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Is a “Win-Win” Relationship in the Cards for China and Mexico?
William Ratliff, The Jamestown Foundation, China Brief
5/30/2009

The People’s Republic of China (PRC) says it places high priority on making Mexico an important link in its widely publicized “win-win” expansion into Latin America. This was evident during Vice President Xi Jinping’s February stop-over in Mexico City. In reality, however, after 37 years of diplomatic ties the relationship remains more hoped-for than realized by China and—in recent years—more feared than utilized by Mexico. What are the prospects now for a “win-win” future for China and Mexico in an unsettled world of financial turmoil?

On his first official visit to Mexico City in December 2003 as Chinas premier, Wen Jiabao proclaimed Mexico one of China’s few “strategic partners” in the Western Hemisphere, a designation that today still has largely economic and energy overtones in the context of the PRC’s domestic development [1]. This makes sense because Mexico is the 11th most populous country in the world, with some 110 million potential customers for Chinese products. More important for China in the long term, however, is Mexico’s location: 1) in the “heart” of the Central American/Caribbean region and 2) sharing a 2,000-mile border with the United States. Mexico’s special relationship with the United States includes the North American Free Trade Agreement (NAFTA), which the Chinese hope will open trade doors for them as well as Mexico through business partnerships.

Mexico’s links to China are usually in some way related to U.S.-Mexico relations, which today are under stress for several reasons. Much of the widespread violence, which alarmed Xi’s delegation [2], is directly or indirectly the result of Mexican drug cartels, servicing mainly U.S. users, which are heavily armed with automatic and assault weapons smuggled in from the United States. In addition to perennial challenges of illegal immigration there is the Obama Administration’s step back from George W. Bush’s effort to finally abide by NAFTA trucking terms. Yet above all is the spillover into Mexico of the financial collapse in the United States and the ensuing global crisis. Since last year the decline in trade has accelerated, capital investments declined, unemployment risen and crime increased: Mexico’s GDP has fallen to one of the lowest in the Hemisphere.

With the United States sometimes a serious liability, as well as an asset, some Mexicans have long pondered closer cooperation with burgeoning China as a way to counterbalance U.S. influence and help restore some normality, if not prosperity, to the country. At the time of Xi’s visit, Chinese leaders reportedly believed Mexicans were thus inclined, and many were, despite important obstacles [3].

Mexico was the last country in the world to support China’s entry into the World Trade Organization (WTO) because of deep concern over trade and employment issues, and Mexico has charged China repeatedly with dumping within the WTO. The Mexican Secretary of Economy reported during Xi’s visit that bilateral trade in late-2008 had reached $34 billion, but of that Mexican imports accounted for about $31 billion, reflecting the imbalance that is the source of serious tensions (Press Release, Mexican Secretary of Economy, February 10 Latin American Herald Tribune, March 28). These exports from China to Mexico, and to Mexico’s trade partners, have had a serious negative impact on Mexican manufacturing, where employment fell by about one million jobs between its peak in 2000 and this year. According to Enrique Dussel Peters, a Mexican trade expert who specializes in Sino-Mexican relations at the National Autonomous University of Mexico (UNAM), jobs in textile production have fallen by 50 percent to 350,000 (ICIS news.com, February 10). In 2005 one study concluded that 58 percent of clothing sold in Mexico was contraband, a major portion of it from China [4].

While in Mexico, Vice President Xi met with Mexican President Felipe Calderón, congressional leaders, business persons, the local Chinese community and others. Calderón said Mexico can learn much from China in this era of financial crisis, noting that top leaders of the two countries have met 19 times on bilateral and multilateral occasions during the past eight years. He pledged further efforts to expand bilateral pragmatic cooperation (Xinhua News Agency, February 11).

Xi outlined a five-part program for the rapid development of economic and trade cooperation (Xinhua News Agency, February 11). His proposal began with a “strategic perspective” asserting the joint benefits of cooperation in expanding and balancing trade. Both sides should improve legal assurances and efficiency, he said, while removing obstacles to growth, looking particularly to telecommunications, mining, agriculture, fishing, processing and assembly. Xi reiterated points about reforming the international financial system that paralleled those of Hu Jintao at the November 2008 G20 summit. Xi emphasized that China believes business is the main force furthering bilateral and global cooperation.

This all relates to the matter of “winners” and “losers.” Lists of Latin American “winners and losers” in economic relations with the PRC almost always place Mexico first among the losers. The simplest rule of thumb is that Latin American “winners” are south of the Panama Canal while “losers” are north of the Canal. The key difference is that South American countries, foremost among them Chile, Peru, Argentina and Brazil, tend to export large quantities of natural resources and agricultural commodities. In contrast, Mexico, and the Central American and Caribbean nations largely lack those resources and depend more on trade in assorted manufactured items [5].

