Last Year's Investment Hits Record High of $606.3 Million... 76% Surge Compared to 2021
[Asia Economy Reporter Lee Ji-eun] Recently, Chinese manufacturing companies have been rushing to invest in Mexico. This is based on the judgment that exporting to the U.S. through Mexico can minimize the trade tariffs imposed by the United States. Moreover, since the spread of COVID-19, companies have been actively pursuing 'nearshoring' to resolve supply chain disruptions, and it is expected that a large amount of Chinese investment funds will flow into Mexico for the time being.
According to Japan's Nihon Keizai Shimbun on the 17th, the investment amount China put into Mexico last year reached $603 million (867.9 billion KRW). This is a 76% increase compared to the previous year and marks the highest level since investments began in 1999. In terms of investment scale by country, China ranked 9th, following South Korea, which invested $684.7 million annually.
Currently, Chinese manufacturing companies are building industrial complexes in Nuevo Le?n, northern Mexico, which borders the United States. This industrial complex has been jointly constructed since 2017 by companies based in Zhejiang Province, China, and Mexican companies. Twenty Chinese companies have entered this area, with 10 factories already starting production. According to statistics from Nuevo Le?n, the number of direct investment cases by Chinese companies last year was 18, more than double the previous year's 7 cases. Considering that the number of investments from 2015 to 2018 was only 1 to 2 cases per year, this is a significant increase.
In addition to industrial complex construction, Chinese companies are also investing heavily in residential infrastructure development such as hotels and housing. Nihon Keizai Shimbun projected that the direct investment amount from China, including Hong Kong, in Mexico currently reaches $1.2 billion.
Nihon Keizai Shimbun analyzed that the large-scale investment by Chinese companies appears to be part of an effort to avoid U.S. trade tariffs on China. During the previous Donald Trump administration in 2018, high tariffs of up to 25% were imposed on 2,200 Chinese products, causing Chinese companies to struggle under the tariff burden. Although the two countries later agreed to improve trade relations and applied tariff exemptions to all but 549 products, high tariffs still apply to consumer goods such as home appliances and furniture. According to the Peterson Institute for International Economics in the U.S., the average tariff rate applied by the U.S. on Chinese products is 19.3%, more than five times higher than before the U.S.-China trade dispute began in 2018.
However, if Mexico is used as an export base, tariffs applied to Chinese products are significantly reduced. With the announcement of the United States-Mexico-Canada Agreement (USMCA) in 2020, a 0% tariff rate applies among the three countries. As a result, Chinese home appliance and furniture companies are eager to build factories in Mexico for exports to the U.S. Nihon Keizai Shimbun recently reported that Chinese home appliance company 'Hisense' invested $260 million to build a factory in Mexico and plans to start mass production of refrigerators within this year.
A representative of 'Zhongyuan Furniture,' a Chinese furniture company listed on the Shanghai and Shenzhen stock exchanges, told Nihon Keizai Shimbun, "Recently, 'Ningbo Daye Garden Equipment,' a mower manufacturer whose main customers are Americans, also plans to build a factory in Nuevo Le?n in August," adding, "As the outlook for U.S.-China relations becomes uncertain, it seems that Chinese companies are investing in Mexico as a measure to prepare for future trade risks."
Nihon Keizai Shimbun forecasted that with the recent acceleration of companies' 'nearshoring,' Chinese companies' investment in Mexico will continue. Nearshoring refers to relocating factories to neighboring countries of export regions. Currently, China is showing movements to relocate factories outside China as supply chain disruptions have intensified since the spread of COVID-19.
Nihon Keizai Shimbun explained, "As labor costs rise due to China's economic growth and supply chain disruptions caused by COVID-19, China is expected to actively expand overseas. Currently, more than 70 Chinese companies are considering entering Monterrey, Mexico."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
