Opinion: PRC presence deep and growing in Mexican economy, society

Third of three parts.

Despite being in competition for lower-wage factory work for decades, Mexico and the People’s Republic of China (PRC) have deep economic and social links.

Trade is growing, especially in sectors like telecommunications and mining of rare earth minerals, and the PRC has cultivated deeper ties through Chinese language schools and other cultural initiatives.

Although some exchanges between the PRC and Mexican militaries have occurred, the PRC hasn’t pursued major weapons purchases or sales in Mexico, nor has it conducted training exercises with its Mexican counterparts.

Trade between Mexico and the PRC has expanded more than 18 times to $136.7 billion in the two decades since 2001 when the PRC was admitted to the World Trade Organization (WTO), according to the International Monetary Fund.

Throughout that period, the PRC has consistently sold far more to Mexico, contributing to a perception of the PRC as a competitor. Although Mexico’s exports to the PRC increased almost 17-fold from 2002 through 2022, from a mere $654 million to $10.9 billion, its imports from the PRC over the period were 10 times greater than exports, $6.6 billion in 2001, and expanded faster, to $125.8 billion by 2002, according to the IMF. Unlike the raw materials-based pattern of trade between the PRC and many Latin American countries, Mexico’s principal exports to the PRC are a combination of commodities and finished products.

Here’s a look at the extent of PRC influence in the Mexican economy.

Commercial projects

Despite competition between the countries, investment by PRC-based companies in Mexico is greater and more longstanding than is commonly realized. The respected China-Latin America and the Caribbean Network documents $20.8 billion in investment from PRC-based companies in 150 projects since 2001.

The dynamic of Chinese business in Mexico reflects both the fears of those who see China’s entry as competing with Mexican-owned companies, and those who hope for economic benefit from partnering with or working for PRC-based companies.

Much of Chinese investment in Mexico has been motivated by PRC hopes for access to the broader North American market from Mexico through the North American Free Trade Agreement (NAFTA) and now United States Mexico Canada (USMCA) Free Trade Agreement, particularly as the U.S. has imposed tariffs and other restrictions on goods made in China. The current U.S.-China “decoupling,” and its associated impulse for “nearshoring” in Mexico, to the extent permitted by the country’s political and security conditions, is thus likely to drive more PRC-based companies to Mexico, seeking to protect their access to the U.S. market by transforming themselves from a PRC-based company to a Mexican one. As non-Chinese companies such as Tesla are moving to Mexico, they are also encouraging their Chinese suppliers to follow them. In 2022, PRC-based firms accounted for 40% of Mexico nearshoring investment, and a remarkable 80% of space in new industrial parks in the country, according to the German broadcaster Deutsche Welle.

Manufacturing

PRC-based companies have made multiple investments in Mexico’s manufacturing sectors. Historically, these have focused on the autos and auto parts sectors, including factories by First Auto Works (FAW) in Michoacan and Foton in Veracruz, with Chery and BYD, among others, that are planning factories in the future, according to news reports and company websites.

One increasing focus of China’s manufacturing presence in Mexico is electric vehicles (EV). FAW has expressed an interest in building a $350 million electric vehicle plant in Hidalgo. China’s leading EV maker, BYD, has also established a presence in the country, while the PRC-based company Solarever has proposed investing in a $1 billion EV battery plant in Jalisco State.

Beyond the automotive sector, Chinese-owned computer manufacturer Lenovo has located its biggest factory in the hemisphere in Mexico. Driven in part by the imperatives of nearshoring, industrial parks in Mexican states close to the United States, such as Hofusan Industrial Park in Nuevo Leon, are full of PRC-based companies.

