Noi Mahoney
Wed, October 18, 2023
Foreign direct investment into Mexico reached a record $40 billion in 2022, led by Texas-based Tesla’s plan to build a $5 billion assembly plant near Monterrey.
China-based Lingong Machinery Group (LGMG) is building a manufacturing facility and industrial park in Mexico’s northern state of Nuevo Leon that will generate $5 billion in investments.
Monday’s announcement from LGMG is one of the latest expansions of Chinese investments in Mexico, especially in the state of Nuevo Leon, which is situated about 140 miles from the U.S.-Mexico port of entry in Laredo, Texas.
Trina Solar, a China-based solar panel producer, will invest up to $1 billion for a new factory in Nuevo Leon, while Japan-based Kawasaki Heavy Industries will invest $200 million to set up a production plant in the state, Mexican authorities announced in recent days.
The LGMG project includes a 25-acre industrial park that will house the company’s plant, as well as the development of three “clusters” to draw more foreign investments in manufacturing, warehousing and logistics, and business support services.
LGMG will build its factory and industrial park near the Mexican city of Monterrey. The company, which manufactures construction and transportation machinery, moved its North American headquarters to Dallas last year.
“[Monterrey’s] excellent transportation and logistics infrastructure, along with its strategic proximity to the United States, make it an ideal location for international trade and investment,” LGMG said in a news release. “[The] clusters will provide a one-stop service environment for overseas investment, with a primary focus on energy, heavy industry, automobile manufacturing, and new materials industries.”
Samuel Garcia, governor of Nuevo Leon, said in a post on social media platform X that about 120 enterprises have already expressed interest in joining the LGMG project and creating more than 7,000 local jobs.
“Six months ago, we made the big announcement that Tesla, the largest electric car manufacturer in the world, was going to build the largest factory in the world, twice the size of the one in Austin in … Nuevo Leon,” Garcia said. “We are going to announce that another $5 billion is coming to Nuevo Leon, just as important and big as Tesla. Today we closed the agreement for LGMG to go to Nuevo Leon, the epicenter of nearshoring and the best place to invest.”
In March, electric vehicle maker Tesla announced plans to build a $5 billion assembly plant near Monterrey, where the company could reportedly produce an entry-level EV line of vehicles.
Foreign direct investment (FDI) into Mexico reached a record $40 billion in 2022, according to fDi Markets. In the first half of 2023, FDI in Mexico increased by 40% compared to the same period in 2022, led by automotive and industrial manufacturing projects.
Mexico continues to benefit from nearshoring, in which manufacturing companies move production closer to their end consumers, according to investment firm Morgan Stanley.
“Nearshoring has the potential to boost the growth of Mexican manufacturing exports to the U.S., from $455 billion today to an estimated $609 billion in the next five years,” Morgan Stanley said in a recent report titled “Mexico is Poised to Ride the Nearshoring Wave.”
“If U.S. manufacturing is to be less dependent on China, we think the path will be via Mexico,” Morgan Stanley Research equity analyst Nikolaj Lippmann said in the research report. “Nearshoring is expected to be a long and sustained race that could help build new ecosystems in Mexico’s existing manufacturing hubs.”
Other analysts said China is using Mexico to bypass tariffs while rerouting exports to the U.S.
David Rees, a senior emerging markets economist at London-based asset management firm Schroders, said in a recent report that China’s trade balance with Mexico has recently risen by about 1% of gross domestic product during a period of time when China has had weak bilateral trade with the U.S.
“It appears that Chinese firms are rerouting exports via third parties in order to circumvent tariffs and sanctions imposed by the U.S. government in recent years,” Rees said. “While China’s share of bilateral trade with the U.S. has fallen, its share of the global export market has not. … China’s exports to other countries in Asia and Mexico itself have increased markedly in recent years, just as US imports from those countries have also grown strongly. This is consistent with a re-routing of trade via third parties in order to rebadge shipments and avoid trade sanctions.”
