A vehicle from Chinese automaker BYD, in a promotional image shared on social networks.
They are everywhere. They walk the streets of Mexico City, appear in sponsored videos from social media influencers and even appear on the jersey of the national soccer team. Chinese-branded cars are becoming increasingly popular in Mexico, a country that produces vehicles for export to the United States. And they are developing into a new tension between the two North American countries.
According to the supplier Linked Global Solutions (LGS), which specializes in business between China and Latin American countries, Mexico is the second largest recipient market for Chinese cars in the world after Russia. According to the company, Mexico purchased 260,000 Chinese vehicles in one year.
According to data from the Mexican Association of Automobile Dealers (AMDA), the share of Chinese brands in the car market increased by almost 6% in September, reaching 19.4% in the first nine months of 2023. In October, port authorities in Michoacán assured that there were not enough sponsors to remove the Chinese cars from their ships, which led to traffic jams. But while the Mexican market may be attractive to China, it is not the ultimate goal.
“We are concerned about how the People’s Republic of China is preparing to flood the United States and global markets with automobiles, particularly electric vehicles, backed by massive subsidies and longstanding localization and other discriminatory policies,” wrote five U.S. congressmen White House Trade Representative Katherine Tai said in a letter sent Tuesday.
Both the United States and the European Union have escalated the trade war against China, and cars and semiconductor chip production have been the focus of investigations over predatory practices, tariffs and restrictions. This new geopolitical advance is driving companies from Western countries to look for alternatives to relocating their factories to China, a trend known as nearshoring.
The US “must be prepared for the next wave of Chinese vehicles exported by our other trading partners such as Mexico, as Chinese automakers seek to strategically establish operations outside of China to take advantage of preferential access to the US.” “We market to the US market through our free trade agreements and avoid specific tariffs against China,” say the lawmakers, naming three manufacturers that have already established themselves in Mexico: BYD, Chery and SAIC Motors. To nip the problem in the bud, lawmakers are calling on Tai to launch an investigation.
It is not only the automotive sector that China is entering in Mexico, but it is the most important, because for Mexico cars are taking the place that oil previously had. The automobile industry’s contribution to gross domestic product (GDP) is 4.8% and its exports are the main source of foreign exchange. It creates one million direct jobs and, due to its widespread use, 3.5 million indirect jobs. 22% of the country’s foreign direct investment (FDI) in the third quarter of the year went into this sector.
It is difficult to say how much of this investment comes from China, as the role of the Chinese public sector in foreign investment, as well as its particular way of doing business, makes the flows of capital entering the country invisible. If legislators in the United States are aware that three companies have arrived in Mexico, the Mexican Association of the Automobile Industry (AMIA) only recognizes two.
“There are two Chinese brands that are part of AMIA [SAIC Motor y Chirey Motor]. “There are two more that are currently being examined,” says José Zozaya, president of AMIA, on the phone, “I cannot mention the two that are currently being examined.” Not all brands assemble in Mexico and it is also difficult Find Chinese assembly companies. The association has a list of 21 automakers in the country, none of which are Chinese, although JAC Motors has been assembling vehicles in Hidalgo state for 16 years.
Behind the country’s rapid growth is an “aggressive” strategy of low prices and financing options, says Zozaya. “They are conquering a market that is new to them as part of their strategy,” he adds. Mexico, a country that assembles cars sold to the United States, chooses to import Chinese cars. Of the cars produced in Mexico, 90% are exported and the remaining 10% are sold domestically. Since this is not enough to supply the market, 60% is imported.
This week, Spanish bank BBVA announced that it would be the financier of Geely, one of the best-known Chinese brands that has been sold in Cuba for almost 20 years. For its part, the Mexican subsidiary of the Chinese manufacturer Chery Automobile, called Chirey in Mexico, became sponsor this summer of the champion team of the Mexican Football League, the Tigres of the Autonomous University of Nuevo León, where it is based and plans to open an assembly plant, according to the general director of the newspaper El Economista said.
Tianwei Zheng, commercial director of Geely; Tony Chi, global director of Geely; Alejandro Cárdenas, General Manager of Business and Government Banking BBVA México; Víctor Rojas, Head of Automotive Banking BBVA México during the announcement.BBVA México
China’s big opportunity, American lawmakers have pointed out, is its electric and hybrid cars, which the country is already producing at a faster rate than any other country. In Mexico, the lack of necessary infrastructure, such as charging stations, is slowing interest. According to AMIA, only 5% of cars in Mexico are electric or hybrid, and of those, only 5% are Chinese.
Electric vehicles will be imported into Mexico duty-free thanks to a decree that expires in September next year. What Mexico decides with this decree will be crucial for its relations with the United States, says Juan Carlos Baker, one of the negotiators of the USMCA free trade agreement. The trade agreement stipulates that the regional share of products exported to the USA and Canada must be 75%.
“When these companies arrive, they will have to spend several years developing their entire offering for the automotive industry, especially when it comes to high-end electric cars, since it will take years before they can certify their suppliers.” At the moment “I find it very difficult to think about what they will export to the United States,” says Baker, also a professor at the Universidad Panamericana. “But if this grows and intensifies and the United States government wants to put pressure on Mexico to close this door, the United States would have many opportunities to do that,” he says.
Diego Ocampo, general director of the supplier company LGS, specializes in deals between the Asian giant and Latin American companies. Its portfolio includes 300 Chinese suppliers. “During the pandemic, we heard from suppliers who had a desire to come to Mexico to set up their factories. They tell us, ‘What Mexico gives us are all its free trade agreements,'” Ocampo says.
The businessman warns that the traffic jam in the Lázaro Cárdenas port in Michoacán was a great pressure. “They tell me, ‘We have thousands of cars, we’re paying for thousands of delays,'” Ocampo says, “so I believe the future of Chinese automobile companies in Mexico is to gather here, and it’s not just becoming that help attract more industry, but “It will help national competition.”
To comply with the USMCA, Ocampo assures, foreign companies could carry out processes such as plastic injection in Mexico without having to relocate the most valuable and demanding part of electrical technologies: the production of semiconductor chips. This possibility has caused some concern in the United States.
“There is certainly a political dimension here,” says Eric Farnsworth, vice president of the Americas Society/Council of the Americas (AS-COA). “They may sell in the Mexican market, but primarily they want to export to the rest of North America, which is a much larger market. And that is, to a large extent, a reality that is starting to get the attention of people in Washington.”
Both countries have elections in 2024, so Farnsworth hopes the next governments in both the United States and Mexico will eventually address the issue. “The bilateral relationship is already under tension and will become even more tense if people perceive that China is entering the USA through a back door in Mexico,” says the expert.
“The relationship between Mexico and the United States is so deep that we want it to be based on opportunity and growing relationships, not on imposition and mutual recriminations,” Farnsworth says. “Both countries have a role to play here in enforcing the USMCA, not just the United States but, frankly, Mexico, which has to decide who can invest in its country and under what conditions.”
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