China: a Threat or an Opportunity to Mexico? Renato Balderrama Institute of Asia Pacific ITESM,...

China: a Threat or China: a Threat or an Opportunity to an Opportunity to

Mexico?Mexico?Renato BalderramaRenato BalderramaInstitute of Asia PacificInstitute of Asia Pacific

ITESM, MexicoITESM, [email protected]@itesm.mx

Where is Mexico Where is Mexico Now?Now?

!Mexico !Mexico vsvs China¡ China¡

-

200

400

600

800

1,000

1,200

1,400

1,600

Mile

s d

e m

illo

nes

de

dó

lare

s

China Mexico Corea Indonesia Tailandia Malasia

El tamaño de las economías

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

The size of the economies

1288

214

103 6248 25

0

200

400

600

800

1000

1200

1400

China Indonesia Mexico Tailandia Corea Malasia

Población


Population

881,5486,7

470,4

444,4

417,1

401,8

294,4

288,8

219,8

209,8

194,5

193,7

182,4

179,1

100,0 200,0 300,0 400,0 500,0 600,0 700,0 800,0 900,0

Indice de crecimiento economico 1980 = 100

China

Korea

Singapore

Vietnam

Malaysia

Thailand

Indonesia

Chile

Australia

United States

Canada

New Zealand

Japan

Mexico

Crecimiento económico 1980 a 2004


Economic Growth 1980 to 2004

Economic Growth Index 1980=100

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

3336

43

5356

30

35

40

45

50

55

60

2000 2001 2002 2003 2004

Ranking

Mexican Competitiveness

Higher Labor Costs

Source: with OIT data, www.laborsta.ilo.org/cgi-bin/

Sueldos mensuales 1995-2001

121.4

105.094.2

84.176.3

69.161.3

379.49

323.20

174.62193.97

229.84 216.60

264.12

0

50

100

150

200

250

300

350

400

1995 1996 1997 1998 1999 2000 2001

Dó

lare

s

México China

Monthly Salary 1995-2001

MexicoChina


Coeficiente de inversion como % del PI B

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

China

Sudeste Asiatico

Corea

Mexico

Singapur

Coefficient of Gross Fixed Capital Formation, % GDP

China

Mexico

Inversión Extranjera Directa

-4

-2

0

2

4

6

8

10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

% d

el P

IB

China

Indonesia

Korea, Rep.

Malaysia

Mexico

Thailand

Fuente: World Bank, 2004. www.worldbank.org/data

Foreign Direct Investment

ChinaChina

MexicoMexico

8

9

10

11

12

13

14

15

16

1995

1996

1997

1998

1999

2000

2001

2002

2003

30

35

40

45

50

55

1995

1996

1997

1998

1999

2000

2001

2002

2003

China is number one attracting FDI, competing directly with Mexico…

IED directed a China(Thousands millions of USD)

IED directed to Mexico*(Thousands millions of USD)

* Excluding Banamex-Citigroup operation in 2001

9.4

Source: INEGI, Ministerio de Comercio de China

52.7

37.5

9.5


Científicos e ingenieros dedicados a la investigación y desarrollo

0

500

1000

1500

2000

2500

1995 2002

Po

r ca

da

mil

lón

de

pe

rso

na

s

México Corea China

The Economy of The Economy of KnowledgeKnowledge

Scientists and Engineers dedicated to R&D

Per

each

million

pers

on

sP

er

each

million

pers

on

s

0

0.5

1

1.5

2

2.5

3

3.5

% d

e g

asto

s e

n I

&D

resp

ecto

al

PIB

J apon Corea China Mexico Malasia

El reto de la I &D

The Economy of Knowledge The Economy of Knowledge


The Challenge of D&R

% o

f in

vestm

en

t in

R&

D o

f th

e G

DP

% o

f in

vestm

en

t in

R&

D o

f th

e G

DP

Exportaciones con alto contenido tecnológico

20.4

34.2

29.1

18.416.7

15

12.712.1

10.1

8.1

31.3

26.226

23.725.6

22.421.722

20.318.8

17.115.3

14.513.4

0

5

10

15

20

25

30

35

40

1994 1995 1996 1997 1998 1999 2000 2001

% d

el P

IB

China Corea Mexico


The Economy of The Economy of KnowledgeKnowledge

Exports with High Tech content

% o

f G

DP

% o

f G

DP

Research and Development as a Share of GDP

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Perc

en

t o

f G

DP

Old Data Definition

New, More Comprehensive,

Definition

Source: Barry NaugthonSource: Barry Naugthon

China

How many companies in Mexico do research How many companies in Mexico do research

and developmentand development??

