The 'missing piece in the puzzle' for Chinese investments in Mexico

Recent Chinese activity in Mexico under President Andrés Manuel López Obrador’s administration suggests that the Asian giant is once again making efforts to expand its presence in the Latin American nation, particularly in infrastructure and energy projects. 

However, one expert suggests that deeper and broader relationships between the two nations will only be possible if the US government decides to provide support. 

“Any future relationship [between Mexico and China] will probably be within the US-Mexico-China triangle, which could easily be expanded depending on the way the US-China relationship evolves,” said Luis Rubio, chairman of Mexican think tank Cidac, during an online panel discussion hosted by the American Chamber of Commerce of Mexico on Wednesday.  

“It’s quite obvious that Mexico could be a natural beneficiary of these investments from China, but the Mexican government is doing absolutely nothing to make this possible. So, the missing piece in this puzzle is the US government, which has been absent for four years now,” he said. 

CHINESE PROJECTS IN MEXICO

Mexico is among the Latin American countries with the smallest portfolio of ongoing and completed projects financed with Chinese investment over the last 14 years, according to a report released last year by the Academic Network of Latin America and the Caribbean on China (Red ALC-China). 

However, Chinese consortiums have snatched up major contracts under the AMLO administration recently and have shown interest in other upcoming tenders, putting an end to a period of Chinese investment inactivity after the cancellation of three megaprojects under the administration of former President Enrique Peña Nieto (2012-18).

Two such contracts are the 13bn-peso (US$647mn) construction of the first stretch of the 1,500km Maya train, which state-run China Communications Construction Company (CCCC) won along with other companies in a consortium in April. Another is the 32.3bn-peso project to modernize Mexico City’s metro line No. 1, which was also awarded to CCCC in a joint venture with locomotive manufacturer CRRC Zhuzhou Locomotive in November.

CRRC Zhuzhou Locomotive and China Railway Construction Corporation (CRCC) have also shown interest in a 40bn-peso tender to award the contract to supply the rolling stock for the Maya train. Bids will be presented to tourism board Fonatur on May 7. 

More involvement from the railway Chinese firms could be unveiled later this year and the next, as Mexico has laid out a robust portfolio of railway projects to complete in 2024. 

In energy, China’s state power investment Corporation (SPIC) announced in November that it had completed the purchase of Mexican renewables firm Zuma Energía for an undisclosed sum. A few days later, China Energy Engineering Group (Energía China) signed a contract with Mexican energy company Aora Generacion Durango to build a 154MW wind project in Durango state. 

Both announcements mark China’s first forays into the Mexican renewables market at a complicated time for developers due to controversial decisions taken by the federal government.

A MEXICO-CHINA ALLIANCE?

On Tuesday, Mexican foreign minister Marcelo Ebrard said he would travel to China and Russia to ensure the country’s agreements on purchases of vaccines were being met as originally planned. Back in January the minister also said Mexico would expand its “strategic partnership” with China this year. It is still unclear what Ebrard was referring to, but more details could be revealed during his trips.  

While no specific agenda with China has been presented by the Mexican government, AMLO has announced intentions of expanding commercial relations with Asia, partly through the construction of the 20bn-peso Tehuantepec isthmus interoceanic corridor, which is intended to open new markets and decrease dependaence on trading across the US-Mexico border.

AMLO has also been very clear about him not wanting the US government to intervene in his administration's decisions. 

According to Rubio, Mexican officials got so comfortable with the North American free trade agreement (Nafta) that was ratified in 1994 that they neglected trade relations and business opportunities with other economies, such as China. Nafta was replaced last year by a new trade agreement (USMCA) between Canada, Mexico and the US. 

However, he added, “I don’t foresee Mexico and China getting into a much deeper relationship beyond trade other than relatively minor investments,” he said.

A COMPLICATED RELATIONSHIP

The new administration of US President Joe Biden has not taken a solid stand on Chinese relations with Latin American countries, even though his predecessor Donald Trump initiated something of a trade war with the Asian nation that is still having repercussions and causing tensions between the two nations now. 

Meanwhile, former US President Barack Obama (2009-17) made it very clear that Chinese investments in Mexico were not welcome, Rubio recalled. 

Top US and Chinese officials recently met in Alaska for what seemed to be the first high-level talks to smooth bilateral relations, but the discussions quickly became heated in just the first hours of the meeting, with senior US diplomats “accusing China of threatening world stability and Chinese officials alleging America is a human rights hypocrite due to its mistreatment of Black citizens,” daily Politico reported on March 19. 

While the Biden administration has said it wants to work with China on various issues, the truth is it has not made major changes to the tariff and sanction policies with which Trump launched the trade war.