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China: a Threat or an Opportunity to Mexico?

China: a Threat or an Opportunity to Mexico?. Renato Balderrama Institute of Asia Pacific ITESM, Mexico abalderrama@itesm.mx. Where is Mexico Now? !Mexico vs China¡. The size of the economies. Source: World Bank, 2004. www.worldbank.org/data. Population.

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China: a Threat or an Opportunity to Mexico?

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  1. China: a Threat or an Opportunity to Mexico? Renato Balderrama Institute of Asia Pacific ITESM, Mexico abalderrama@itesm.mx

  2. Where is Mexico Now?!Mexico vs China¡

  3. The size of the economies Source: World Bank, 2004. www.worldbank.org/data

  4. Population Source: World Bank, 2004. www.worldbank.org/data

  5. Economic Growth 1980 to 2004 Economic Growth Index 1980=100 Source: World Bank, 2004. www.worldbank.org/data

  6. The IMD WORLD COMPETITIVENESS YEARBOOK 2004, classifies factors and levels of competitiveness from 60 countries, locate Mexico in 56 place, measuring the relation between the propitious environment to create value in enterprises and the prosperity share to the citizens. In just 5 years Mexico has drop drastically, from 33 place in 2000 to 56 place in 2004. Mexican Competitiveness

  7. Higher Labor Costs Monthly Salary 1995-2001 China Mexico Source: with OIT data, www.laborsta.ilo.org/cgi-bin/

  8. Coefficient of Gross Fixed Capital Formation, % GDP China Mexico Source: World Bank, 2004. www.worldbank.org/data

  9. Foreign Direct Investment China Mexico Fuente: World Bank, 2004. www.worldbank.org/data

  10. China is number one attracting FDI, competing directly with Mexico… IED directed to Mexico* (Thousands millions of USD) IED directed a China (Thousands millions of USD) 52.7 37.5 9.5 9.4 * Excluding Banamex-Citigroup operation in 2001 Source: INEGI, Ministerio de Comercio de China

  11. The Economy of Knowledge Scientists and Engineers dedicated to R&D Per each million persons Source: World Bank, 2004. www.worldbank.org/data

  12. The Economy of Knowledge The Challenge of D&R % of investment in R&D of the GDP Source: World Bank, 2004. www.worldbank.org/data

  13. The Economy of Knowledge Exports with High Tech content % of GDP Source: World Bank, 2004. www.worldbank.org/data

  14. China Source: Barry Naugthon

  15. How many companies in Mexico do research and development? Source: INEGI, National Survey of Employment, Salaries, Technology and training in Manufacture Sector, 2002.

  16. Why Chinese Competitiveness is a Huge Threat to Mexico?

  17. MEXICAN EXPORT GEOGRAPHY • Mexico has 12 Free Trade Agreements signed between 1992 and 2005 with 43 countries. NAFTA is the most important one. • One of eight formal employees is directly link with the export sector. • From the 803,902 enterprises registered in Mexico, just 35,111 export (4.4%). In 2004, their sells were $188,500 mdd (37% of GDP).

  18. THE SIZE OF THE ENTERPRISES THAT EXPORT

  19. ENTERPRISES LOCALIZED PER FEDERATION ENTITITY (From 31states) • Highly Concentrated: (US Border) • 4 entities represent 60% of national exports: Chihuahua, Baja California y Tamaulipas (border) and Mexico City. • 7 entities represent 34% of national exports: Nuevo León, Coahuila, Sonora (Border) Jalisco, Edo. de México, Puebla, SLP y Querétaro. • 20 entities represent 6% the rest of national exports

  20. ORIENTATION OF EXPORTS PER SIZES

  21. In the USA market, the Chinese participation surpass Japan and Mexico, and was already threaten Canada… Participation in the US market (% accordance with total imports) 17.8% Canada Japan 9.4% China 12.0% Mexico 10.9% Source: Secretaría de Economía, U. S. Census Bureau

  22. …and its penetration speed generates a growing competition for the Mexican products in US market. Profit/Lose of participation in US Market (% with respect to 1993 ) China Profit México Canadá Lose Japón Source: Secretaría de Economía

  23. In 2003

  24. There is 81 countries that goes faster than México entering the US market. México is the country that has lost more presence in the US market among its main suppliers. • China in just 12 months (2004-05) won 1.64 percentage points of participation in US market. The strongest participation has been in the Automotive and Auto parts industry. • Of the top 10 Mexican companies, half belongs to the Automotive industry: GM, Daimler Chrysler, Delphi Automotive, Nissan & VW. Together in Mexico concentrate earnings of $38,145 musd, almost ¼ of the top 100 Mexican companies. This 5 automotive reported together global earnings of $622,931 mdd, a number similar to Mexican GDP.

  25. Exports to USA in 2005 (millions usd) Source: US Trade Department

  26. … AND THIS THREAT IS GOING TO INCREASE…!!!

  27. Triangular Trade Flows 2003 US with China: $120 B. (US Dept. of Commerce) 24 15 Bilateral Deficits China with: Taiwan $40 B. Korea $24 B. Japan $15 B. Malaysia $8 B. Thailand $5 B. 40 5 $120 B. 8 (Deficits are shown according to statistics of the importing country.) Source: Barry Naughton

  28. How is Mexico confronting the Chinese “Phenomenon”?Is there a Mexican “FOX” Strategy?

  29. LEGAL FRAMEWORK OF MEXICO-CHINA RELATION Before and during Fox Administration (1973-2005) Source: Ministry of Foreign Affairs Legal Advisory

  30. VISITS AND MEETINGS DURING FOX ADMINISTRATION

  31. Total Trade Mexico-China (millions of usd$) Source: SE and BM (* estimated)

  32. Mexican most important Trade Partners (Total trade) Comparison 1997 and 2003 Source: SRE

  33. Mexican most important Export Markets Comparison 1997 and 2003

  34. Mexican most importan Import Markets Comparison 1997 and 2003 Source: SRE

  35. In Europe happened the same phenomenon: Chinese participation is high and its speed of penetration surpass Mexico’s Accumulate increment in the UE market participation (respect to 1993, percentage points ) Participation in EU market (% with respect to total imports) China Mexico (Right scale) China (Left scale) México Source: Eurostat

  36. FINAL CONSIDERATIONSChina as a potential Opportunity?!!!!

  37. Chinese investment in Mexico (thousands of usd$) * Until March Source: SE

  38. TWO MEXICAN VISIONS • The only solution for the Mexican Economic Problems is to be more close to the North American Economy. J. Serra Puche: “We have to increase our approach to USA”. • There are other solutions: • To take advantage of other Agreements in order to diversify the Mexican Exports and bring more FDI. For example: UE, Mercosur, etc. • Approach to Asia-Pacific: w/Japan: there’s already a Free Trade Agreement. ToChina, offering: • The Mexican Geographical position • The NAFTA benefits: Tariffs and other benefits • BAASC: Anti-Smuggling and Contraband Certify • Mexican FTA’s with 43 countries (UE, Central America, South America, Japan, etc). • More than 20 years in manufacturing experience.

  39. THANKS!!!!!! • Dra. Lourdes Dieck at MEXICAN SECRETARY OF FOREIGN AFFAIRS (SRE & SE). • Dr. Victor Lopez Villafañe at the CENTER FOR NORTH AMERICAN STUDIES, ITESM. • Dr. Clemente Duran at the CENTER FOR COMPETITIVENESS, UNAM. • Dr. Barry Naugthon, at the ASIA PACIFIC CENTER, UCSD.

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