As Johns Hopkins professor Francisco González puts it, “countries whose production structure and exports resemble China’s, that is, countries dominated by unskilled labor-intensive manufacturing, will compete for markets and incur losses due to strong Chinese competitiveness.” What is more, China and Mexico “compete with a similar export basket of goods for the same market, namely the United States.” Mexico’s top ten exports, except for oil, all compete with Chinese exports [6]. Mexico is the main Latin American country feeling the “pain” of emerging China and India, according to a recent World Bank study, because “Mexico is the only country” in the Latin America/Caribbean region “whose comparative advantage had been moving in the same direction as … the two Asian economies” [7].

In an article titled Mexico’s Trade: Up Against the Great Wall, Mexican analyst Dussel notes factors giving China a strong trade advantage over Mexico, beginning with a long-term view of developing and maintaining manufacturing and trade. This edge is sharpened by a research and development budget that is larger for the single city of Shenzhen than the R&D budget of the entire Mexican government. Also, unlike Mexico, China systematically develops a network of cheap and accessible suppliers that provide necessary components for a product, thus enhancing value-added benefits. China also provides stronger incentives for foreign investors, as well as a hard-working and cheaper labor force [8]. Chinese goals are sought under substantial government supervision through an integrated development program that is missing in Mexico. Even extant bi-national organizations in Mexico have not yet had the will or government/public support to bring all Mexican sectors together to understand and deal with the China phenomenon [9].

China is interested in oil anywhere and Mexico has a lot, mostly sold to the United States. The Chinese company Sinopec in particular has tried to become involved in this oil through the Mexican national company, Pemex, but without success. Blog comments by a journalist who accompanied Xi suggest both surprise and deep frustration among Chinese that Mexico turned them down, though also some satisfaction that the United States is not allowed to be involved either [10]. The result, however, given maturing fields, declining reserves, corruption and stodgy thinking within Pemex, has made this business one of the least efficient in the world.

Xi rarely made public reference to problems in the Sino-Mexican relationship, but several Chinese analysts have discussed them in some detail. In late-2007 CASS analyst Wu Guoping even warned that if bilateral trade differences, from imbalances to Mexican charges of dumping, are not resolved, then trade, economic cooperation and the strategic relationship itself could suffer [11].

The two main ways to improve Mexico’s current relationship with China, and thus the bilateral relationship, are greatly expanding Mexican competitiveness and significantly expanding Sino-Mexican joint ventures. During Xi’s visit, Mexican Economy Secretary Gerardo Ruiz said that while up to now trade has been the focus of bilateral economic relations, in the future “the key to promoting greater economic integration between Mexico and China is investment” (Press Release, February 10). Several years ago Antonio Ortiz Mena, the director of Mexico’s CIDE research center, lamented the negativism that long dominated Mexico’s view of China. “China is a threat,” he said, “but it is also an opportunity,” particularly as a source of urgently needed capital and collaboration. Mexico has “depended on tariff preferences, not on increasing our productivity or improving our physical infrastructure, our business climate or our conditions for financing” (Política y Gobierno, February 9, 2005).

Addressing a luncheon hosted by Chinese and Mexican entrepreneurs, Xi reported that two-way investments have reached almost 500 million dollars, of which 80 percent are Chinese investments in Mexico. He added that Chinese markets have welcomed Mexican electronic and telecommunications products, as well as Tequila and Corona beer, while Mexicans have benefited from cheap but high-quality Chinese products of all sorts (People’s Daily, February 11 and 26). Chinese leaders insist they want to balance the bilateral trade, but little real movement in that direction has occurred. The simple but tough question, as Chinese Academy of Social Sciences (CASS) Latin Americanist Jiang Shixue says, is “what can Mexico sell to China to reduce the deficit” (S. Jiang, pers. comm.).

During Xi’s visit there was much talk on both sides of how China could invest in Mexican factories that would export to Latin America and the United States, though as Minister Ruiz has said, Mexico does not look favorably on Chinese-funded factories that use only Chinese rather than Mexican workers (Xinhua News Agency, Feb. 7 Herald Tribune, March 28). Chinese firms consider business in Mexico desirable, as González says, because it “can provide a platform for exports to the US market” (G. Paz, pers. comm.). Evan Ellis notes Mexico’s attractions for China in his encyclopedic new book, namely its close proximity to the United States, some manufacturing skills and “tariff-free access to the U.S. market” under provisions of the NAFTA agreement [12]. Although cooperation could be worked out in many areas, several Chinese car manufacturers are the most aggressive, or as one Canadian paper put it, “China cars get Mexico beachhead” (National Post’s Financial Post, January 9).

What are the prospects for a significant improvement in Sino-Mexican relations? Specialist projections cover the waterfront of possibilities.