Oil and gas

PRC-based companies have established a limited presence in Mexico’s petroleum sector, accompanied by numerous setbacks. In 2014, as the Mexican government of Enrique Pena Nieto was opening the sector to foreign investment, the PRC offered a $2.4 billion loan to Petroleos de Mexico (PEMEX), Mexico’s National Petroleum Co. This was similar to a $10 billion loan China had made to Brazil’s Petrobras to facilitate Chinese access to information and petroleum projects in Brazil’s oil sector according to Reuters.  In contrast to the Luiz Inácio Lula de Silva government in Brazil, the Mexican Government of President Enrique Pena Nieto didn’t accept the Chinese offer. Undaunted, the PRC continued to pursue a stake in Mexico’s oil sector. In December 2016, China National Off Shore Oil Corp. (CNOOC) won a bid to develop the Perdido Basin in the Gulf of Mexico adjacent to U.S. waters, according to Reuters.

The PRC has also sought access to Mexico’s petroleum through long-term purchase agreements. In July 2023, for example, Zhejiang, a Chinese energy company, signed a 20-year agreement with Mexico Pacific to buy LNG, Reuters reported.

Mining

China’s presence in Mexico’s mining sector can be divided between traditional mining activities and lithium. In traditional mining, PRC companies have operated multiple small-scale mines, including those run by China Unified Mining Development in Colima, Guerrero and Michoacan. Also, the PRC-based Shaanxi Dongling Group has a small $3.4 million mining operation in Sinaloa State, Los Vasitos.

The PRC role in Mexico’s lithium sector is both newer and more significant than that in traditional mining.

In 2022, the PRC-based mining company Ganfeng paid $264 million to complete the acquisition of the Bacanora lithium field in the Sonora desert, according to mining-technology.com. Bacanora is a complement to PRC lithium extraction and processing operations in Bolivia, Chile and Argentina, and will help supply Chinese car manufacturers as well as the U.S.-based EV maker Tesla, according to Forbes magazine. In 2022, however, Mexican President Andrés Manuel López Obrador’s announcement of his intention to nationalize the lithium sector raised doubts about the security of Ganfeng’s position, although the Mexican government subsequently declared its intention to respect Ganfeng’s existing concession if it passes state regulatory reviews, according to Nikkei and the Mexican Daily Post newspaper. Given the paucity of non-Chinese lithium extractors in Mexico, however, the Mexican government move raises the prospect that Ganfeng could become the sole non-state lithium miner in Mexico, according to mexicobusiness.news.

Logistics and infrastructure

The PRC has a significant, longstanding presence in Mexico’s logistics sector. The Hong Kong-based firm Hutchison Whampoa has operated major ports in the country since the late 1990s. Hutchison has seven port concession in Mexico: two in Ensenada, two in Veracruz, and one each in the ports of Lazaro Cardenas, Manzanillo and the land port in Hidalgo, according to context.news and the company’s website.

López Obrador has questioned how Hutchison obtained generous leasing terms such as a 100-year concession for the port of Veracruz, and has threatened to revoke the concession, but has never pursued such action, according to context.news, a Thomson-Reuters website.

In land transportation, PRC-based companies initially suffered multiple setbacks including the 2015 cancellation of the Mexico City-Queretaro fast train awarded to a consortium led by CRRC Corp. Ltd. (CRRC). López Obrador has suggested, however, that he may revive the project, presumably awarding it to CRRC, according to infobae.com, a Latin American news website.

China’s biggest land transportation construction project in Mexico is its work on López Obrador’s signature Maya train connecting various cities and tourist sites in southern Mexico. China Communications Construction Corp. (CCCC) was the key partner in the construction of the first 227-kilometer segment of the train from Palenque to Campeche, according to infobae.com, a Latin American news site. In addition, its associate in the consortium, Mota Engil, is 30% owned by CCCC, according to CGTV en Español, a Chinese state broadcaster. As with the other PRC projects in the region, the Maya train has already run into problems, including a strike by workers in Tabasco over non-payment of salaries, according to mexicobusiness.com and bnaamericas.com, Latin American news websites.

The other major PRC transportation project in Mexico is work on Line 1 of the Mexico City metro, awarded in November 2020 to PRC-based CRRC-Zuzhou. The project includes the purchase of trains and the building of a new metro control center.

