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Tencent News "Periscope"

Author: Xie Zhaoqing

Edited by Yang Hao

If you don’t go overseas, you’ll be out of business. This is the reality that many Chinese companies are facing. As for the overseas destination, in addition to neighboring Southeast Asia, Mexico has become a popular destination for Chinese companies to enter in the past two years.

The connections between China and Mexico are becoming increasingly frequent: China has been Mexico's second largest trading partner in the world for many years, and Mexico has become the second largest export country for China.

Public data shows that in 2023, China-Mexico bilateral trade hit a new high, exceeding US$100 billion for the first time. Data from the General Administration of Customs of China showed that in the first five months of this year, China-Mexico trade reached US$43.6 billion, a year-on-year increase of 10.64%.

Among them, Mexico's demand for Chinese cars is growing very fast. According to data from the General Administration of Customs of China, in 2023, China will export more than 5.22 million cars, ranking the world's largest exporter. Among them, Mexico imported 415,000 cars from China, rising to China's second largest automobile export market.

According to data from the Mexican Ministry of Economy, theBYD、JAC、auspicious20 Chinese auto brands including Toyota Motor Corp. and Toyota Motor Corp. sold nearly 130,000 vehicles in Mexico, up 63% year-on-year. The local market share of Chinese autos will rise from 9.6% in 2019 to 18% in 2023.

Chinese automakers have also flocked to Mexico to invest. Public information shows that after BYD announced plans to invest $600 million to build a factory in Mexico this year,Dongfeng MotorIt recently opened 35 dealerships in Mexico and plans to invest in and build an auto parts factory in Mexico by 2025.

Daniel Dominguez Cantu, Acting Consul General of the Mexican Consulate General in Guangzhou, is not surprised by the increasing interest of Chinese companies in Mexico. He recently told Tencent News’ “Qianwang” in Shenzhen that the rise of trade between China and Mexico and Mexico’s becoming a popular destination for Chinese companies to go overseas may be directly due to geopolitical influences.The direct result is that U.S. imports from Mexico exceeded China for the first time in 2023, and Mexico became the largest source of imports for the United States for the first time.

Behind this phenomenon are more and more companies, including those in China, which are "taking the route" of Mexico, the back garden of the US market, and targeting the North American market including the United States.As the United States has significantly increased tariffs on China's electric vehicle, lithium battery, photovoltaic and other industries since May this year, Mexico's value to many Chinese companies may become increasingly prominent.

Next, this may further increase the enthusiasm of Chinese companies to go to Mexico, including trade with Mexico and investing in and building factories in Mexico.

However, data from the Mexican Ministry of Economy showed that foreign direct investment (FDI) in the first quarter of this year reached a record high of approximately US$20.3 billion, of which more than 50% came from the United States, and China did not make it into the top 10.

Daniel told Tencent News "Qianwang" that most of China's investment in Mexico is concentrated in the manufacturing and automotive industries. As far as he knows, China's direct investment in Mexico this year will be much more than the 151 million US dollars in 2023, and there will be a considerable increase in the foreseeable future.

Daniel has been working at the Guangzhou Consulate since 2019 and has witnessed the expansion of Chinese companies into Mexico in the past few years.He described himself as the organizer of Mexico's "investment roadshow" in China.

As of the first half of this year, he has assisted in the travel arrangements for delegations from Puebla State, Mexico, and other countries to China to attract investment. He told Tencent News’ Qianwang:These government delegations are very fond of the science and technology enterprises in the Greater Bay Area, and every time they come, one of their stops is Shenzhen.

"Mexico today is like China more than 20 years ago. Everything is just beginning. For Chinese businessmen, opportunities are everywhere, whether in manufacturing or the automotive industry."Daniel told Tencent News' "Qianwang" that for Chinese companies, in addition to targeting the US market, the local Mexican market is also a good opportunity.

The following is an exclusive conversation between Tencent News’ “Qianwang” and Daniel, with some content slightly edited.

“These companies need to target the U.S. market”

Tencent News "Periscope":Mexico has become an important overseas destination for Chinese companies. What do you think are the reasons behind this?

Daniel: The first and most important reason is that Chinese companies have customers in the United States, and these companies need to target the U.S. market. Mexico is very close to the United States and is the back garden of the U.S. market.

More importantly, Mexico has a free trade agreement with the United States and Canada (Note: United States-Mexico-Canada Agreement). According to this agreement, products produced in Mexico can be exported to the United States and Canada tax-free, which is why many Chinese companies choose Mexico when going overseas. These Chinese companies build factories in Mexico, produce products, and then export them to the United States, the profits are still considerable.

However, the electric vehicle industry is relatively special. Under this agreement, some other requirements need to be met, such as workers' hourly wages must not be less than a certain number (Note: workers' wages are set at $16 per hour). After meeting some conditions, electric vehicles produced in Mexico can be easily exported to the United States and Canada, which is why many Chinese companies have chosen to go to Mexico in recent years. I believe that more Chinese electric vehicle factories will be built in Mexico in the next few years.

