Wen Jiabao Discusses Trade Issues with Mexico
Following on his visit to the US and Canada, Chinese
premier Wen Jiabao has traveled to Mexico to discuss trade
friction issues with the Mexico government headed by President
Vicente Fox. The Mexican economy has been hit particularly
hard by the rise of the Chinese economy, losing many factories
and jobs to China.
With the passage of the NAFTA (North American Free Trade
Association) agreement with the US and Canada in 1993,
Mexico expected to benefit from the lifting of duties
with its North American neighbors. Instead, many US companies
and factories, located on the US border with Mexico, have
moved their operations to China, even though it is much
further away from their main US market. Lured by tax breaks,
worker training, a cheaper workforce, sophisticated supply
chain management, and a growing domestic economy, most
of the former maquiladora factories simply have shut down
their operations in Mexico and headed to China. Chinese
provincial governments often compete with each other to
win factory investments, offering cheap financing and
other incentives to investors on terms Mexico cannot compete
with. Now, China has replaced Mexico as the number two
supplier to the US.
The hollowing out is so serious that even some traditional
hand-painted Mexican handicrafts are found with Made in
China labels. In an attempt to stop these imports, the
Mexican government has imposed duties, but they continue
to be smuggled in.
This has led to strong anti-China feeling in Mexico.
Although the two nations share similar points of view
on foreign policy and developing country issues, the loss
of jobs has led to a divergence among two countries which
are traditional allies. Simply put, China has been much
more successful in transitioning to a first-world globally-interlinked
economy than Mexico, which continues to have a third world
economy. President Vicente Fox has attempted to resist
the anti-China feeling, saying that China represents an
opportunity, not a threat. This promise, however, rings
hollow with most Mexicans.
Compared to Mexico, China currently has several advantages.
It has a strong eager-to-learn workforce which is comfortable
with modern technology, and the society is now flush in
cash so that consumers can constantly upgrade their skills
at their own expense. Most importantly, after 25 years
of reforms, the Chinese consumer class has begun to flex
its might, driving domestic demand for homes, automobiles
and other products. In 2003, consumer demand has replaced
large-scale government investments as a driver of the
Chinese economy.
On the negative side, China has a financial sector which
the government has acted too slowly to reform and make
transparent, and is saddled with more than US$500 billion
of largely unrecoverable debt. The end result is that
capital flows depend more on connections and informal
channels than the banking sector and capital markets.
During his visit, it is likely that Wen Jiabao will initiate
several joint Chinese-Mexican investment projects so that
Mexicans can learn from the Chinese development experience,
so that the the Mexicans can adapt that experience to
the development of Mexico.
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