China companies nearshoring in Mexico to export to us as made in Mexico
By: Mariano Bernardez
In recent years, some Chinese companies have taken advantage of nearshoring opportunities in Mexico to export their products to the United States under the "Made in Mexico" label. By setting up manufacturing facilities in Mexico, these companies can benefit from lower transportation costs, shorter delivery times, and favorable trade agreements like the USMCA (United States-Mexico-Canada Agreement) that make it easier to export goods to the United States.
Some examples of Chinese companies nearshoring in Mexico include:
Hisense: The Chinese electronics company, known for its home appliances and consumer electronics products, has established manufacturing facilities in Mexico to produce televisions and other electronics for the North American market.
Suntech Power: China's leading solar panel manufacturer has set up a production facility in Mexico to manufacture solar modules for the U.S. market. This allows them to bypass tariffs imposed on Chinese solar products and exploit North America's growing demand for clean energy solutions.
Fuling Global: The Chinese plastic and paper products manufacturer has expanded its production facilities to Mexico to produce disposable food service items, such as straws, cups, and cutlery, for export to the U.S. market.
CRRC: China Railway Rolling Stock Corporation, a major manufacturer of railway vehicles, has established a presence in Mexico to produce railcars and other equipment for the North American market.
These examples illustrate the growing trend of Chinese companies nearshoring in Mexico to take advantage of lower costs, reduced delivery times, and favorable trade policies for exporting their products to the United States.
Chinese companies have been investing in Mexico, including the state of Sonora, to exploit nearshoring opportunities and export products to the U.S. as "Made in Mexico." Sonora's proximity to the U.S. border and well-established infrastructure make it an attractive location for manufacturing and export operations.
Some Chinese companies nearshoring in Sonora, Mexico, include:
1. Zhejiang Jinfei Kaida Wheel Co., Ltd: This Chinese automotive wheel manufacturer set up a production facility in Sonora to cater to the North American market. The plant manufactures aluminum alloy wheels for cars, light trucks, and commercial vehicles
2. Holley Technology Ltd: This Chinese company, specializing in producing metering equipment for natural gas and water, established a manufacturing plant in Sonora to cater to the growing demand for metering devices in the North American market.
3. Bacanora Lithium: While not strictly a Chinese company, Bacanora Lithium, a UK-based lithium development company, partnered with China's Ganfeng Lithium to develop the Sonora Lithium Project. This project aims to extract lithium from the clay deposits in Sonora for use in electric vehicle batteries and other high-tech applications.
These companies demonstrate that Chinese investment in Sonora, Mexico, continues to grow as they seek to benefit from nearshoring advantages such as reduced transportation costs, shorter delivery times, and favorable trade agreements like the USMCA.
"Others agree. "Nearshoring will generate approximately $30 billion in Mexico by the end of 2022," according to a statement by Sergio Arguelles, the president of Asociación Mexicana de Parques Industriales Privados (AMPIP), the Mexican Association of private industrial parks.
Perhaps the strongest meter for the potential of such nearshoring growth is the rate of foreign direct investment (FDI), which is up. FDI in Mexico amounted to $32.1 billion between January and September of 2022, a yearly jump of almost 30% and the highest FDI volume recorded for a comparable period since 1999," according to Nearshore Americas.
Drilling down further, analysts at Deloitte see new tooling as a critical investment target. "As of August 2022, investment in machinery and equipment in Mexico was already 17.4% above levels seen in January 2020, just before the pandemic hit, and 8.3% higher than in the fourth quarter of 2018 when investments reached their peak," the analysts observe.
General Economic Expansion
The rapidly recovering economy is one supporting reason for high expectations in the Mexico nearshoring trend. During the third quarter of 2022, the Mexican economy grew 4.1% compared to the year-earlier period, ahead of the November predictions of Mexico watchers, says the Federal Reserve Bank of Dallas Research Department. The growth boosted gross domestic product to over 18 billion pesos (over $900 billion), at the same level as before the Covid pandemic.
