Thread: China and Mexico Bury the Hatchet

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China and Mexico Bury the Hatchet
By Frederick W. Stakelbeck
FrontPageMagazine.com | October 18, 2005

Chinese President Hu Jintao’s recent visit to Mexico City to meet with Mexican President Vicente Fox marked a new beginning in Sino-Mexican relations with both leaders signing agreements in the areas of bilateral trade, mining and energy. “The motive of my visit is to deepen the strategic association between Mexico and China,� president Hu Jintao told journalists gathered at the Presidential Palace.

The trip to Mexico was the first for Hu Jintao since becoming head of state and was designed to promote further business and diplomatic cooperation. Earlier this year, Chinese vice-president Zeng Qinghong and Jin Qinglin, chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), visited Mexico to discuss the development of bilateral ties.

A Checkered History

The rapid warming of relations between the two countries is a surprise to many Western observers. Mexico has traditionally viewed China as a key contributor to the country’s sub-par economic growth, due in large part to China’s use of cheap labor to outmaneuver Mexico in the U.S. exports market. As a result, Mexico has conducted numerous anti-dumping investigations over the past decade in an attempt to stop what it sees as unfair Chinese trade practices. More recently, concerns have been raised regarding China’s intentions in Mexico’s highly sensitive energy sector.

Despite protectionist efforts by business leaders and the federal government, many Mexicans now believe a policy of bilateral cooperation, not obstruction, should be pursued on economic and political issues. Jose Alberto Aguilar, deputy of Mexico’s opposition Institutional Revolutionary Party, said last month, “It is time to concede that trying to battle China’s manufacturers is pointless. Instead, Mexico should work with China to help it access U.S. markets.� Walter Molano, head of research at BCP Securities, noted, “Mexico is a launch pad into the U.S. and there’s a lot of opportunity now for Chinese firms to come in and use the facilities.�

In September, Foreign Minister Luis Ernesto Derbez spoke at Columbia University. In his speech, Derbez bluntly stated that Mexico could not compete with China for manufactured exports. Instead, Derbez suggested that Mexico capitalize on China’s rapid economic growth by becoming a “Singapore-like way-station� for U.S. bound Chinese goods. “Let’s make our own ports and everything ready so that we can transfer and take the merchandise to the U.S. If we can be as efficient as Singapore, we will be able to have a tremendous amount of job growth.�

Increased Cooperation

The realization that Mexico can not compete with China in the U.S. exports market, coupled with a desire to become part of China’s global economic rise, has motivated Mexico City to reach out to Beijing. Mexican President Vicente Fox recently commented, “The two countries are cooperative partners, not competitive rivals, and the development opportunity for bilateral ties outweighs frictions.� In this regard, a “Twenty Year Plan for the Future� was recently formulated by a permanent bilateral committee established to promote the development of improved relations.

The walls separating China and Mexico are slowing coming down. China is now Mexico’s second-largest trading partner behind the U.S. Direct flights between China and Mexico have begun and Mexican tourism officials are anxious to tap into the Chinese travel market. Some estimates put the number of Chinese citizens expected to travel overseas in the next 15 years at 300 million. For the Chinese, President Hu Jintao’s visit makes economic sense, since Mexico is now the second largest developing country next to Brazil in the Western Hemisphere.

U.S. National Security Concerns and Mexican Oil

As if its efforts to secure Canadian oil, natural gas and mineral deposits wasn’t bad enough, China’s expanded involvement in Mexico with one of America’s major oil suppliers has raised red flags within the Bush administration. But for some observers, China’s increased presence in the Western Hemisphere is a natural progression for an emerging economic power attempting to gain global influence. “China has always accepted that Latin America is part of America’s backyard, that it cannot intrude,� said Minxin Pei, director of the China Program at the Carnegie Endowment for International Peace in Washington.

Many within the Bush administration, however, see Beijing’s economic and diplomatic actions as a direct threat to U.S. national security interests in the Western Hemisphere. Recent actions taken by Beijing have made it clear that its traditional “hands-off� policy concerning the Western Hemisphere is being dramatically revised. One of the main catalysts for this revised strategy has been China’s enormous energy needs which are forcing the country to identify and secure resources all over the globe.

Pemex, Mexico’s giant oil and gas monopoly could be a target for future Chinese investment, if existing constitutional barriers which explicitly prohibit the government from entering into production-sharing contracts with foreign energy conglomerates are removed. The company produced record amounts of crude oil and natural gas in 2004, averaging 3.8 million bpd. High oil prices have helped propel infrastructure development by Pemex that has topped $10 billion per year; however, there is still need for additional investment for exploration and development projects.

Even with increased domestic investment, Mexico’s oil industry faces severe problems. Most of the country’s oil comes from one field, Cantarell in the Gulf of Mexico. As a result, the country lacks diversification and is vulnerable to sudden fluctuations in production. Moreover, some experts have predicted that without further discoveries, oil will run out in approximately 11 years. Making matters more urgent, the Mexican government relies heavily on energy revenues to drive the national economy.

Looking Ahead

As the U.S. tries to maintain a foothold in Central Asia and the Middle East, China is making tremendous progress in the Western Hemisphere. Along with Venezuela and Cuba, China has made Mexico an important part of coordinated Latin American strategy sending an unmistakable signal to Washington that it plans to set up shop in America’s backyard. Washington should be concerned about the possibility that Mexico may one day perceive China as an ally comparable to the U.S. As events unfold, it would be wise to remember the words of Russian communist leader Vladimir Lenin who stated, “The road to America is through Mexico.�

Only time will tell if this is a good thing for America, Mexico and the Western Hemisphere.

Mexico actually can produce for export to the United States in competition with China and in many areas already does in car parts and electronics. Clothing manufacturing has suffered from Chinese competition. But if the Chinese currency the yuan were not artificially depressed and the United States raised minimum wage or cracked down on illegal alien hiring sweatshops Mexico could see that grow as well. The current Mexican labor laws create an impediment to job growth. So does the government trying to soak up available investment to stabilize the peso against the dollar.