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The China-Mexico Strategic Relationship and Its Impact on the U.S.

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The China-Mexico Strategic Relationship and Its Impact on


the U.S.
By Evan Ellis Monday, June 02, 2014

Topic: World

As the Peoples Republic of China (PRC) has expanded its commercial and other relationships with Latin America and the Caribbean over
the last decade, Mexico has remained closely tied to the United States, both in economic and security affairs. The degree to which Mexico
has served as a buffer to the sea change in orientation of Latin America and the Caribbean toward the P.R.C. is due to several factors.
These include Mexicos integration with the U.S. and Canadian economies under NAFTA, as well as frictions between Mexico and the
P.R.C., and the expanded Mexico-US security cooperation in the war against transnational organized crime during the presidency of
Felipe Calderon.

Seeking an Expanded and Improved Relationship


Enrique Pea Nietos inauguration as president of Mexico in December 2012, and Xi Jinpings ascension to the presidency of the P.R.C.
just three months later, dramatically changed the political dynamic between the two countries, ushering in a new period in which both have
aggressively pursued deeper economic, political, and other relations.
For the P.R.C., the impulse for deeper and better relations with Mexico involves the latters historical role as a regional leader, one of the most important markets in the region, and a
potential platform for exporting Chinese products to the U.S.
For Pea Nieto and his Partido Revolucionario Institucional (PRI), stronger economic and political ties with the P.R.C. diversifies Mexicos economic and other foreign relationships
away from the focus on the United States that many believed characterized the Partido Accin Nacional (PAN) governments of Vincent Fox and Felipe Calderon that preceded the
present Pea Nieto regime and the associated return of the PRI. In economic terms, a deeper and better relationship with the P.R.C. compliments Mexicos membership in the
Pacific Alliance as part of the countrys reassertion of the regional leadership role that has traditionally been a point of pride for PRI governments.
In a similar fashion, the expansion of Mexican exports to and investments from China presumed to flow from such a policy would bolster and leverage Pea Nietos ambitious project
of internal reforms in sectors such as petroleum, mining and education.
The emphasis given by both China and Mexico to a deeper and better relationship can be seen in the unprecedented frequency with which Xi and Pea Nieto have metthree times
in a space of six months during 2013: in April of that year on the sidelines of the Boao summit on Hainan Island, China, in June in Mexico City, as part of Xis trip to Latin America
and the Caribbean, and in September at the G-20 summit in St. Petersburg, Russia. The next meeting between the two leaders is currently scheduled for November of 2014, in
close proximity to, but independent from the first China-CELAC summit, also to be held in the P.R.C.
Although the two nations have defined their relationship as Strategic since December 2003, during the June 2013

Mexico and China raised the level of


cooperation to a comprehensive
strategic partnership.

summit between Presidents Xi and Pea Nieto in Mexico City, Mexico and China raised the level of cooperation to a
comprehensive strategic partnership, with strengthened vehicles for collaboration on both bilateral and multilateral
affairs.
In economic matters, the desire by both China and Mexico to deepen the relationship is visible in the plethora of

initiatives and agreements between the governments since 2013 to facilitate cooperation in agriculture, tourism, and finance. These include Chinese acceptance of Mexican tequila
and pork exports, preliminary authorization by the Export-Import Bank of China of a $ 500 million line of credit to Mexicos National Bank of Foreign Commerce (Bancomext), and
discussion of a separate $1 billion loan to the Mexican oil company, Petroleos Mexicanos (PEMEX).
During 2013, four Mexican ministers paid visits to China: Foreign Affairs, Communications and Transport, Tourism, and Agriculture. In addition, Mexico opened a commercial affairs
office in its embassy in Beijing, while in April 2014, the Mexican agricultural ministry, SAGARPA, opened a representative office in the city.
Expanding Mexican agricultural exports to the P.R.C. appears to be a particular focus of the new Sino-Mexican cooperation, as a potential vehicle for bringing down the ten-to-one
trade deficit that Mexico has continually incurred with the P.R.C. over the past decade(1), which as caused a significant portion of Mexicans, including producers of traditional goods
such as textiles and footwear, to see engagement with the P.R.C. as more of a threat than an opportunity.
At the political level, when the Dali Lama visited Mexico in October 2013, the Mexican government
released a statement supporting the P.R.C. position on Tibet, in contrast to Pea Nietos successor,
Felipe Calderon, who personally received the Dali Lama during his September 2011 visit to Mexico.

China-Mexico Investment
Chinese investment in Mexico, to date, is larger than commonly recognized, yet remains limited. Major

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projects include a textile factory in Ciudad Obregon (Sinatex), a copper tube plant in Coahuila (Golden
Dragon Precise Copper Tube Group), a computer assembly facility in Monterrey (Lenovo),
telecommunications service and training facilities (Huawei), an automotive plant in Veracruz (Foton), a
500 hectare technology park being built in Guanajuato by the Chinese firm UST Global, and a joint
venture between Chinese and Japanese companies in Aguascalientes to make plastic components for

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the automotive industry (TK Minth), among others.

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The China-Mexico Strategic Relationship and Its Impact on the U.S.