In December, the United Nations Economic Commission for Latin America and the Caribbean (Eclac) presented a less optimistic prediction for Mexico's growth, positing GDP expansion of only 2.9% for 2022 and 1.1% for 2023. Eclac's regional office in Mexico serves ten countries: Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, and Panama.
According to Deloitte, driving this GDP growth in Mexico is increased manufacturing, within which there was a 17.2% rise for the exports of manufactured goods during Q3 2022. For the full-year 2022, the analysts predict a 2.6% rise in overall GDP, up from a 2.1% increase anticipated previously.
Auto Production on the Rise
Mexico's automotive industry is leading manufacturing growth in Mexico. The country's auto parts market generates sales of $73 billion per year, making Mexico the world's fifth-largest auto parts producer. An estimated 2,500 companies in Mexico are involved in producing auto parts.
Auto production in Mexico was up over 30% as of August 2022, partly thanks to the nearshoring trend (See C.W. 9/21/22: Mexico Powder Coatings Demand Revives). One significant automotive move to Mexico recently was announced by Stellantis, which will transfer operations from its Belvidere, Illinois plant and Jeep Cherokee production to its Toluca plant in Mexico.
Tesla, too, could site its following E.V. factory in Mexico. Recent news reports suggest that Tesla's sixth Gigafactory might be sited in Nuevo León state, involving an investment estimated from $800 million to $1 billion.
Among the many international producers of automotive coatings in Mexico, PPG plans to open an expanded powder coatings plant in San Juan del Rio, Mexico, by the middle of 2023, doubling production there.
Other Sectors Demonstrate Growth
However, the automotive industry is not the only rapidly expanding sector in Mexico. "Although the main manufacturing product in Mexico is motor vehicles and parts (it is still 3% below pre-pandemic levels), the manufacturing sectors that are driving growth this time around include electrical equipment (22% above January 2020), computer and electronic products (+13.2%), and plastics (+15.6%), Deloitte says.
"This boom has resulted in manufacturing activities as a percentage of GDP to reach 16.5% from 15.9% in 2019," Deloitte adds.
Semiconductors, too, may become a near-shoring star in Mexico, primarily since chips represent close to 40% of the cost of a new car. The U.S. CHIPS Act, which has nominal funding of $52 billion, could open up "substantial prospects" for Mexico in the energy- and water-intensive semiconductor sector, according to press statements by U.S. Commerce Secretary Gina Raimondo.
Mexico's Economy Minister Raquel Buenrostro recently stated that an as-yet planned economic region in the country's south could become the geographic center for new semiconductor growth. At the same time, several states, like Sonora, have multi-billion dollar plans to develop energy generation, E.V. production, and other high-tech production centers
In November, a Memo of Understanding was signed between Arizona State University and Esteban Moctezuma Barragán, the Mexican ambassador to the United States, for the training and other support of semiconductor workers in Mexico. "Remember that almost 40% of U.S. semiconductor plants are in border sites," he said at the signing, noting that Intel and Texas Instruments already maintain facilities in Mexico.
Some of the support for creating a U.S-Mexico border chip center is coming from Intel and the Taiwan Semiconductor Manufacturing Company (TSMC), according to BNAmericas. Warehouse Space Expanding
The factors that drive near-shoring are universal for all industries. "U.S. and global manufacturers are investing in Mexico-based facilities to reduce shipping times, labor costs, and supply chain obstacles," said Veronica Contreras, the Vice President of Sales and Marketing at Co-Production International (CPI), which provides shelter services for foreign companies expanding in Mexico. "At close to one million square feet of new facilities, recent investments are evidence of a dramatic commitment." Arguelles suggests that most companies seeking out new warehouse and production space in Mexico are in the auto parts, manufacturing, metal mechanics, furniture, and textile industry segments.
"Construction of industrial plants and warehouses grew 12.9% between January to August 2022 compared to the same period in 2021. However, it is still 35% below the Q4 2018 levels," reports Deloitte. "This implies that industrial plants and warehouses that are already installed in Mexico continue to invest further, but the expansion of plants or the installation of new ones is more limited," they say.