CASS Latin Americanists Jiang Shixue and Xu Shicheng are convinced that despite commercial problems the two countries will strengthen their “strategic” relationship (S. Jiang, S. Xu, pers. comm.). Mexican analyst Dussel concluded that often tense negotiations on tariffs in late-2008 resulted in building a “closeness and trust” that had previously eluded the two parties, and in late March he expressed “high expectations” that Mexico will devise a long-term and effective response to the China challenge (E. Dussel, pers. comm.). Kim Wonho, the president of the Latin American Studies Association of (South) Korea, notes that now the two countries “compete with each other in major export markets,” but “as China moves ahead toward high tech sectors,” their prospects for cooperation will improve (W. Kim, pers. comm.). Guadalupe Paz, co-editor last year of a fine overview of China’s relations with Latin America, visited China in March for talks with journalists, diplomats, academics, private sector representatives and Chinese officials. Her impression was that Mexican officials “would like to deepen cooperative efforts with China,” but that they tend to be “skeptical” about China’s “medium- to long-term intentions” (G. Paz, pers. comm.).

Former Mexican Foreign Minister Jorge Castañeda suspects that “little will change, for better or worse, over the coming years. Every Mexican president travels to China, everyone says the same thing, and everything stays the same” (J. Castañeda, pers. comm.). Luis Rubio, the president of the Center of Research for Development in Mexico City, does not see profundity in the relationship, saying “China has placed its bets elsewhere in South America” (L. Rubio, pers. comm.). Jerry Haar, an international business professor at Florida International University, sees an economic “downward spiral” that may result in “economic nationalism—a euphemism for protectionism” and an increasing Chinese focus on countries closer to home (J. Haar, pers. comm.).

Little wonder prognostications vary. While the need to adapt is particularly great in a period of global unrest, concerns about intentions and consequences are inevitable. Both China and Mexico have strong incentives to find a “win-win” relationship, but the current competitive bilateral conditions are very real and can not be “willed” away. Additional factors figure in as well, ranging from geography and the fact that neither side adequately understands or trusts the other to differences in natural and cultural resources the players can and choose to bring to the table. China’s focused successes and economic and human resources pose opportunities and challenges for China, Mexico and others, including the United States, that can only be made “win-win” with constructive goals, patience and informed persistence on all sides.

Notes

1. Until November 2008 four countries (Mexico, Brazil, Cuba and Venezuela) had been designated “strategic partners,” but a policy paper in November 2008 elevated all of Latin America and the Caribbean to the “strategic” level. See China Brief, November 24, 2008.
2. See blog of Qin Feng, a journalist with the Hong Kong-based Phoenix TV, who accompanied Xi Jinping on his visit to Mexico, accessed at: blog.ifeng.com/article/2158299.html. I am grateful to Wang Zichen at Shandong Economic University for drawing my attention to this source.
3. See Qin Fengs blog. Xi made one informal but blunt reference to U.S. arrogance and assertiveness when addressing members of Mexico’s Chinese community (China Brief, Feb. 20) and while the comments have not been reported officially in China they have circulated informally online (http://www.youtube.com/watch?v=bDHjmJ-9w28) with considerable approval from China’s super-nationalists and some others.
4. Alma Rosa Cruz Zamorano, China: competencia comercial con México
y Centroamérica, Comercio Exterior, March 2005, p 287.
5. In fact, the “winner-loser” terminology may be misleading since “winners” usually fail to seriously invest profits in improving basic economic, social and educational infrastructure. Thus they do not lay foundations for breaking free from traditional trade patterns or from age-old inequalities and poverty.
6. Francisco González, “Latin America in the Economic Equation—Winners and Losers,” in Riordan Roett and Guadalupe Paz, editors, China’s Expansion into the Western Hemisphere (Washington, Brookings Institution Press, 2008), pp. 151, 157 and González, testimony to US House Subcommittee on the Western Hemisphere, June 11, 2008.
7. Daniel Lederman, Marcelo Olarreaga, Guillermo Perry, China’s and India’s Challenge to Latin America (Washington, World Bank, 2009), p. 7.
8. Enrique Dussel Peters, “Mexico’s Trade: Up Against the Great Wall,” Center for Latin American Studies, University of California, Berkeley, April 27, 2006. The problems Dussel mentions in 2006 are much the same, indeed often more serious, in 2009.
9. Consejo Mexicano de Asuntos Internacionales, La China del Siglo XXI: Reto y Oportunidad para México. 2008, passim.
10. Qin Fengs blog. The Chinese surprise reflects an ignorance of Mexican history and culture. Citing law from the colonial period, Mexican President Lázaro Cárdenas nationalized all sub-soil wealth in 1938 and since then oil above all products has been out-of-bounds to any foreigner.
11. Wu Guoping, “Ying zhuyi yanjiu zhong mo maoyi xin bianhua,” CASS, Nov. 20, 2007. Also see Qin Feng blog. Two other CASS studies are Xu Shicheng, “Algunas reflexiones sobre el desarrollo de las relaciones chino-mexicanas,” Cuadernos Americanos, July-Sept, 2007 and Yue Yunxia, “China & Mexico: Comparison of Trade Competitiveness,” Nov. 24, 2008, which concludes that although “China outshines Mexico in the overall competitiveness” in the US and EU markets, “instead of actual threaten [sic], China is just a potential restraint to Mexico. . . .”
12. Evan Ellis, China in Latin America: The Whats and Wherefores (Lynne Rienner, 2009), Chapter 6.

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