In 2023, foreign direct investment in Mexico reached a historic high of $36.58 billion, a 27% increase from the previous year. Half of this investment was concentrated in the manufacturing sector, including transportation equipment, beverages, and metals.
China’s share of direct investment in Mexico has rapidly increased in recent years. According to a report by the National Autonomous University of Mexico, China’s direct investment in Mexico in 2022 increased by 48% compared to 2021. In the past two years, countless Chinese independent brands have invested in Mexico, setting up layouts, factories, production, and local marketing.
The Rise of Chinese Manufacturing Ventures in Mexico
Between 2014 and 2020, only a few Chinese companies, mainly trading firms, ventured or prepared to venture into Mexico yearly. However, the focus has shifted toward manufacturing in the last two years.
Home furnishing companies such as Jason Furniture, Elegant Home, Zoy Home, and Keeson Technology decided to invest in factories in Mexico.
Home appliance enterprises like Sanhua Holding and Hisense Group have operated in Mexico.
The automotive sector has also garnered significant attention for its overseas ventures.
For parts suppliers, in May 2023, Dongshan Precision announced the establishment of a subsidiary in Mexico. Other automotive parts companies, including Dongshan Precision, Lizhong Group, Lens Technology, and Yinlun Shares, have announced factory investments in Mexico.
Chinese domestic car brands have also started to make their mark in Mexico. Brands like BAIC, JAC, Chery, and MG have already established local production and sales operations.
In March 2023, Great Wall Motors founded its Mexican subsidiary and launched two new energy vehicles. A responsible person stated that Great Wall had begun research on investment projects for local factories.
BYD has already set up several stores in Mexico, expanding its business layout to 32 states. As the store construction and service system improve further, BYD will continue its close cooperation with Mexican partners and consider building a new factory in Mexico based on market demand.
Why Mexico？
Mexico, one of Latin America’s largest economies, is lovely for industrial relocation.
Firstly, Mexico possesses rich natural resources such as oil, natural gas, and coal, with a total population of about 131 million, of which 59% are working age. The country has a relatively complete industrial system covering a wide range, with petrochemicals, electricity, mining, metallurgy, and manufacturing being more developed sectors. Among these, the automotive industry is Mexico’s largest manufacturing sector and one of its pillar industries.
Secondly, as a World Trade Organization member, Mexico has signed 14 free trade agreements covering more than 50 countries. It has signed 32 agreements on the mutual promotion and protection of investments with 33 countries and regions, highlighting its advantages in expanding exports, attracting foreign investment, and enhancing local economic vitality.
Thirdly, geographical advantages. Bordering the United States, Mexico serves as an ideal springboard for Chinese companies entering the US market—offering proximity and significantly reduced transportation time and costs.
Lastly, the goal is to avoid the high tariffs and potential geopolitical risks of the United States. Mexico is a member of the United States-Mexico-Canada Agreement (USMCA), where products exported to the US and Canada enjoy very low tariffs.
Therefore, the aim of Chinese companies going overseas to Mexico is not for Mexico’s local market but for the entire North American Free Trade Area, using a manufacturing base to serve a large market.
Mexico, the New World Factory?
According to the data published in Feb.2024, Mexico became the largest source of imported goods to the United States in 2023, with the total value of goods imported from Mexico in 2023 increasing by 5% year-on-year, reaching 475 billion U.S. dollars.
This made Mexico the largest trading partner of the United States, leading to the widespread belief that Mexican manufacturing would replace Chinese manufacturing and become the following world factory.
Although investing and building factories in Mexico can avoid high tariffs and reduce transportation costs, the overall cost does not have an advantage.
In terms of labor costs, although Mexico has abundant labor resources, the price is not low. Depending on the manufacturing sector and skill level, the monthly wage of manufacturing workers in Mexico typically ranges from $400 to $1,000. On the other hand, it is challenging to process work visas in Mexico, and the cost of dispatching Chinese staff is high. The difference in overtime culture can sometimes lead to employment issues.
Regarding the cost of raw materials, the price of construction materials when building a factory is 7 to 10 times, or even 20 to 30 times higher than in China. Chinese companies often purchase materials domestically to save on construction costs. The raw materials needed for production must also be imported from China. Only the processing and assembly are implemented locally in Mexico. Therefore, when viewed comprehensively, it equates to a high-cost assembly plant.
Moreover, Mexico’s intrinsic social challenges pose significant concerns. Frequent criminal activities such as murder, kidnapping, theft, robbery, and extortion have continuously troubled the development of Mexican society.
Mexico and the United States are geographically close and have a closely interactive economy. It may be subject to significant restraint and intervention by the United States.
Although Mexico can potentially attract foreign investment in some aspects, the challenges must be addressed. These factors may impact its potential to become the following world factory.
But undoubtedly, Mexico is currently one of the hottest destinations for Chinese companies expanding overseas.