and includes the possibility for finance for the overhaul of the state owned Permex fleet. These agreements lay the groundwork for potential cooperation for oil pipelines in the future. Since Pemex is the fifth largest oil producer in the world and is one of the only firms to handle all aspects in the production chain, this represents a great opportunity for China.
With rapid rises in costs including transportation and wages occurring in China, Mexico represents a good opportunity for Chinese companies to cut costs and improve productivity. Since many also believe that the Yuan may also be adjusted upwards against the U.S dollar, this could also highlight Mexico’s competitive position.
Many experts believe that we may soon see factory cities being established close to the U.S border which will present great investment opportunities for Chinese companies while boosting Mexico’s economy. It is certainly a development that many will be watching in the future.
Despite the fact that Chinese look for a free trade agreement without restrictions with Mexico, there are a lot of laws, benefits and breaks that Chinese are eligible. For example, Chinese-investment corporations are still eligible for IMMEX (export incentive programs), automotive production benefits, tax breaks from local governments, free-granted land from county governments, and many vast programs that are making Mexico attractive for auto manufacturing, regardless of the nationality.