Another reason is Mexico's own advantages, including its geographical location and natural environment. Mexico has a population of 130 million, which is a large market in itself, and local consumption is gradually increasing.Some Chinese e-commerce companies have already landed in Mexico. These e-commerce platforms ship Chinese products to Mexico to meet the needs of the local market. For example, the largest local e-commerce platform company Mercado Libre, most of the products on the platform come from China.Because China is a super large factory, its products are of high quality and low price, which makes it very attractive not only to Mexico, but also to the whole world.

In addition, Chinese companies choose Mexico because it is the best place for them to expand into the Latin American market. Mexico is located in the core of Latin American countries, which is also very important. All Latin American countries have opened routes with Mexico, such as direct flights from Mexico to Panama, Colombia, Argentina and other countries.

Tencent News "Periscope":The USMCA that you mentioned just now will face renegotiation among the three countries in July 2026 to decide whether its validity period will be extended for 17 years. Will this bring uncertainty to Chinese companies' expansion into Mexico?

Daniel:Yes. The three parties (note: the United States, Mexico and Canada) will sit down to negotiate and analyze the existing terms of the agreement, which ones need to be adjusted, and whether it can be extended for another 17 years. The specific results depend on what can be changed in the agreement and how to adjust it. If there are changes, the three parties will come up with a new agreement. For us, we hope to keep the agreement as it is.

Although the US presidential election in November is considered very important and may affect the renegotiation of the agreement, as I said just now, negotiations take time.If possible, Mexico will continue to provide some incentives to Chinese companies and hopes that they will continue to come to Mexico.

Mexico is replicating the 'Nuevo León model'

Tencent News "Periscope":What is the current situation of Chinese companies’ direct investment in Mexico?

Daniel:By 2023, Chinese companies' direct investment (FDI) in Mexico was $150 million, which is not a high proportion of Mexico's FDI, but we have seen that China's investment in Mexico will increase significantly in the near future. For example, BYD plans to build a factory in Mexico with an investment of about $1 billion. This is a very large investment and is very positive for us.

My team and I were partially involved in the advancement of this project.

Tencent News "Periscope":Specifically, what part of the work were you involved in?

Daniel:We have been in contact with this project since BYD's management team had the idea of ​​going to Mexico.My team and I helped arrange some meetings with local government agencies and other local activities. After they made the connection, we did not get involved in the rest of the process.

The BYD project is a very good thing for Mexico.This project will attract some small and medium-sized companies to Mexico, as well as companies in the electric vehicle supply chain.

In fact, we will assist not only BYD but also other Chinese companies in Mexico. At the same time, when Mexican officials visit China, including when they visit BYD companies for exchanges, our team will also provide some assistance to the best of our ability. Last May, we also assisted some Mexican government delegations in some activities in Shenzhen.

We are more like a roadshow underwriter for Mexico in China.It is necessary to cooperate with the Mexican government team at any time to assist in some activities within the jurisdiction to attract more Chinese companies to invest in Mexico. (Note: The Mexican Consulate in Guangzhou covers Guangdong, Guangxi, Hunan, Hainan, Jiangxi and Fujian)

This year, there is a boom in Chinese companies going overseas. More Chinese companies are interested in Mexico. My work this year is also very busy. In particular, companies in Shenzhen are very enthusiastic. I come to Shenzhen very frequently. Chinese companies are very enthusiastic about going overseas. Going overseas is happening all over China, not only in Shenzhen and Guangzhou Bay Area, but also in the north.From what I understand, some companies in Fujian and Hunan are also very interested.

These companies want to flock to Mexico because it is their key point of entry into the US and Latin American markets. The Mexican government is also aware of this.More policies targeting this trend may follow.

Mexico today is very similar to China 20 years ago. Everything is just like it was at the beginning, thriving. For Chinese businessmen, Mexico is full of opportunities.Whether it is manufacturing or automotive industry.

More than 20 years ago, the Chinese market was open to European and American companies, which did not necessarily bring the most cutting-edge technology. However, after decades of development, China has not only achieved rapid economic growth, but also achieved rapid development in the field of science and technology. Now China's science and technology industry is developing very well.

China's economy has taken off in the past few decades, and this will also happen in Mexico in the future. We will also slowly have higher technology due to the arrival of Chinese companies, and at the same time, Mexico's economy will develop as rapidly as China's economy has developed in the past few decades after reform and opening up.

I am from Nuevo León, Mexico, and I have witnessed the state's prosperity due to the arrival of Chinese companies, including Lenovo and other Chinese companies, which have invested in the local area. This state has attracted the vast majority of Chinese investment and is known as the "Nuevo León Model."

Tencent News "Periscope":Why can this state attract more Chinese companies?

Daniel:Because this state has a lot of land and good natural conditions. The most special thing is that this state is on the US-Mexico border and there are many American companies and factories here.NowTeslaTesla will also build a factory here. Tesla's supply chain companies will also be located here, including some Chinese Tesla suppliers.

