Why Chinese companies are investing billions in Mexico

Concerned about shipping chaos and geopolitical disruptions, Chinese exporters are building factories in Mexico to maintain their U.S. sales

MONTERREY, MEXICO — Bill Chan had never set foot in Mexico, let alone the distant stretch of desert in the north of the country where he suddenly decided to build a $300 million factory. But that seemed like an insignificant detail amid the pressure to adjust to a rapidly changing global economy.

It was January 2022, and Chan’s company, the Man Wah furniture factory, was facing serious challenges in transporting sofas from its factories in China to customers in the United States. Shipping prices have skyrocketed. Washington and Beijing were locked in a vicious trade war.

Man Wah, one of the largest furniture companies, was interested in bringing its products to the North American side of the Pacific. “Our main market is the United States,” said Chan, CEO of Man Wah’s Mexico branch. “We don’t want to lose that market.”

The same focus explains why several major Chinese companies are making bold investments in Mexico, taking advantage of a large US trade deal. Following in the footsteps of Japanese and South Korean companies, Chinese firms are building factories that allow them to label their products “Made in Mexico” and then transport them duty-free across the United States.

Chinese producers’ interest in Mexico is part of a larger trend known as “nearshoring”. International companies are moving their factories closer to their customers to minimize their vulnerability to transportation issues and political tensions.

commercial strength

The participation of Chinese companies in this change confirms the deepening of the hypothesis that the rupture separating the US and China will be a persistent feature in the next phase of globalization. However, it also reveals something more fundamental: Whatever the political tensions, the trade forces binding the United States to China are even more powerful.

Chinese companies have no intention of leaving the US economy, which remains the largest on the planet. Instead, they are setting up operations within the US trading bloc as an outlet for supplying goods to this audience, from electronics to clothing and furniture.

The Mexican state of Nuevo León, which borders the United States, has positioned itself to reap the reward. Led by a bold 35-year-old governor, Samuel García, the state has attracted foreign investment even as it seeks road improvements to make crossing the border easier.

Recently, García attended the World Economic Forum, in Davos, Switzerland, to recruit more companies. “Nuevo León is undergoing a planetary geopolitical alignment,” the governor said during an interview in the state capital of Monterrey, inside the government building, a maze of stately rooms with high ceilings and balconies overlooking jagged mountains. of the Sierra Madre. “We are getting a lot of Asians looking to enter the US market.”

Since García took office in October 2021, Nuevo León has received about $7 billion in foreign investment, making it the second state to receive the most capital after Mexico City, according to Mexico’s Ministry of Economy. .

In 2021, Chinese companies accounted for 30% of foreign investment in Nuevo León, second only to the United States at 47%.

global chains

Some of that money finances factories that will produce products ready to be sold in the United States. But much of it is intended for a broader overhaul of the global supply chain.

As the pandemic crippled Chinese industry and congested ports, companies with plants in the United States suffered from a shortage of Asian-made parts. Many are now asking their suppliers to open factories in North America or risk losing their business.

Lizhong, a Chinese auto wheel maker, is building the company’s first plant outside Asia, in an industrial park in Nuevo León. Lizhong’s biggest customers, including Ford Motor and General Motors, have lobbied for the company to open a plant in North America, its Mexico chief executive Wang Bing said.

A South Korean company, Dy Power, which makes components for equipment used in the construction industry, is considering northern Mexico as a place to build a factory near a large customer in Texas. “After going through the pandemic and the supply chain crisis, as well as the shutdown in China caused by the covid, many North American producers would like to eliminate the risks,” said Sean Seo, executive of Dy Power in Seattle.

“Globalization has come to an end,” he said. “Now it’s localization.” César Santos has bet heavily on the veracity of these statements. The 65-year-old corporate lawyer also runs a developer in Monterrey, a thriving industrial city full of upscale restaurants, malls and spas.

Ten years ago, he was approached by a Los Angeles construction company on behalf of a Chinese electronics company that was considering opening a factory in Mexico. Santos had influence over an asset of great interest: a plot of land of nearly 850 hectares.

Surrounded by cacti, the property was less than 150 miles from the Texas border. While neighboring states struggled with drug-related violence, Nuevo León was known for its safety. The state prided itself on having highly skilled workers, due to the presence of universities that train large numbers of engineers, including Tec de Monterrey, often called “Mexico’s MIT”.

The land served as the Santos family’s cattle ranch when he was a child and was the scene of horseback riding adventures throughout his childhood. Now he saw a lucrative opportunity to turn it into an industrial park. Santos traveled to China, went from Shanghai to the city of Hangzhou by bullet train and there, by a lake, he met the Holley Group, which had built an industrial park for Chinese companies in Thailand. “China was a country that created everything so quickly,” Santos said. “I was really impressed.”

In 2015, he joined forces with Holley and another Chinese partner to form a joint venture, Hofusan Real Estate. They plan to build a network of warehouses and factories opposite a hotel and temporary apartments for visiting managers, as well as more than 12,000 homes for workers.

The Holley Group has sent Jiang Xin to supervise the enterprise. He had already worked on the company’s project in Thailand. But Mexico has presented a different proposal. “Chinese companies knew nothing about Mexico, and the only things we knew were bad things, dangerous things,” Jiang said. “Then Trump came along.”

Three years ago, Lenovo, a Chinese computer maker, opened a factory in Monterrey dedicated to the production of servers, equipment that stores data for cloud computing. Until last year, Lenovo brought a crucial part from a factory in China: so-called motherboards. But as problems with shipping goods internationally intensified, the company switched to buying them from a supplier in the Mexican city of Guadalajara.

Lenovo has also stopped importing packaging materials from China and now buys them in Mexico. However, the company continues to import many key parts from China, from memory devices to specialized cables. “There is no supply chain for these things in Mexico,” said Leandro Sardela, the company’s director of western operations. At least, not for now. / TRANSLATION OF ROMINA CÁCIA

Source: Terra

Rose

Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.