Source: INEGI, National Survey of Employment, Salaries, Technology and training in Manufacture Sector, 2002.

6%

94%SíNo

Why Chinese Why Chinese Competitiveness is a Competitiveness is a

Huge Threat to Huge Threat to Mexico?Mexico?

MEXICAN EXPORT GEOGRAPHYMEXICAN EXPORT GEOGRAPHY

Mexico has 12 Free Trade Agreements signed between 1992 Mexico has 12 Free Trade Agreements signed between 1992 and 2005 with 43 countries. and 2005 with 43 countries. NAFTA is the most important one.NAFTA is the most important one.

One of eight formal employees is directly link with the export One of eight formal employees is directly link with the export sector. sector.

From the 803,902 enterprises registered in Mexico, just 35,111 From the 803,902 enterprises registered in Mexico, just 35,111 export (4.4%). In 2004, their sells were $188,500 mdd (37% of export (4.4%). In 2004, their sells were $188,500 mdd (37% of GDP). GDP).

Year Total Exp (musd)

Oil Exports

% Value (musd)Non oil Exports

% Value (musd)

1980 $ 18,000 58% $ 10,441 42% $ 7,559

2005 $ 200,000 10% $ 20,000 90% $180,000

Micro Small & Medium Biggs

Caract. Annual Exports inferior to $200,000 usd

Annual Exports between $200,000dls and $20 m. of usd

Annual Exports more than $20 m. of usd

Represents 80% of the total export enterprises

12% of the total export enterprises

8% of the total export enterprises

Contribute 0.5% of total exports

12% of total exports

87.5% of total exports

Sectors 90% manufacture 76.8% manufacture 89.2% manufactu

THE SIZE OF THE THE SIZE OF THE ENTERPRISES THAT EXPORTENTERPRISES THAT EXPORT

ENTERPRISES LOCALIZED PER ENTERPRISES LOCALIZED PER FEDERATION ENTITITY FEDERATION ENTITITY (From (From 31states)31states)

Highly ConcentratedHighly Concentrated: (US Border): (US Border)

44 entities represent entities represent 60%60% of national of national exports: Chihuahua, Baja California y exports: Chihuahua, Baja California y Tamaulipas (border) and Mexico City. Tamaulipas (border) and Mexico City.

77 entities represent entities represent 34%34% of national of national exports: Nuevo León, Coahuila, Sonora exports: Nuevo León, Coahuila, Sonora (Border) Jalisco, Edo. de México, (Border) Jalisco, Edo. de México, Puebla, SLP y Querétaro. Puebla, SLP y Querétaro.

2020 entities represent entities represent 6%6% the rest of the rest of national exportsnational exports

ORIENTATION OF EXPORTS PER SIZESORIENTATION OF EXPORTS PER SIZES

Size Dependence of Exports to USA

Diversification

Micro Represent 65%65% of their sells

Of their 30 main destinies, 19 are L.A. countries = to 23.8% exports value.

Small & Medium

Represent 75%75% of their sells

Of their 30 main destinies, 16 are L.A. countries = to 11.7% exports value

Biggs Represent 90.9%90.9% of their sells

Of their 30 main destinies, 14 are L.A. countries = to 5.8% exports value.

Participation in the US market (% accordance with total imports)

0%

5%

10%

15%

20%

25%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Canada

Mexico

Japan China

17.8%

9.4%

Source: Secretaría de Economía, U. S. Census Bureau

10.9%

12.0%

In the USA market, the Chinese participation surpass Japan and Mexico, and was already threaten Canada…

Profit/Lose of participation in US Market (% with respect to 1993 )

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Source: Secretaría de Economía

…and its penetration speed generates a growing competition for the Mexican products in US market.