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As of February 2014, according to the Chinese government, 57 Chinese firms were operating projects in Mexico with a value of $400 million, by contrast to 109 Mexican firms
operating projects in China worth an estimated $69 million. Such reciprocity of investment and other commercial activities between the two countries arguably leads Mexican
businessmen and politicians to view China as an equal (even if also a rival), rather than as a source of largesse.
If Chinese investment in Mexico to date has been primarily focused on manufacturing and technology sectors, new and contemplated projects are arguably moving the relationship
in a direction that more closely resembles P.R.C. engagement with other Latin American countries. In June 2013, for example, the Mexican Secretariat for Communications and
Transportation announced that it was speaking with Chinese companies regarding their potential role in constructing a rail line from Mexico City to Queretaro, a subway in
Monterrey, a light rail project in Guadalajara, and a railway line connecting the Atlantic-coast port of Veracruz with the Pacific coast port of Salina Cruz, in the state of Oaxaca, a
project long discussed in Mexico but revived as part of President Pea Nietos new engagement with the P.R.C.
Further mirroring P.R.C. activities in other parts of the region, Chinese investors have been quietly acquiring parcels of

For the U.S., the outcome has


strategic implications as profound as
those for Mexico itself.

land in Sinaloa for the production and export of soybeans. Similarly, a small but important number of Chinese investors
are active in the Mexican mining sectors, including development of the Lupe mine in Puebla by the Chinese firm JDC
Minerals.
In Michoacan, the role of Chinese businessmen in purchasing and exporting metal ore from informal mining operations

was brought to light by the Mexican Navys intervention against the transnational criminal organizations La Familia Michoacana and los Caballeros Templares in the state in
November 2013.
One particularity of Mexicos pursuit of Chinese investment has been the proactive role played by Mexican states in pursuing Chinese investment. Examples include Veracruz,
whose governor Javier Duarte played a leading role in securing the investment of the Chinese automotive company Foton. Other examples include a $100 million Chinese
investment in food processing facility negotiated by the government of Zacatecas and announced in March 2014, as well as the effort by the government of Aguascalientes to attract
investment in solar energy projects from Chinese firms Trina and J.A. Solar.
On the other hand, although many such discussions are reported in the Mexican press, the number of projects which ultimately come to fruition is far less. Part of the difficulty,
according to Mexican academics consulted for this article, is that Chinese and other investors must reach agreement with often imperfectly coordinated actors at each of the three
separate levels of Mexican government.

Challenges to Deepening China-Mexico Engagement


Three sets of obstacles complicate the expansion and deepening of P.R.C.-Mexico commercial and political relationships: Mexicos integration into the U.S. and Canadian
economies via NAFTA, resistance from vested bureaucratic and commercial actors whose interests would be adversely impacted by such reapproachment, and a broad and deeply
rooted mistrust among Mexicans toward the Chinese.
While Mexicos position in NAFTA potentially allows Chinese businesses to use manufacturing operations in Mexico as a springboard into the U.S. market (provided domestic
content provisions can be met), it also leads the majority of Mexican exports to be absorbed by the U.S. and Canadian markets. For products such as agricultural goods with only
limited potential to expand production, diverting exports to the Chinese market incurs additional expenses which can only be passed on to Chinese consumers in the case of unique
goods, and those associated with the Mexican national identity, such as tequila.
Proposed Chinese projects in Mexico also frequently face opposition from economically powerful and politically well-connected groups. Perhaps the most visible contemporary case
is Dragon Mart, a 284,000 square foot retail and wholesale facility to be built in the state of Quintana Roo, spearheaded by Mexican businessman Carlos Castillo, in partnership with
Monterrey-based Mexican businessmen and Chinese partners. The project has been opposed by Mexican manufacturers threatened by the expanded access to the Mexican market
for Chinese products that Dragon Mart would represent, as well as community groups, who successfully blocked the project on environmental grounds in April 2013, before the
decision was overturned by a state-level appellate court.
Other examples include the 2007 attempt by the Chinese automaker First Autoworks (FAW) to establish a retail presence and production facility in Mexico in alliance with local
partner Grupo Salinas, and which reportedly was confronted by strong behind-the-scenes resistance from other auto producers.
Obstacles also arise from bureaucratic processes and institutional interests on both the Chinese and Mexican sides. Despite the high profile announcement in conjunction with the
June 2013 Xi-Pea Nieto summit in Mexico City that the P.R.C. would accept Mexican pork exports, negotiations over phytosanitary and other technical issues has reportedly been
painstakingly difficult, and as of May 2014, not one pound of Mexican pork had been exported to the P.R.C.
At the popular level, Mexico is one of the countries in the region in which distrust toward both Chinese businessmen and ethnic Chinese is most deeply rooted. As far back as the
Mexican Revolution, anti-Chinese sentiment inspired laws such as the prohibition of intermarriage between Chinese and Mexicans. Today, Mexicans commonly refer in disparaging
terms to low quality Chinese products, presumed to be contraband, which allegedly undercut the position of Mexican producers and take jobs away from ordinary Mexicans.

Implications
The obstacles faced by Presidents Xi and Pea Nieto in expanding and improving Sino-Mexican engagement are a reflection of Mexicos geographic, social and historical legacy:
proximity to the United States, the web of economic and political interests represented by Mexicos business groups, and the question of Mexico as a cosmic race vis--vis other
peoples.
For the U.S., the outcome has strategic implications as profound as those for Mexico itself. A hemisphere in which the U.S. historically most significant economic partner and source
of migration becomes a hub for Chinese business and an advocate for P.R.C. interests in regional and global forums would be a dramatic departure from the hemisphere which
served as a secure base from which the United States has projected itself onto the world stage for the past century.
Footnote: 1. In 2012, according to the Bank of Mexico, the P.R.C. exported $57 billion of products to Mexico, while Mexico exported a mere $5.7 billion of goods to the P.R.C.

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The China-Mexico Strategic Relationship and Its Impact on the U.S.

About The Author Evan Ellis

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[Full Bio]

Dr. Evan Ellis is a professor at the Center for Hemispheric Defense Studies in Washington, D.C. He has published more than 80 works on Latin
America and its relationship with China, and has presented his work in 25 countries. His latest book, "Chinese Companies on the Ground in Latin
America," will be available in late 2014 via Palgrave Macmillan.

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