Dean Cheng
Tue, October 17, 2023
“Somebody from a developing country said to me, ‘What we get from China is an airport. What we get from the United States is a lecture.’ ”
- Larry Summers, former U.S. Secretary of the Treasury
Amid ongoing U.S.-China competition, Summers’ observation encapsulates a key reasons for China’s success across the Global South — particularly in Latin America and the Caribbean. China delivers when it comes to building infrastructure, whether it’s airports and sports stadiums or 5G networks courtesy of Huawei and ZTE.
Meanwhile, the United States too often is lecturing about human rights and the need for democratization. While the U.S. goals are laudable, a lack of accompanying concrete benefits means they are seen more as hectoring than as useful policy approaches.
Worse, when American and Western nations do provide tangible investments, they are accompanied by Western environmental, social and governance requirements. By contrast, there often are far fewer immediate strings attached to Chinese aid.
Not surprisingly, China has made major inroads into Latin America and the Caribbean. As the House Foreign Affairs Committee notes, in 2021 alone, “Chinese state-owned companies … funded $11.3 billion worth of projects in South American countries.”
Huawei is one of the main providers of 5G equipment for Brazil and Mexico and currently is bidding on 5G infrastructure projects across the rest of Central and South America. Huawei Marine Networks, meanwhile, plans to lay submarine cables (which can carry substantially more data than satellite systems) between Brazil and the African countries of Cape Verde and Cameroon.
China also has outsize positions in mining in South America — controlling 100% of Peruvian iron ore production, for example — and has positioned itself to control key resources associated with electric vehicles. China also has longstanding contracts with nations such as Bolivia for their lithium production, a key part of batteries.
For the United States, this is a radically different challenge than the one presented by the Soviet Union during the Cold War. U.S.-Soviet competition was largely one undertaken in the military arena. And while the Soviets sought to suborn and undermine various governments across Latin America, its appeal was inherently limited. Regimes like the Castros in Cuba and the Sandanistas in Nicaragua had little to offer their population beyond dialectics and ideological diatribes. Few populations were better off under Soviet-style communist regimes.
But the PRC, through construction of airports and railways, as well as the provision of cheap advanced technology, has far broader appeal, not only to governments eager to modernize their nation but also to local populations that can see the benefits of access to cell phones and the Internet. Moreover, unlike Moscow, Beijing has shown little tendency to remake local governments in its own image. Whether democracies or dictatorships, Beijing has proven an equal-opportunity trading partner.
And a military role may not be far off. The PRC has already been negotiating the establishment of a joint training facility in Cuba, which would put Chinese troops barely 100 miles from American shores. Meanwhile, it has also been exploring the possibility of selling advanced fighter jets to Argentina.
For the United States, it is essential that it implement a comprehensive strategy to counter these major Chinese advances in the region. America’s southern flank already has proven porous, whether to illegal immigrants (including Chinese) or to fentanyl. South American states are major trading partners, but as Presidents Lula da Silva, Nicolas Maduro and the late Hugo Chavez have demonstrated, their leaders can also choose to align with Beijing. It is no accident that Argentina is one of the new BRICS states.
The American response, however, must go beyond periodic speeches and military exercises. American investment remains sought after, even preferred, because it is far more transparent and less likely to incur debt traps. American assistance in helping local states review contracts and deals with the Chinese, in this regard, would forestall some of the worst Chinese practices, whether it be usurious interest rates or crippling terms that mortgage national sovereignty.
American assistance in cyber security would help many states retain their intellectual property, while limiting the ability of China to exploit the open digital border.
Above all, it is essential that the United States mobilize its resources — financial, intellectual, political, and cultural — to create a 21st century version of the Alliance for Progress, rooted in the belief that cooperation between North and South America will provide far greater benefits for all than anything an authoritarian, mercantilist China can offer.
Dean Cheng is a senior advisor to the China program at the U.S. Institute of Peace.
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