Mexico Surpasses China in Remittance Inflows
Since 2021, Mexico has taken the lead over China as the second-largest recipient of remittances in the world. While these money transfers provide significant support for many Mexican families, they also highlight an economy that is not growing as quickly as needed, leaving many without jobs and with insufficient income to meet their basic needs. According to the Migration and Remittances Yearbook produced by BBVA in collaboration with the National Population Council (Conapo), Mexico is the second-largest recipient, only behind India. In 2023, the country received a total of $63.3 billion in remittances, which accounts for 7.8% of the global total of $821 billion. To put this into context, in 2020, Mexico received 6.1% of a total of $717 billion. Meanwhile, China has seen its share decline from 8.9% in 2020 to 5.8% last year, according to the same Yearbook data.
What has caused the decline in remittance flows to China? Industrial policies in China have shifted, leading to a decreased reliance on remittances. Since 2021, a year after the pandemic broke out, Mexico has recorded annual record figures, reaching $41.7 billion in 2021 and projecting $65.9 billion for this year. Gabriel Pérez del Peral, an academic at the School of Government and Economics at Universidad Panamericana (UP), notes that the increase in the added value of exports in China, along with a reindustrialization of the country, has reduced net migration—meaning more people are staying in the country. The academic emphasizes that the fact that Mexico is the second-largest receiver of remittances “is alarming, as it evidences an economy that cannot provide jobs for all its citizens.” Additionally, low economic growth has fallen from an average of 2% to less than 1% in the last year of Andrés Manuel López Obrador's administration. Furthermore, per capita GDP has decreased by 0.2% over the last five years, according to Pérez del Peral.
The remittance situation in Mexico is also influenced by nearshoring and trade tensions between the United States and China. With these changes, Mexico has moved up to become the main trading partner of the U.S. At the same time, the flow of manufactured goods has adjusted, affecting migration patterns, as explained by Sergio Castellanos, a professor at Tec de Monterrey. Although the trade war has been ongoing for 25 years, recent events such as the conflict in Ukraine and Brexit have impacted this landscape. A cultural factor also plays an important role in the rise of remittances to Mexico, as family ties in Latino communities are very strong, leading more recent migrants to continue sending financial support.
On the other hand, there are negative aspects associated with remittances. While they benefit around 10 million Mexican families, they also reflect a lack of local opportunities. Even if better conditions are created in Mexico to employ its population, income disparity will continue to drive some to seek opportunities in the United States. Let’s remember that in 2003, remittances reached $16.654 billion, a significant increase from the $11.029 billion the previous year. A relevant point is that remittances can originate from illicit activities and have contributed to inflationary effects. “These remittances constitute the income of the most disadvantaged, which boosts consumption in informal markets and complicates the fight against inflation, particularly in services,” emphasizes Gabriel Pérez del Peral. A key challenge for Mexico will be to find ways to leverage these remittances to foster more productive and sustainable growth. Castellanos stresses that remittances should be considered as a formal income that could lead to improvements in quality of life and access to financial services. Finally, he warns that if Donald Trump’s threats of mass deportations materialize, we could see a slowdown in remittance flows to the country.
In conclusion, while remittances are a vital source of income for many Mexican families, they also serve as an indicator of the economic challenges facing the country. It is crucial that steps are taken to transform this dependency into long-term growth opportunities, rather than perpetuating a cycle of migration and economic dependence.