Pro

fit

Los

e

Canadá

México

Japón

China

Categorization of Manufacture Branches according with the type oCategorization of Manufacture Branches according with the type of Trade f Trade competition between Mexico and Chinacompetition between Mexico and China

Textiles and cotton fabrics

Electric Appliances

Stereos and Audio equipmentElectric Generators and accessories

Process products of iron and steel

Furniture and home devicesKitchen tools and devices

TVs and VCRsMotors y its parts

Computer appliancesSport ShoesTelecommunications equipment

Complete and assembly trucks

Computer boards and Typewriting machines

Writing and drawing devices

ComputersNew and second hand Autobuses

Sintetics and cottonCloth and Textiles

General Equipment Instruments of Mesurament and Control

Automobile Accessories and its parts

Toys and entertainment products

Home AppliancesIndustrial Machinery

Automobile

(4)(3)(2)(1)

Branches of Chinese Dominium (due in part for the EZZs and FDI)

Mexican competitiveness in Branches of Chinese dominium (China is growing)

Chinese competitiveness in Branches of Mexican dominium (red warning)

Branches of Mexican Dominium (no threat short and medium run)

Fuente: aregional.com

In 2003In 2003

There is 81 countries that goes faster There is 81 countries that goes faster than México entering the US market. than México entering the US market. MéxicoMéxico is the country that has lost more is the country that has lost more presence in the US market among its main presence in the US market among its main suppliers. suppliers.

ChinaChina in just 12 months (2004-05) won 1.64 in just 12 months (2004-05) won 1.64 percentage points of participation in US percentage points of participation in US market. The strongest participation has been market. The strongest participation has been in the Automotive and Auto parts industry. in the Automotive and Auto parts industry.

Of the Of the top 10 Mexican companiestop 10 Mexican companies, half , half belongs to the belongs to the Automotive industryAutomotive industry: GM, : GM, Daimler Chrysler, Delphi Automotive, Nissan Daimler Chrysler, Delphi Automotive, Nissan & VW. Together in Mexico concentrate & VW. Together in Mexico concentrate earnings of $38,145 musd, almost ¼ of the top earnings of $38,145 musd, almost ¼ of the top 100 Mexican companies. This 5 automotive 100 Mexican companies. This 5 automotive reported together global earnings of $622,931 reported together global earnings of $622,931 mdd, a number similar to Mexican GDP.mdd, a number similar to Mexican GDP.

Exports to USA in 2005 (millions usd)

ChinaChina CanadaCanada MexicoMexico

January 17,864 21,726 12,106

May 19.050 23,056 14,406

July

(% of change w/ July of 2004)

21,28321,283

21.2%

20,60720,607

3.4%

12,742

4.2%

Source: US Trade Department

… … AND THIS THREAT IS AND THIS THREAT IS GOING TO GOING TO

INCREASE…!!!INCREASE…!!!

40

24

8

5

15

Triangular Trade Flows 2003

Bilateral Deficits

China with:

Taiwan $40 B.

Korea $24 B.

Japan $15 B.

Malaysia $8 B.

Thailand $5 B.

US with China:

$120 B.

(US Dept. of Commerce)

$120 B$120 B.

(Deficits are shown according to statistics of the importing country.)

Source: Barry Naughton

How is Mexico How is Mexico confronting the confronting the

Chinese Chinese “Phenomenon”?“Phenomenon”?

Is there a Mexican Is there a Mexican “FOX” Strategy?“FOX” Strategy?

LEGAL FRAMEWORK OF MEXICO-CHINA RELATIONLEGAL FRAMEWORK OF MEXICO-CHINA RELATION Before and during Fox Administration (1973-2005)

AgreementsAgreements SignedSigned In to ForceIn to Force

Before Fox, from 1973 to 2000 (27 years) were some agreements in: tourism, trade, scientific and technological and agriculture cooperation. 1973 (1), 1978 (1), 1986 (1), 1993 (3), 1997 (1) and 2000 (1)

Total 8 Total 8

Air transportation 17/08/2004 Pending

Sea traffic and transportation 24/01/2005 Pending

Mexico as a Chinese tourism destination 24/01/2005 Pending

Sanitary Measures 24/01/2005 24/01/2005

Credit Lines for bilateral enterprises 24/01/2005 24/01/2005

Mexican avocado export to China 24/01/2005 24/01/2005

Chinese apple export to Mexico 24/01/2005 24/01/2005Source: Ministry of Foreign Affairs Legal Advisory

VISITS AND MEETINGS DURING FOX ADMINISTRATION VISITS AND MEETINGS DURING FOX ADMINISTRATION DATE (8)DATE (8) PARTICIPANTSPARTICIPANTS AGREEMENTS AGREEMENTS

Jun/2001 (In China) Fox & Hu Jintao 1st Official visit to China.

