Mexico, a nation of rich cultural heritage and diverse landscapes, offers ancient traditions and modern dynamism.
Mexico, boasting the 12th largest economy globally, is an emerging market deeply intertwined with global trade. Its open economy and substantial manufacturing sector render it an appealing hub for investment and trade.
Including companies from China and Hong Kong.
China Foreign Direct Investment
From January 1999 to March 2024, Mexico received a total of US$2.24 billion in FDI from China, with the highest amounts going to Mexico City (US$475 million), Yucatán (US$381 million), and Jalisco (US$283 million).
As of mid-2022, the number of Chinese companies operating in Mexico had reached 1,294, signifying a substantial increase in their presence in the country in recent years.
Hong Kong signed the Investment Promotion and Protection Agreement (IPPA) in 2018 with Mexico. In 2022, the main export from Hong Kong to Mexico was electronic integrated
circuits, valued at US$244 million, with the top exporting regions being Chihuahua (US$243 million), Mexico City (US$136 million), and Jalisco (US$104 million).
In November 2023, Hong Kong's exports to Mexico reached HK$3.114 billion (around US$400 million), a 24.3% year-on-year increase and Mexico was Hong Kong's largest export market in Latin America in 2023 and the 4th largest source of imports from the region.
Making It In Mexico
In recent years, China's investment in Mexico have seen steady growth, driven by factors such as the US-China trade war and the desire to gain duty-free access to the US market.
By setting up manufacturing in Mexico, Chinese companies can label products as "Made in Mexico" and export them to the U.S. tariff-free under the United States-Mexico-Canada Agreement (USMCA) trade agreement, thus bypassing tariffs on Chinese imports by the Trump and Biden administrations.
Supply Chain Risk Mitigation
Establishing a manufacturing hub in Mexico helps mitigate supply chain risks and reduces transportation costs and lead times to the U.S. market, enhancing the competitiveness of Mexican-made products. This was demonstrated during the pandemic when global supply chains were disrupted.
Many Chinese companies have set up manufacturing facilities in Mexico, mainly in the northern states near the U.S. border, producing products such as refrigerators, furniture, construction equipment, solar panels, electric vehicles, computers, servers, and computer racks.
Chinese developers are building entire industrial parks in Mexico, such as the Hofusan Industrial Park near Monterrey, to host Chinese manufacturing companies.
Many Incentives and Benefits
Apart from supply chain optimization, ‘Made In Mexico’, bypassing tariffs, there are other reasons for companies to set up operations in Mexico.
Labour costs in Mexico are significantly lower than in the US, and the country boasts a large skilled workforce well-suited for manufacturing industries such as automotive, aerospace, electronics, and medical devices.
The combination of lower transportation costs and preferential tax treatment can result in substantial savings for companies operating in Mexico compared to other Asian nations.
There are also well-developed manufacturing capabilities in industries like automotive, electronics, aerospace, and medical devices, making it an attractive investment destination.
The country ranks as the 8th largest global manufacturer of medical devices and is the leading exporter of medical equipment to the US.
In essence, Mexico provides Chinese firms with low-cost access to the massive US market through its trade agreements, while offering an established manufacturing base, a skilled workforce, and supply chain resilience benefits.
Finally, there is the Mexican domestic market itself, which offers additional market expansion incentives.
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Notes: No company mentioned in this article is a client. Information came from multiple sources as listed below. The image used is taken from an infographic designed and created by Eight PR using a paid-for Canva subscription. The full infographic can be viewed on our Pinterest page (www.pinterest.com/EightPublicRelations) together with other creations.
Sources:
https://carnegieendowment.org/2024/03/25/mexico-in-emerging-world-order-pub-92041, https://prosperousamerica.org/chinese-companies-build-factories-in-mexico-to-exploit-friendshoring/, https://voxdev.org/topic/trade/how-mexico-emerged-key-player-us-china-trade-war, https://www.baiguan.news/p/chinese-companies-are-rushing-into, https://www.bakerinstitute.org/research/how-us-china-trade-war-and-inflation-reduction-act-could-shape-mexicos-nearshoring-future, https://www.bbc.com/news/business-68825118, https://www.economist.com/business/2023/11/23/why-chinese-companies-are-flocking-to-mexico, https://www.paseroabogados.com/en/mexico-is-becoming-an-increasingly-popular-destination-for-chinese-companies/, https://www.procopio.com/nearshoring-mexico-chinese-companies/, https://www.scmp.com/economy/china-economy/article/3250695/china-has-made-mexico-premier-investment-destination-it-us-detour-or-something-more, https://www.scmp.com/news/china/article/3257822/chinese-businesses-launch-operations-mexico-managers-learn-cross-cultural-lessons, https://www.youtube.com/watch?v=heNO5TbFTio