Electricity

The PRC has positioned itself to be a key electricity sector partner in Mexico as the government’s favoritism of the state electricity provider, Commission Federal de Electricidad (CFE), drives other providers and potential investors out of the market, according to the Economist newspaper.

In November 2020, China’s State Power Investment Corp., parent of the electricity giant Power China acquired renewables-focused electricity provider Zuma Energy. In addition, the PRC has used its foothold in the market to build ties with CFE and the Mexican state on green energy projects, according to The Economist.

PRC-based companies have also pursued other electricity projects in the country, including construction of the $386 million Chicoasen II hydroelectric facility by Sinohydro, although the project was delayed by protests in 2016, a year after the initial award, according to Xinhua.net, the PRC’s state news agency.

Digital sectors

As in other parts of Latin America, PRC-based companies have established a significant presence in multiple sectors of Mexico’s digital economy. In telecommunications, Huawei has operated in Mexico for more than two decades and has established a major regional training center, a research and development center and a call center. Mexican telecommunications companies including billionaire Carlos Slim’s Telefonica, who, according to Reuters, once saw Huawei as a rival, are now partnering with it. Chinese brands Huawei and Xiaomi together comprise a quarter of the Mexican smartphone market. In 2018, Huawei was contracted by the Mexican government to install 30,000 Wi-Fi hotspots around the country, according to the company’s website.

Although the Mexican government, in a bid to alleviate U.S. information security concerns, gave the contract for Mexico’s 5G “shared network” in the north of the country to Nokia rather than Huawei, the latter is still positioned to play a dominant role as Mexico rolls out 5G infrastructure, according to enterpriser-talk.com and telecomlead.com.

Beyond traditional telecommunications, Huawei also has a cloud computing hub in Mexico. It offers low prices and other incentives to attract Mexican technology startups and other companies to store their data and processes in the Huawei cloud, according to datacenterdynamics.com and the company’s website.

China’s penetration of Mexico’s digital economy, and the security concerns associated with it, go beyond Huawei. E-commerce company Alibaba expanded its operations in Mexico during the pandemic. The PRC-based ride-hailing company Didi Chuxing similarly made major advances in Mexico, despite resistance from Mexico’s taxi drivers, according to motorintelligence.com and mexicobusiness.com.

In the security systems sector, PRC-based surveillance system company Hikvision has a significant presence in Mexico, boosted by its acquisition of a major stake in the Mexican security systems company Syscom in 2021, reported ipvm.com, a physical security and surveillance news website.

China also has a major role in other less recognized digital technologies in Mexico. The Mexican government was considering the purchase of scanners built by the PRC-based company Nuctec, for Mexico’s customs and border checkpoints.  This would give the PRC access to significant information about goods passing into, out of and through Mexico into the United States, including some ability to access digital technologies, according to the Washington Post newspaper. In May 2023, U.S. Ambassador to Mexico Ken Salazar wrote a letter to Mexico’s Foreign Minister Marcelo Ebrard urging the government of Mexico not to purchase the technology.

In addition, China’s ZPMC is a key supplier of cranes to major Mexican international ports such as Manzanillo. The U.S. government sees a potential risk from ZPMC digital scanners because they collect considerable data about the contents of the containers and other items passing through those ports, according to reports in The Wall Street Journal and porttechnology.com.

Banking

The PRC position in Mexico’s financial sector is more significant than commonly recognized. Hong Kong Shanghai Bank of China (HSBC) has long been a key player in Mexico’s financial sector. In addition, the Industry and Commerce Bank of China (ICBC) and the Bank of China have offices in Mexico. China’s UnionPay facilitates access to funds from Chinese financial institutions in Mexico.

Evan Ellis is a research professor of Latin American Studies at the U.S. Army War College.

The Watch is a professional military journal published by U.S. Northern Command to provide an international forum for military personnel and academics involved in homeland defense. The opinions expressed in this piece do not necessarily represent the policies or points of view of the command or any other agency of the U.S. government.