Oct/2001 (In China) Fox & Hu Jintao IX APEC Summit at Shanghai, China

Jun/2003 (In France) Fox & Hu Jintao G-8 Summit at Evian, France.

Oct/2003 (Thailand) Fox & Hu Jintao XI APEC Summit at Bangkok, Thailand.

12/dec/03 (In Mexico) Fox and PM Wen Jiabao

After 32 year of diplomatic relations, accordance to establish the 1st Binational Permanent Commission (a dialog at the highest level)

16 -17Aug/2004

(In China) Derbez and PM. Wen Jiabao

1st Binational Commission meeting Several areas: trade, tourism, science, traffic, etc.

Jan/2005 (In Mexico) Fox andV.P. Zeng Qinghong

Following up the agreements signed 2004 and discuss the Hu Jintao’s visit and

12-15Sept/05

(In Mexico) Fox & Hu Jintao

Hu Jintao’s visit to North America. 1st Visit to Mexico (and Canada) New consular office in Guangzhou Hu Jintao proposed to Mexico the

establishment of a “Strategic Strategic PartnershipPartnership””

Total Trade Mexico-China (millions of usd$)Total Trade Mexico-China (millions of usd$)

Year Total Trade % Export Import Balance

1993 431.2 -4.3 44.8 386,4 -341,7

1997 1,293.3 62.1 45.9 1,247.4 -1,201.5

2000 3,083.2 50.6 203.6 2,879.6 -2,676.0

2001 4,309.0 39.8 281.8 4,027.2 -3,745.5

2002 6,730.3 56.1 455.9 6,274.3 -5,818.4

2003 9,863.9 46.4 463.0 9,400.8 -8,937.8

2004 14,867.0 66.3 467.0 14,400.0 -13,933.0

2005 15,500.0* 34.7 500.0 15,000.0 -15,000.0

Source: SE and BM (* estimated)

20032003

CountryTrade (MD)

%

USA252,640.

4275.1

%

ChinaChina 9,547.28 2.8%

Japan 8,306.67 2.5%

Germany 8,076.27 2.4%

Canada 7,124.75 2.1%

Korea 4,119.32 1.2%

Spain 3,770.42 1.1%

Brazil 3,675.17 1.1%

TaiwanTaiwan 2,797.46 0.8%

Italy 2,764.21 0.8%

SubtotalSubtotal 302,821.302,821.9797

90.090.0%%

TotalTotal 336,302.336,302.5050

100100%%

Source: SRESource: SRE

19971997

CountryTrade (MD)

%

USA 176,187 80%

Japan 5,490.0 2.5%

Germany 4,621.1 2.1%

Canada 4,124.2 1.9%

Spain 1,916.7 0.9%

Korea 1,899.4 0.9%

FranceFrance 1,612.3 0.7%

Italy 1,599.4 0.7%

UKUK 1,579.4 0.7%

Brazil 1,572.3 0.7%


91%91%

TotalTotal 220,045.220,045.00

100100%%

Mexican most important Mexican most important Trade PartnersTrade Partners (Total trade) (Total trade)Comparison 1997 and 2003Comparison 1997 and 2003

19971997

CountryExport (MD)

%

USA 94,184.

885%

Canada 2,156.1 2.0%

Japan 1,156.3 1.0%

Spain 939.0 0.9%

Chile Chile 842.3 0.8%

Germany 718.7 0.7%

Brazil Brazil 703.0 0.6%

VenezuelVenezuelaa

675.0 0.6%

UK 664.2 0.6%

ColombiaColombia 513.3 0.5%

20032003

CountryExport (MD)

%

US146,758.

4688.8

%

Canada 2,898.46 1.8%

Germany 1,800.53 1.1%

Spain 1,511.03 0.9%

SwitzerlaSwitzerlandnd

699.29 0.4%

Aruba Aruba 685.58 0.4%

HollandHolland 603.82 0.4%

Dutch A.Dutch A. 567.93 0.3%

UK 556.82 0.3%

Japan 544.56 0.3%SubtotalSubtotal 102,552102,552.7.7

93%93%

TotalTotal 110,236110,236.8.8

100100%%


94.794.7%%

TotalTotal 165,342.165,342.5050

100100%%

Mexican most important Mexican most important Export MarketsExport MarketsComparison 1997 and 2003Comparison 1997 and 2003

Mexican most importan Mexican most importan Import MarketsImport MarketsComparison 1997 and 2003Comparison 1997 and 2003

19971997

CountryImport (MD)

%

USA 82,002.2 75%

Japan 4,333.63.9%

Germany 3,902.33.6%

Canada 1,968.01.8%

Korea 1,831.01.7%

Italy 1,326.01.2%

China 1,247.41.1%

FranceFrance 1,182.41.1%

Taiwan 1,136.51.0%

SpainSpain 977.70.9%

SubtotalSubtotal 99,907.199,907.1 91%91%

TotalTotal 109,808.109,808.22

100100

20032003

CountryImport (MD)

%

USA105,881.

