China’s Economic Invasion of Mexico

• A new phase in the Sino-Mexican bilateral relationship has begun with the September 11, 2005 visit by Hu Jintao to Mexico.

• The growing ties are based on common interests, and a shared desire to promote development.

• While economic engagement has increased, the benefits are mixed, as a substantial trade imbalance exists between the two countries.

A new phase of Sino-Mexican relations was born on September 11, 2005, as the result of the state visit of Chinese President Hu Jintao to Mexico. The aim of the visit was to promote the Sino-Mexican “strategic partnership,” a series of new ties between the two countries that would vigorously boost bilateral cooperation and communication in a variety of fields. In November 2003, Premier Wen Jiabao’s visit to Mexico City had initiated the establishment of a “new” phase in the Sino-Mexican bilateral relationship. The two sides formally declared an intent to launch a new drive to be better prepared for global competition in the 21st century. More recently, President Hu stated that China needs “to pay more attention to Sino-Latin American relations, proceeding from the strategic height of safeguarding world peace, promoting common development and strengthening South-South cooperation.”

The reasoning behind this heady prose is quite simple; China and Mexico broadly share the same common interests in safeguarding world peace, promoting development and meeting the challenges posed by globalization. Both countries advocate that their markets should be opened, agricultural subsidies be eliminated, and a fair and reasonable world economic order be established. China and Mexico are both committed to upholding the spirit and principles enshrined in the United Nations Charter, safeguarding UN authority, and promoting the constructive resolution of issues associated with development and the implementation of the Millennium Development Goals. Mexico’s President Vicente Fox added that the Mexico-China relationship is faced with “a unique, strategic yet good opportunity”.

Historical Links

Sino-Mexican strategic links have a solid if modest historical base. Trade exchanges between the two countries started in the 16th century when Chinese silk, flatware, textiles and embroidery made their way to Mexico via Manila, while Mexican corn, cotton, cocoa and cassava were at the same time being introduced into China. On February 14, 1972, Mexico became one of the first Latin American countries to establish diplomatic ties with The People’s Republic of China. Over the past 33 years, the two countries have set up many cooperative programs and signed a number of two-way agreements concerning trade, technology, finance, culture, energy, shipping, tourism, telecommunications, anti-drug trafficking, agricultural cooperation, and coordination in cases of criminal jurisdiction. For some, this has lead to the question: Does Mexico have grounds to fear that the Chinese have a master plan for a kind of economic invasion of their country?

To many Mexicans, China has become a symbol of hope that a “backwater nation” can become prosperous, as well as serve as a precursor of its potential to be among the world’s next superpowers. Many Mexican and Chinese political leaders argue that a strategic partnership is imperative, considering that both of their countries are undergoing rapid economic development which will allow for greater space and opportunity for bilateral trade cooperation. Meanwhile, Washington is beginning to display unrest over China’s increased desire to begin a long march toward economic and trade integration with the Latin American region. This is because Beijing’s sorties carries with them potentially negative implications for the rest of the world, especially the United States.

Increase in Trade

What is indisputable is that Chinese trade with Mexico is growing: it now approaches $15 billion dollars a year, most of which, unfortunately, heavily favors Beijing: China ran a bounteous trade surplus with Mexico of about $14 billion in 2004. While Mexico is China’s second-largest trading partner in Latin America, it remains at a distinct disadvantage: China’s exports dwarf what it takes from Mexico.

The huge trade imbalance has prompted mounting concerns among Mexican industries over the flood of inexpensive Chinese goods and the negative impact of lower wages in Asia on Mexico’s assembly-for-export factories. The Mexican industrial sector, from traditional handicrafts to maquiladora plants, are today complaining about an influx of Chinese cheap goods and the exodus of jobs lost to lower wages in China. In addition, millions of dollars worth of Chinese contraband illegally enters Mexico everyday, further undermining Mexican commercial interests. On that note, Chinese President Hu pledged to crack down on such trafficking. Furthermore, he has promised that his government would investigate all complaints made by the Mexican government, as well as punish any companies participating in the illegal smuggling of goods. Both President Fox and President Hu have agreed that contraband weakens legal trade and development between both countries. It is anticipated that the growth of formal business ties would strengthen their new strategic bonds.

Bilateral Strategic Partnership

In order to deepen their bilateral connections, the two countries have set up a permanent bilateral committee, and have formulated a 20-year plan into the future. The two countries hope to reduce any irritation that might crop up through dialogue and exchanges that will enhance mutual trust and cooperation. According to a Washington Times article, economics professor Enrique Dussel Peters of Mexico’s National Autonomous University, “While countries like Brazil and Argentina have developed a keen sense of the role China can play as a trading partner, Mexico has been slow to figure out how to increase economic cooperation with China.” Simply put, Mexico has not done enough to understand the potential benefits of this relationship. Mexico should already have learned its lesson to not significantly further trade relations with China without seeing to it that an effective infrastructure for constructive trade measures are in place. After all, many Mexican maquiladoras along the U.S. border have been forced to shut down due to their inability to compete with Chinese textile companies. As a result, thousands of Mexicans have been made unemployed, increasing the country’s level of poverty. In addition, Mexico has not been exempted from feeling the full effects of China’s domination of the world textile market. So, why should Mexico continue to try to woo China if the latter doesn’t practice fair trade? If China wants to become a true partner and not an unfair competitor with Mexico, then it needs to maintain and promote just trading practices.

Nevertheless, the growth potential of any likely long-term symbiosis between China and Latin American countries has disturbed many on Capital Hill. As a result, several congressional hearings have being held to address the question. For example, the Chairman of the House Subcommittee on the Western Hemisphere, Representative Dan Burton (R-IN), in an opening statement entitled “China’s Influence in the Western Hemisphere,” voiced his concerns that, “Until we know the definitive answer to this question of whether China will play by the rules of fair trade, and engage responsibly on transnational issues, I believe we should be cautious and view the rise of Chinese power as something to be counterbalanced or contained, and perhaps go so far as to consider China’s actions in Latin America as the movement of a hegemonic power into our hemisphere.” The minatory tone of this last part of his statement is troublesome for many political analysts, considering the widely held belief that Washington’s actions in Latin America could be similarly described.

China’s Mexico Chapter has Just Begun

Creating a harmonious and sustainable strategic partnership is a vital challenge to both China and Mexico. Mutual political and economic support will become the fields on which the new relationship is to be played out if it is to have real substance. China’s long march toward regional integration with Latin America has only just begun. It is still far from clear whether China’s presence in Mexico represents a big economic threat to Mexico and the rest of the region. After decades of perceived mistreatment at Washington’s hands, some Latin American leaders have decided, like Venezuela’s Hugo Chávez, to focus their energy on establishing new, non-traditional ties with other hemispheric nations, rather than continuing to subject themselves to what they see as the patronizing initiatives coming from the great hegemon to the north.

This analysis was prepared by COHA Research Fellow Alana Gutiérrez

October 14, 2005

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