China ‘freezes’ investments in Mexico

BYD, the largest car manufacturer in China, seemed ready last year to build its first factory in Mexico, but then Donald Trump returned to the White House.

A project that was expected to create 10,000 jobs and cost approximately US$$600 million has stalled in the midst of Donald Trump's trade war, which intensified this week when he announced new tariffs on automobiles.

Now, the budding relationship between China and Mexico has cooled with both sides distancing themselves. Mexico, led by President Claudia Sheinbaum, has been appealing to Trump to avoid a conflict with its main trading partner.

“At the moment, we are not actively seeking Chinese investment,” said Cindy Blanco, Secretary of Economic Development for Jalisco, the state where Guadalajara, the possible site of the BYD factory, is located. “We are very aware of the implications. That is why we are looking for an agenda aligned with that of the United States."

Meanwhile, China has shown its detachment from Mexico as it moves closer to the United States and rejects Chinese imports. For example, China's Ministry of Commerce delayed approval of the BYD plant in Mexico over fears that the technology could leak to the United States, the Financial Times recently reported.

This is a big change from just a few years ago. During Trump's first term, the US imposed tariffs on Chinese imports, prompting Chinese companies to invest in construction operations in Mexico to avoid the levies.

Then the pandemic of COVID-19 disrupted global supply chains, making Mexico and its proximity to the United States, including a new free trade agreement with the US, even more attractive. Groundbreaking ceremonies for facilities built by Chinese companies became commonplace. This is no longer the case.

“This whole geopolitical chess game has affected the willingness of Chinese companies to invest in Mexico,” said Laura Acacio, manager of Jiangyin Hongmeng Rubber Plastic Products, in an interview in January.

The Chinese medical supplies manufacturer is looking to expand into nearby Peru due to the existence of a new port connected to Shanghai and the fact that the Peruvian government is more receptive to Chinese companies than the Mexican government, he said.

Peru has the added attraction of having signed a free trade agreement with the United States that came into force in 2009. “There is a perception on the part of the Chinese government that the Mexican market has changed a lot,” Acacio said.

Direct investment by Chinese companies in Mexico exceeded $2 billion in each of the last three years, according to data from the Latin American and Caribbean Academic Network on China. This figure is practically double that of a decade ago.

Some of that money has gone to the Hofusan Industrial Park, a large estate about 190 kilometers from the US border, partially backed by Chinese investment.

Up to 40 companies with links to China operate there, according to César Santos, president and co-owner of Hofusan. They include furniture maker Kuka Home, electronics company Hisense and auto parts manufacturers.

But Trump has tried to prevent Chinese companies from avoiding tariffs through Mexico. The president announced that the 25 percent tariffs on Mexico would come into effect on March 4, but then postponed them until April 2 to allow for more negotiations. These tariff threats caused some companies to reconsider opening plants in Hofusan.

With information from El Financiero