The Dragon Mart Controversy: Implications for the China-Mexico Trade Relationship
Mexico and China have often seen each other as rivals as they compete for market share in the United States. However, this perception is outdated. Both countries’ economies have undergone transformations and now have the potential to play complementary roles. This was on full display this week when Chinese President Xi Jinping visited Mexico and came away with stronger bilateral cooperation on a range of issues.
Still, mutually perceived rivalry remains a challenge for cooperation in other areas. Nowhere is this more apparent than in Cancún, Mexico, where resistance to the construction of the commercial complex known as “Dragon Mart” has flared. Dragon Mart is a joint venture between Mexican businessmen, Chengkai Investment Company, and the Chinamex Middle East Investment and Trade Promotion Centre—a business promotion company under the supervision of China’s Ministry of Commerce. The Dragon Mart complex will function as an exhibition center featuring Chinese products and goods from other countries, including Mexico. According to the Chinese media, the project represents a $1.54 billion investment.
Promoters of Dragon Mart have stated that the complex will add 8,550 jobs, but it offers even farther-reaching benefits as it can serve as a point of communication for Chinese and Mexican governments and private enterprises.
Mexican manufacturers have overlooked the fact that Dragon Mart would draw Chinese business at a point when Mexico’s capabilities to export high-value-added goods, such as telecommunications equipment and automobiles, have taken off.
The project’s critics have claimed that Dragon Mart would ease the flow of inexpensive Chinese imports into Latin America, the Caribbean and North American markets. Negative reactions from domestic producers have contributed to local authorities’ recent decision to deny the project’s license, which is likely to cause further delays in construction.
In the past, China and Mexico were pitted as rivals because they depended on exports to the United States. But now, times have changed and the paradigm casting China and Mexico as competitors is obsolete. Rising wages have driven up the price of manufacturing in China, so China must find ways to maintain economic competitiveness. As Dragon Mart shows, Chinese enterprises are considering moving some manufacturing to Mexico to lower costs.
In fact, the new Mexican government wants China to see Mexico as an economic partner, not a competitor. According to Johns Hopkins University School of Advanced International Studies Professor Francisco González, Mexican President Enrique Peña Nieto’s visit to China in April 2013 “was predicated on the idea of engaging China in order that Chinese investors see Mexico as an optimal export platform into North America.”
Mexican manufacturers should not ignore the synergies with China’s economy that their successes in technology-driven sectors have borne. A Barclays report estimates that exports from Mexico’s transport and telecommunications equipment sectors have added an average of 1 percent GDP growth between 2010 and 2012. Analysts have stated that Mexico could become a competitive export platform because of specialization in technologically-driven manufacturing, low operating costs and wages and a growing pool of skilled workers.
Chinese businesses also have incentive to partner with Mexican enterprises, especially because of Mexico’s access to the U.S. market. Mexico’s strategic location has attracted global manufacturers seeking cost-efficient ways to produce goods because of Mexico’s highly-integrated supply chains with the U.S., NAFTA membership and low operational costs compared with the United States.
If China and Mexico can coordinate their manufacturing strengths, they can produce quality and low-cost goods and generate more jobs for Mexican manufacturers. Components for products that both countries’ manufacturing sectors have expertise in could be made in China, assembled in Mexico, and ultimately exported to Latin America or other North American markets through channels such as Dragon Mart.
By opposing the Dragon Mart project, Mexican manufacturers also risk damaging Mexico’s access to the Chinese market, which has the world’s largest consumer base. Structural reforms in China indicate that leaders will continue to prioritize the growth of domestic consumer purchasing power. At the 2013 Boao Forum, Chinese President Xi Jinping estimated that China will import about $10 trillion worth of goods over the next five years. Fostering trade with China would allow Mexico to diversify its trade partners, which would reduce risks posed by volatile U.S. consumer demand. Mexico is vulnerable to changes in the U.S. economy because the majority of its exports go to the U.S.—in 2011, the U.S. was the destination of almost 80 percent of Mexico’s exports.
Mexican manufacturers should not let an outdated perception of China ruin potential synergies with Chinese business or discount the supporting role Dragon Mart could play. The Mexican government will need to address misconceptions regarding China to benefit from the new economic dynamics in both countries. However, it is still too soon to know if and how Mexican manufacturers will take advantage of the opportunities China offers.
President Xi’s visit, however, is an important step in the right direction.
This piece was written by the editorial team of Asia Trade Watch, an analysis website that deals with trade cases from an Asian perspective. Read a longer version of the article here.
*Jessica Wong is an editor at Asia Trade Watch and a consultant at North Head.
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