News, Insights and Best Practices for Manufacturing in Mexico

Mexico a better investment than China

10 Apr 2014

Category: Labor & Economics

In a recent conversation with the San Diego Club, Alan Bersin, chief diplomatic officer for the U.S. Department of Homeland Security, said that Mexico, not China, is the economic powerhouse the U.S. should begin forming connections with, according to The San Diego Union-Tribune.

"The story of the next 50 years - the story that the United States is inevitably receding and China is rising - is actually not the case," Bersin said.

He argues that Mexico is a "rising force" and that it will link the U.S. to other countries in North, South and Central America, improving trade and fostering strong economies. Currently, Mexico's economy is No. 13 in the world, with a $1.17 trillion economy. According to Bersin, Mexico will surpass Germany's economy in one generation, and over half of Mexican citizens are in the middle class.

According to Bersin, Mexico is not how many picture it. It is not impoverished, but actually doing very well.

Even Chinese companies are offshoring to Mexico

Mexico has ties to many countries through its trade agreements, which allow for transfer of goods between many parts of the world for little or no tariff. The result is that many companies are beginning to offshore there (or nearshore, in the case of U.S. companies). Recently negotiations are in progress with China, although not for a free trade agreement. Rather, the deal is for funding two telecommunication networks that Mexico is planning to build, according to Bloomberg.

The Mexican government has lately come down hard on its telecom networks for charging high rates due to a near monopoly where most of the competition is between a handful of huge conglomerates. Mexico plans to change this however, by establishing new telecom companies that will offer cheaper services and cultivate fair and adequate competition to support a free market economy.

According to Bloomberg, such a deal with China would expand the influence the two companies have with each other. Although Mexican President Enrique Peña Nieto has declined to comment on the ongoing telecom negotiations, he has expressed interest in working with China.

"There's a huge potential to generate more investment, more jobs, if Mexico succeeds in attracting Chinese capital," Finance Minister Luis Videgaray said in a March 20 interview. "We see a positive trend and growing Chinese investment in Mexico."

The economic situation in Mexico
Mexico has made it no secret that the country plans to expand its economy and become a major manufacturing powerhouse. Not only will it begin building connections with China, but it is also working domestically to improve its economy from within.

One way that it is boosting its economy is by maintaining a flexible credit line with the International Monetary Fund. Mexico currently has a line worth around $72 billion, according to Videgaray.

The credit line is being maintained partly because of Mexico's current financial stability. In March, it reported that inflation fell below the central bank's limit of 4 percent.

Keeping the interest rates in Mexico low will help to keep the economy stable and fuel recovery from the slow period last year and in the first quarter of 2014. Brazil, meanwhile, has been forced to begin borrowing in order to fight recent surges in inflation that are damaging its economic position.

"This adds to the reasons to expect Mexico to outperform Brazil this year," Capital Economics wrote in a note.

Consumer prices in Mexico rose by 0.27 percent in March, which is lower than the expected 0.30 percent. According to Reuters, most of the central bankers of Mexico believe that the brief period of inflation has passed and therefore the Mexican central bank has acted effectively.


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