Chinese Relocation in Mexico: Between Uncertainty and Opportunities

The insecurity stemming from tariffs implemented by Donald Trump has complicated the potential for Chinese companies to relocate to Mexico. Currently, the option to move part of their production meant for export to the United States is in limbo. In a conversation with Expansión, César Fragozo, vice president of the Mexico-China Chamber of Commerce and Technology (China Chamber Mexico), explained that during the last quarter of 2024, Chinese companies interested in nearshoring have chosen to adopt a reserved stance.

Mexico, at the Crossroads between Two Powers

“They’re telling us: 'I’m going to wait, I want to see what happens with the tariffs'”, Fragozo stated. The key lies in the agreements that President Claudia Sheinbaum manages to negotiate with Trump, and the crucial date is April 2, when Mexico is expected to clarify the situation regarding those 25% tariffs. If they can agree on favorable conditions, Chinese companies looking to export to the U.S. could reactivate their investment plans in the country for the second half of the year. Fragozo emphasized that the last five years have been pivotal for Mexico in terms of Chinese investment, as this period accounts for 80% of the total, largely driven by the phenomenon of nearshoring. According to data from the Ministry of Economy, 2024 set a record for Chinese investment in Mexico, reaching 710 million dollars. However, the official figures are debated, as other sources suggest that the investment could be up to ten times higher.

Not Everything is on Hold Fragozo clarified that not everything is frozen. There’s a group of companies navigating a different reality, those focused on satisfying the Mexican market, rather than manufacturing for export to the U.S. A notable example is the automotive industry: Mexico ranks as the second-largest export destination for Chinese vehicles, only behind Russia. The domestic market is growing and has an increasing audience. Additionally, Mexican consumers are showing an increasingly notable acceptance of vehicles from China. Unlike European brands that established factories in the country to export to North America, Chinese companies are primarily arriving to meet local demand. A Deloitte study indicates that imports of Chinese vehicles in Mexico have increased more than 200 times over the past 20 years. According to the Bank of Mexico, imports from China reached a historic peak in 2024, totaling 129.795 billion dollars, representing a 13.6% increase compared to the previous year. As the twelfth largest economy in the world, Mexico is becoming an attractive market for Chinese companies. "Twenty or thirty years ago, it may not have been large enough to justify a commercial base, but today it is. The growth of the Mexican economy has opened new opportunities for Chinese companies that go beyond manufacturing for export,” Fragozo highlighted. This phenomenon is not limited to the automotive sector. Various Chinese companies are finding their space in the Mexican market. A clear example is the entry of a company that manufactures fans for mining and petrochemicals and plans to establish a warehouse and possibly assemble products in the country. These investments will continue, as China, with its vast and diversified economy, is active in sectors such as mining, automotive, and electronics. Regarding the Chinese companies already operating in Mexico, Fragozo noted that they have no intention of leaving easily. Despite concerns about tariffs and debates regarding sectors like steel, relocating a plant to another country involves considerable costs, especially in terms of acquired expertise and technical knowledge. Fragozo emphasized that the competition between the United States and China is not a new issue. "The Asian giant has adequately prepared and has worked on becoming the second-largest economy in the world, aiming to be number one," he explained. Meanwhile, the U.S. has faced the struggle of maintaining its supremacy. From the Chinese perspective, American dominance over the past 100 years is an exceptional fact. Before that, China was the world's largest economy, and now they believe it is natural for them to regain that position, given their large population and resources. Not being the dominant power today is an abnormality for Beijing. As a relevant fact, the symbol that represents China in Mandarin translates to "the center of the world," reflecting how they view their position in the global order and how they feel they are reclaiming a place they consider lost. "What we're witnessing is a global reordering that has been in the making for more than 10 to 15 years. The pandemic only accelerated a trend that was already underway." In this context, he mentioned that Mexico faces the challenge of balancing its relationship with the U.S. and China, making the most of both sides. The country will have to make strategic decisions about which sectors to open to each of these trading partners.

The current economic situation in Mexico, amid the dilemma of relocation and tariffs, is a clear indication that the country must be strategic in its commercial decisions. With increasing Chinese investment and an expanding domestic market, it is crucial for Mexico to proactively position itself to maximize opportunities and minimize risks. In finance, as in life, one must always be cautious and attentive to the opportunities that arise amidst uncertainty.