Is Mexico Really Better Without China?

The following is a guest post by Adrián Cisneros Aguilar.* A Spanish language translation is directly below the English version.

Jorge Guajardo, Mexico’s former Ambassador to China, recently published an opinion piece titled “Dejemos a China por la Paz” [“Let’s Leave China for Good”], which was quickly and enthusiastically retweeted by Jorge Castañeda, former Mexican Minister of Foreign Affairs and one of the leading shapers of Mexican foreign policy.

When I read the article, I was shocked by Guajardo’s profound lack of understanding about the Mexico-China bilateral relationship, and his overall negativity. To be sure, China’s rise has created problems for Mexico. But it has also created opportunities, and we must be clear-eyed about both.

Guajardo, at the end of his piece, asked Mexicans to “defend our interests, clarify the lies [and] promote the truth.” This response is my effort to do exactly that.

1. Guajardo claims it is useless to partner with China because “China protects its markets [by] preventing entry of Mexican products [and] even if China were to open its markets, there is little market for what Mexico exports.” This is a gross exaggeration. The Mexican Ministry of Agriculture has been working to expand Mexico’s agricultural exports to a number of countries and as a result of negotiations last year Mexico is now exporting pork and dairy products to China.

The larger problem is that many Mexican companies lack the size or sophistication to meet Chinese demand, both in terms of quality and quantity. Mexican exports to the U.S. have long faced similar problems, but it has been far easier for them to find a U.S. buyer who will accept smaller quantities and/or varying quality.

Indeed, the inability to meet foreign markets’ demand is so prevalent that one of my company’s main services is to gather several companies (usually SMEs) in the same industry, train them as a group, and then enable them to sell their products, as a group, in Asia (usually China). This collective approach enables these companies to enter large markets with the confidence they can meet market demand while minimizing their exposure. Our success with this approach further underlines the short-sightedness of Guajardo’s comment. It’s also worth noting that this approach is in line with the Mexican Ministry of Economy’s policy to develop Export Networks [Redes de Exportación or Redex].

2. Guajardo argues that Mexico and China have no future in cooperation because they are in fact competitors since both countries are export-oriented manufacturing economies that primarily sell to the U.S. and to Europe. For years, scholars and businesspeople from Mexico and China have offered opinions and action plans to alleviate imbalances in the Sino-Mexican economic relationship. Full disclosure: this issue is near and dear to my heart as it was the subject of my doctoral dissertation in China. There are in fact many ways in which China and Mexico in fact economically complement each other, including the following:

• China’s demand for Mexico’s resources and raw materials;
• the appreciation of the RMB, which has increased labor costs in China, making it more attractive for foreign manufacturers to relocate their facilities to Mexico to serve the North American market (“nearsourcing”);
• the recent Mexican energy and telecommunications reforms, which widely opened these sectors to foreign investment;
• the opportunity to decrease the Mexico-China trade deficit by having Chinese companies manufacture in Mexico via value-added investments, thereby creating jobs and transferring technology and know-how; and
• China and Mexico’s common membership in economic blocs that could easily allow the creation of regional value chains and enactment of supportive policies.

3. Guajardo wrongly contends that lack of demand for Mexican products in China is the reason for Mexico’s enormous trade deficit with China. First of all, Chinese demand for Mexican products is slowly increasing. But the reason for the relatively low demand by China for Mexican products is not so simple as that Chinese people don’t want or need Mexican products. I have already discussed the inability of Mexican companies to meet Chinese demand. Another reason is that China has many more barriers to market than the U.S., from geography to language to regulations. But perhaps the biggest problem is Mexican companies too often believe China wants only cheap products and then fail to realize that to sell effectively to China they need to understand and cater to Chinese buyers. More than once I have heard Mexican companies say their marketing plan is to label their product as being Mexican, thereby capitalizing on China’s desire for foreign, exotic fare. This limited vision is self-defeating, because it fails to take the Chinese market seriously. China’s consumers are becoming more sophisticated and more demanding of original, high quality products. To succeed in China, Mexican companies need to meet the real life needs of the China market.

Yes, there is resentment in Mexico toward China because of the flood of Chinese imports that have displaced local manufacturing (especially in the textile, footwear, and toy industries). But as Guajardo’s piece suggests, this feeling is not so much anti-China as it is anti-globalism. And it must be acknowledged that at least some Mexican companies brought this on themselves by shifting manufacturing and/or sourcing to China in an effort to maximize short term profits.

In my second and concluding part of this series, I will discuss Guajardo’s proposed solution – which is even more misguided than his analysis – and offer my own advice on how Mexico and its companies can should profitably deal with China.

*Adrián Cisneros Aguilar is the founder/CEO of Chevaya (驰亚), an Asia-Pacific internationalisation services company. Adrián has a Doctor of Laws from Shanghai Jiao Tong University and an LL.M. in International and Chinese Law from Wuhan University.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.