Academic journal article Asian Perspective

Chinese Investment in Mexico: The Contemporary Context and Challenges

Academic journal article Asian Perspective

Chinese Investment in Mexico: The Contemporary Context and Challenges

Article excerpt

Mexico and China have a centuries-long relationship. Even so, only since the last decade of the twentieth century has the relationship achieved a new level of intensity, reflected in the breadth and depth of the two countries' political, institutional, and economic interactions. The new relationship is a function of China's emergence as a major global actor and a set of political measures and economic agreements that came into existence after the 1970s that allowed for dramatic increases in trade in the 1990s. Following this first trade-based stage of development, China started to send massive amounts of capital abroad in the form of foreign direct investment (FDI). As a result, since the breakout of the global financial crisis in 2007-2008, China has become an increasingly important source of FDI for Latin America and the Caribbean (LAC) and, to a smaller extent, Mexico. In recent years, the two countries, under the administrations of Chinese President Xi Jinping and Mexican President Enrique Peña Nieto, have given significant attention to the possibilities for increased Chinese outward FDI (COFDI) in Mexico.

In this article I analyze the political economy of COFDI in Mexico to illuminate how political variables and economic factors (specifically, structural trade imbalances) with political salience have affected the growth and dynamics of Chinese investments in Mexico. Some of my key findings are that an absence of sufficient public, private, and academic institutions that can facilitate longrange planning, rectify information gaps, and correct misunderstandings has hindered the growth of COFDI in Mexico and prompted negative reactions against COFDI, which, in turn, have dampened COFDI further. I demonstrate, too, that structural imbalances in Mexico's trade with China coupled with Mexican fears about the Chinese economic challenge are poisoning the domestic political atmosphere in Mexico and between Mexico and China, furthering impeding the growth of COFDI.

This article consists of five sections. The first supplies an overview of FDI and China, focusing on the drivers and special features of COFDI. The second analyzes Mexico's stance toward Asia, Mexican-Chinese political relations, and the two countries' trade relations to paint a picture of the investment backdrop to COFDI in Mexico. The third section provides information on the main features of COFDI in Mexico and also examines several prominent failed Chinese investments in Mexico. The fourth details a number of challenges facing COFDI in Mexico. The last section integrates my main findings and contains various policy proposals that have the potential to advance the bilateral investment relationship.

Features of FDI Relating to China and COFDI in LAC

I begin by providing background that enables us to understand the features of COFDI and also helps to illuminate the forces that are driving China's massive outward FDI and its investment in LAC. A fact worth highlighting is that China has become the second largest recipient of FDI globally since the 1990s, following the United States. Initially, China focused on inward FDI, making it a critical part of the country's long-term development strategy since it afforded a mechanism for the country to integrate with and learn from transnational corporations (TNCs) in sectors such as clothing and textiles, electronics, and auto parts and automobiles (World Bank and Development Research Center 2012; Wu 2005). Inward FDI, though, has reached a saturation level in China as a result of the increasing dynamism of the domestic economy vis-àvis foreign TNCs. Table 1 shows that FDI flows into China achieved their highest levels in terms of gross fixed capital formation (GFCF) and as a percentage of gross domestic product (GDP) during 1995-2000.

Despite all the media attention given to COFDI, it really became relevant in terms of GDP and GFCF only after the 20072008 global finance crisis, a fact that has not been sufficiently appreciated either globally or in China. …

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