There is also an interesting business phenomenon in Nuevo León. For example, an industrial park in this state was established and managed by Chinese. (Note: Huafushan Industrial Park belongs to the Chinese enterprise Huali Group)

The governor of this state is very active. He has come to China for roadshows many times, and I have assisted him in many of his activities in China.Many officials from other states want to replicate the model of Nuevo León and have also come to China for roadshows.Interestingly, this year we assisted four or five state delegations in their investment roadshows in China, including the delegation from Puebla. (Note: Puebla is the fourth largest city in Mexico.) Some state officials must stop in Shenzhen when they come to China, and they don’t necessarily have to go to Guangzhou.

“The electric vehicle industry is just starting in Mexico and there are a lot of opportunities”

Tencent News "Periscope":Public information mentions that 36 brands from more than 12 electric vehicle companies have now entered Mexico?

Daniel:Yes. Now many Chinese companies are building factories in Mexico. We hope that the USMCA can maintain its status quo and continue to be effective so that more Chinese companies can continue to come to Mexico.Chinese companies are very good at research and development. They build factories in Mexico and bring new technologies and techniques. This is something new for Mexico.Especially for local engineers, most of whom are young people who have just graduated from college, they can learn a lot from Chinese companies, especially in the electric vehicle industry.Now, the electric vehicle industry is just starting in Mexico and there are many opportunities.

For example, the Sonora Plan, a project initiated by the current President Andrés Manuel López Obrador, involves new technologies, green energy and electric vehicles.

Sonora is a state in northwestern Mexico, close to the United States. It has very good natural conditions, long sunshine hours, and a lot of lithium, which is very important for the electric vehicle industry. This place will become the next electric vehicle industry center in Mexico. So far, no Chinese electric vehicle company has landed there.

Tencent News "Periscope":In the past period of time, which Chinese companies have you contacted that want to build factories in Mexico?

Daniel:We have some contacts, for example,We have already talked to a Chinese electric car company in Guangzhou, and they want to invest and build a factory in Mexico.We hope that in the near future, they can build factories and produce electric vehicles locally. Unlike the development of China's electric vehicle industry, the Mexican electric vehicle industry is just beginning. This means that Chinese electric vehicle companies will have great opportunities in Mexico. Therefore, I think Chinese electric vehicle manufacturers go to Mexico not only for the US market, but also to explore the local Mexican market, which also has great opportunities.

Tencent News "Periscope":When you talk to these Chinese companies, what are they most concerned about investing in Mexico?

Daniel:They are very interested in developing new businesses in Mexico, especially building factories. This is because if finished Chinese cars are exported to Mexico for sale, the local tax is very high. If these manufacturers build factories and produce electric cars locally and then export them for sale, there will be no tax.

As for the Chinese automobile manufacturers we have contacted, they are aware of building factories locally rather than simply exporting cars to Mexico. This is a very positive signal.

Tencent News "Periscope":What incentives does the Mexican government provide to Chinese companies?

Daniel:Quite a lot. For example,Mexico usually provides Chinese manufacturers with 2 years of tax exemption, which is for factories, especially electric car factories. In addition, the Mexican government will also provide some water and electricity fee reductions for Chinese manufacturers. (Note: Water and electricity in Mexico are relatively expensive, about 4-10 times that of Shenzhen)

Tencent News "Periscope":In the electric vehicle sector, according to the USMCA, even if Chinese electric vehicle companies build factories in Mexico, they require workers to earn $16 per hour, which is not low. For these companies, including water and electricity costs, the overall cost in Mexico will increase.

Daniel:It is true that the minimum wage requirement for workers and the cost of water and electricity have indeed increased the costs for these Chinese companies. However, we will use other incentives to cover these additional costs and reduce their overall costs.

Tencent News "Periscope":When you contact these companies that want to go to Mexico, what are they most worried about?

Daniel:Mexico has many opportunities, but also many risks. What these Chinese companies care most about is the local laws and regulations. My advice to them is, just like in all overseas markets,When going overseas to Mexico, Chinese companies need a suitable lawyer or a cooperative law firm.These professional institutions or lawyers will provide professional advice to better comply with local laws and regulations. This is very, very important. If you find the right lawyer, it will reduce a lot of trouble for overseas companies, and the risks will naturally be almost zero.

Tencent News "Periscope":China and Mexico have maintained good relations over the past decade. In a few months, the new Mexican government will take over. What does this mean for Chinese companies going overseas to Mexico?

Daniel:Personally, I think Chinese companies don't need to worry. On the contrary, I think the best era is coming. The new president is a female scientist, she is very smart, and I believe she will make good decisions on China-Mexico relations.

In May, China Southern Airlines launched a direct flight from Shenzhen to Mexico, which indirectly shows that the connection between China and Mexico will become more frequent, and it will be more convenient to go to Mexico, so there will be more and more opportunities for both sides. For Chinese companies, Mexico is a market that has just begun, and now Mexico is a market full of opportunities.