The complex riddle of trading with China

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President Peña completed his first tour of Asia, stirring up great interest from the Mexican business community given the urgency of a new order in the exchange of goods and services, particularly with China. As part of this visit, PEMEX signed a couple of agreements with Chinese companies to export 30 thousand of oil barrels per day for the next decade (a symbolic and almost irrelevant figure), as well as to broaden the scientific and technological information exchange on the oil sector. The President also held meetings regarding the participation of Chinese investments in Mexican infrastructure projects, particularly in the areas of public transportation and rail sector. Nevertheless, it is a well known fact that commercial comparisons between the two countries are very uneven for several reasons.

Experts and businessmen have expressed their concern on the exponential growth of the Mexican trade gap with China, its second commercial partner. In 2012, only 1.54% of Mexican exports went to China. On the other hand, 15.4% of Mexican imports come from China, which represents the largest deficit between Mexico or any of its commercial partners. From the investment point of view, even though in the last couple of years China has focused its attention on Latin America, Mexico is not to be found among the main recepients of Chinese money. According to ECLAC (Economic Commission for Latin America and the Caribbean), China became one of the five leading investors for the region in 2012. Nevertheless, Chinese inversions represent 0.1% of foreign direct investment in Mexico. This is no accident and is probably not due to Chinese lack of interest but to a (maybe justified) Mexican fear.

Theoretically and in public policy terms, the window of opportunity for Mexico is closely linked with the design and implementation of a development framework in which direct inversion will play a strong role in enhancing technology, employment and capacitation, and for the export sector to integrate itself to regional production chains. At the same time, Mexico can take advantage of its international treaties and commercial agreements to integrate its input production chains, building on what’s known as “cumulation of origin”. Now, in practice, comercial links with China should be approached with caution.

Behind its growth as an economic power and besides its 1979 reforms undertaken to integrate itself to international markets, China suffers the stigma of practices such as dumping, piracy, currency manipulation among others, which have generated a large amount of legal actions from several countries – including Mexico – in the World Trade Organisation. It’s true, as the “Asian giant” has integrated to the international economy, some of these “bad habits” have been forced to change. In addition, other Chinese natural advantages have diluted, such as its low cost of labour. This could paradoxically benefit countries like Mexico due to the interest of several companies in relocating to better accessibilities to what is still considered to be the largest world market, the United States. In short, “excuses” for Mexican protectionism regarding China will soon be over. The primary issue, regardless of this relationship, is that Mexican economy improves its competitivity and its investments conditions. Otherwise, when the inexorable time to compete with the same trade rules come, Mexico will pay the consequences.


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