Unlock the Editor’s Digest without spending a dime
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
A Chinese language tyremaker lately broke floor on a $400mn plant in central Mexico. However there will probably be no signal of such a Chinese language venture in Mexico’s inward funding information: the Sailun Tire firm funding is being made by way of a Singaporean subsidiary.
This isn’t uncommon or a secret — the construction is printed within the firm’s press launch — however it’s going to solely gas Washington’s wariness. US-based consulting agency Rhodium Group estimated in a report this month that the inventory of Chinese language funding in Mexico is about six instances greater than proven in official figures.
With imports from China additionally surging, US lawmakers allege the nation’s southern neighbour — and prime buying and selling companion — is more and more being utilized by Beijing as a backdoor to keep away from tariffs.
It presents Mexico with an pressing problem: arising with a extra complete and reassuring map of Chinese language funding. Mexico’s major curiosity is in defending its dominant buying and selling relationship with America — and that’s put in danger if its China relations look suspect.
“If we feel like the Mexicans are hiding something from us . . . it will result in a loss of trust that cuts against the North American project,” stated Ryan Berg of Washington think-tank the Middle for Strategic and Worldwide Research.
Former president Donald Trump has already warned he would “have a lot of fun” renegotiating the US-Mexico-Canada commerce deal (USMCA) if re-elected, aiming to place limits on merchandise made by Chinese language corporations getting into the US. Democrats are additionally signalling a harder line.
“Clearly there is very strong pressure from the US, and clearly that pressure is going to be bipartisan,” stated Roberto Durán, an affiliate professor at Tecnológico de Monterrey college.
Authorities information means that in 2023 lower than 2 per cent of Mexico’s overseas direct funding got here from China and Hong Kong, about $450mn. For a similar yr Rhodium discovered $1.7bn of accomplished FDI transactions, virtually 4 instances greater.
The report’s co-author Armand Meyer stated the agency noticed comparable gaps in different nations, and that Mexico’s mirrored well-known information points similar to the usage of offshore entities relatively than suspect methodology.
There are different points that would contribute to an undercount extra broadly. Jorge Gonzalez, co-chief govt of The Nearshore Firm, which helps overseas producers arrange in Mexico, stated many corporations imported used tools that was principally or absolutely depreciated.
Regardless of the trigger, there’s a lot at stake for Mexico, which sends greater than three-quarters of its exports to its northern neighbour, with USMCA elementary for a lot of of its overseas traders.
Two of latest President Claudia Sheinbaum’s priorities are additionally in industries the place Chinese language corporations are extremely aggressive: clear vitality and trains. Whether or not Trump or vice-president Kamala Harris wins the US election, strain is prone to develop.
Deputy economic system minister Luis Rosendo stated Mexico wished to work “hand in hand” with the US and Canada, and was reviewing its tracing of Chinese language investments.
The federal government can also be analysing a bundle of measures together with nationwide safety funding screening, stopping pressured labour in provide chains and substituting imports for native merchandise.
“Mexico is open to the world, but Mexico also has strategic trade partners . . . Canada and the US are key for our economy,” Rosendo advised the Monetary Instances. “There is a protectionist consensus not seen in decades.”
The broader US-Mexico relationship has been rocky up to now few years with conflicts effervescent over vitality, migration and the lethal drug fentanyl being created from Chinese language precursors.
US issues, and Chinese language funding curiosity, are notably acute within the auto sector, an financial driver in Mexico and a number of other US swing states.
Trump has repeatedly claimed that massive Chinese language electrical car factories are being constructed south of the border. Although teams similar to BYD and Chery have scouted websites, no main plant has been introduced but.
Some in Mexico’s non-public sector level out that Chinese language corporations are additionally topic to the identical guidelines of origin necessities as another overseas investor.
Tire Direct Worldwide, a Mexican group that’s partnering with Sailun, stated that its tyres could be absolutely made in Mexico and that about 40 per cent of the manufacturing could be exported outdoors the US and Mexico.
“Our project isn’t a concern for the US because we aren’t using Mexico as a springboard,” the corporate stated.
Even whether it is a number of instances bigger than official figures, Chinese language funding continues to be a lot smaller than the US, which accounts for greater than a 3rd of Mexican FDI.
However Mexico shouldn’t danger underestimating US feeling on the problem, and as a substitute ought to perform a cool-headed evaluation of which investments had been in its finest curiosity, Durán stated.
On Chinese language funding, he added: “Will it generate development, will it generate growth, or in the end will it just cause problems with the Americans?”