9661.9%

China 9,070.40 5.3%

Japan 7,762.11 4.5%

Germany 6,275.74 3.7%

Canada 4,226.29 2.5%

Korea 4,028.11 2.4%

BrazilBrazil 3,250.06 1.9%

Taiwan 2,692.10 1.6%

Malaysia 2,644.09 1.5%

Italy 2,506.68 1.5%


86.8%86.8%

TotalTotal 170,960170,960 100%100%Source: SRE

Participation in EU market (% with respect to total imports)

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

0.45%

0.50%

0.55%

0.60%

0.65%

0.70%

0.75%

0.80%

Mexico (Right scale)

Source: Eurostat

In Europe happened the same phenomenon: Chinese participation is high and its speed of penetration surpass Mexico’s

China (Left scale)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

China

México

Accumulate increment in the UE market participation

(respect to 1993, percentage points )

FINAL CONSIDERATIONSFINAL CONSIDERATIONSChina as a potential China as a potential

Opportunity?!!!!Opportunity?!!!!

Chinese investment in Mexico (thousands of usd$)Chinese investment in Mexico (thousands of usd$)

Year Annual Accumulated

1994 1,476.3 1.476.3

1996 10,068.8 16,960.9

1998 11,388.8 33,263.3

2000 10,770.6 49,018.1

2001 2,257.3 51,275.4

2002 2,451.5 53,726.9

2003 5,655.3 59,382.2

2004* 3,833.0 63,215.2* Until MarchSource: SE

TWO MEXICAN VISIONSTWO MEXICAN VISIONS1.1. The only solutionThe only solution for the Mexican Economic for the Mexican Economic

Problems is to be more close to the North Problems is to be more close to the North American Economy. J. Serra Puche: “We have to American Economy. J. Serra Puche: “We have to increase our approach to USA”.increase our approach to USA”.

2.2. There are other solutions:There are other solutions:a)a) To take advantage of other Agreements in To take advantage of other Agreements in

order to diversify the Mexican Exports and order to diversify the Mexican Exports and bring more FDI. For example: UE, Mercosur, bring more FDI. For example: UE, Mercosur, etc.etc.

b)b) Approach to Asia-Pacific: w/Approach to Asia-Pacific: w/Japan:Japan: there’s already there’s already a Free Trade Agreement.a Free Trade Agreement.

ToTo China, offering:China, offering: The Mexican Geographical positionThe Mexican Geographical position The NAFTA benefits: Tariffs and other benefits The NAFTA benefits: Tariffs and other benefits BAASC: Anti-Smuggling and Contraband CertifyBAASC: Anti-Smuggling and Contraband Certify Mexican FTA’s with 43 countries (UE, Central Mexican FTA’s with 43 countries (UE, Central

America, South America, Japan, etc). America, South America, Japan, etc). More than 20 years in manufacturing experience.More than 20 years in manufacturing experience.

THANKS!!!!!!THANKS!!!!!!

Dra. Lourdes Dieck at MEXICAN Dra. Lourdes Dieck at MEXICAN SECRETARY OF FOREIGN AFFAIRS SECRETARY OF FOREIGN AFFAIRS (SRE & SE). (SRE & SE).

Dr. Victor Lopez Villafañe at the Dr. Victor Lopez Villafañe at the CENTER FOR NORTH AMERICAN CENTER FOR NORTH AMERICAN STUDIES, ITESM.STUDIES, ITESM.

Dr. Clemente Duran at the CENTER FOR Dr. Clemente Duran at the CENTER FOR COMPETITIVENESS, UNAM.COMPETITIVENESS, UNAM.

Dr. Barry Naugthon, at the ASIA Dr. Barry Naugthon, at the ASIA PACIFIC CENTER, UCSD.PACIFIC CENTER, UCSD.

China: a Threat or an Opportunity to Mexico? Renato Balderrama Institute of Asia Pacific ITESM,...

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