Why China's Mexico business is not investment-focused

Chinese participation in Mexican infrastructure projects is growing, even though Beijing isn't seeking immediate profit and faces limits when US security interests are concerned.

In this interview, José Ignacio Martínez, a coordinator at economic and trade think tank Lacen, dissects China's involvement in Mexico's economy.

BNamericas: How and where is China investing in Mexico?

Martínez: We have to divide foreign direct investment into traditional investment and new investment.

Traditional investment includes both Chinese investment and US investment, particularly in the manufacturing and automotive industries, which are mainly in the north, as well as the telecoms, electronics, pharma-chemical and textile industries.

In this traditional investment, five countries spend the most. The US is leading, then Spain, Germany, the UK, and the Netherlands, while, of course, China is also important.

New investment is mainly generated by China in basic infrastructure and regionally. In basic infrastructure, we have Chinese investment in a passenger transport network in the center and throughout the country. Chinese investments are being made in bus lines mainly in Querétaro, Guanajuato, Chihuahua, Nuevo León and Chiapas. Crucially, it is not 100% Chinese investment, but it capitalizes Mexican investors.

So-called cooperation investment is directed mainly at Mexico City. It is green investment divided into two parts. One is the donation of electric buses by China, selling to the city a network for clean technology buses and new technology for moving people. The other is investment related to the modernization of metro line No. 1 and we have investments in the south of the country in clean industries, the wind industry and technological cooperation, like for the Dos Bocas refinery and two rail lines.

BNamericas: By donations you are referring to transport units foreign countries give away for testing reasons?

Martínez: That's right. This is what happens with the trolleybuses in Mexico City. For example, a particular line of Chinese trolleybuses runs from east to west. They are part of a cooperation with a view to acquiring more buses with these same characteristics.

BNamericas: Could you highlight China's participation in Mexico in terms of mobility infrastructure or urban mass transit infrastructure?

Martínez: That is why this is new investment. The US or other countries do not make this type of investment, they do not see an investment like the one China is making in the medium term as yielding results for US or European companies as they do not generate immediate profit. That’s what I mean by China making this investment in terms of cooperation with a view toward expansion later.

BNamericas: How is the outlook for Chinese investment in Mexico after January’s North American Leaders Summit? Is pressure by the US and Canada growing to limit Beijing’s influence?

Martínez: One agreement as part of the high-level economic dialog between Mexico and the US relates to cybersecurity. It’s obvious that Chinese companies that invest in the border area face limitations designed to safeguard US cybersecurity. China has not made this new investment there, which is why traditional and new investment must be differentiated.

For example, traditional Chinese investment was broad, mainly in San Luis Potosí, where nine new Chinese companies set up shop in the automotive sector. New investment [from China] in 5G will be very difficult to generate in the north, especially because of the Clean Network program Donald Trump implemented and Joe Biden is continuing.

BNamericas: So, Chinese investments, specifically when they involve 5G, are restricted in the border area?

Martínez: That's right, mainly in the north to protect the cybersecurity of the US.

BNamericas: In September, northern Nuevo León state awarded a consortium led by Chinese state-owned locomotive manufacturer CRRC a 25.8bn-peso (US$1.39bn) contract to build Monterrey’s metro lines No. 4, No. 5 and No. 6. Was this possible because the contract concerns transport?

Martínez: That's right, and this investment is totally different from cybersecurity; it’s mobility or electromobility. It is not contemplated in the agreements emanating from the summit.

Also Read The infrastructure footprint of the superpowers in Mexico

BNamericas: CRRC and CCCC were awarded a 32.3bn-peso contract for the modernization of Mexico City’s metro line No. 1, while CCCC also leads the consortium that won section one of the 13bn-peso Maya train. Could another Chinese state company participate in another megaproject, the Tehuantepec isthmus corridor?

Martínez: This would be non-direct Chinese investment, or in alliance. For example, now that the 10 tenders for the industrial parks to be installed along the Tehuantepec isthmus corridor are launched, Chinese companies could be involved in alliance with Mexican companies.

For US companies, this would not be business, but China's business is not investment-focused; it’s cooperation and penetration in these areas to gain greater presence. In this sense, this new Chinese investment is in three segments: investment in alliance, investment through the sale of components and investment through cooperation or advice in terms of technological development through coverage, new connectivity in this zone.