Chinese
Companies Flood Mexico to Enter US through NAFTA Route
Alarmed
by shipping chaos and geopolitical fractures, exporters from China are setting
up factories in Mexico to preserve their sales to the United States.
·
The Mexican border state of Nuevo León has
positioned itself to reap the bounty. Led by a brash, 35-year-old governor,
Samuel García, the state has courted foreign investment.
·
companies with factories in the United States
suffered shortages of parts made in Asia.
·
Chinese manufacturer of automobile wheels, is
erecting the company’s first factory outside Asia at an industrial park in
Nuevo León.
·
“Globalization has ended,”. “It’s local-ization now.”
·
When he became president in 2017, Donald J.
Trump demanded that American companies abandon China. By 2018, he was slapping
steep tariffs on hundreds of billions of dollars in Chinese imports.
·
Man Wah
had already responded to the tariffs by building a factory in Vietnam, and
using it to make products for the American market. But the soaring price of
shipping beggared that strategy.
·
In Nuevo León, the unemployment rate is 3.6
percent. The surge of investment has set off a fierce competition for workers.
·
Three years ago, Lenovo, the Chinese computer
maker, opened a factory in Monterrey dedicated to making servers, the boxes
that hold data for cloud computing.
·
Until last year, Lenovo flew in one crucial
component — so-called motherboards — from a factory in China. But as
international shipping troubles intensified, the company switched to a supplier
in the Mexican city of Guadalajara.
·
But Lenovo continues to import many key
components from China, from memory devices to specialized cables.
Bill Chan had never set foot
anywhere in Mexico, let alone the lonely stretch of desert in the north of the
country where he abruptly decided to build a $300 million factory. But that
seemed a trifling detail amid the pressure to adapt to a swiftly changing
global economy.
It was January 2022, and Mr.
Chan’s company, Man Wah Furniture Manufacturing, was confronting grave
challenges in moving sofas from its factories in China to customers in the
United States. Shipping prices
were skyrocketing. Washington and Beijing were locked in a fierce trade war.
Man Wah, one of China’s
largest furniture companies, was eager to make its products on the North
American side of the Pacific.
“Our main market is the
United States,” said Mr. Chan, chief executive of Man Wah’s Mexico subsidiary.
“We don’t want to lose that market.”
That same objective explains
why scores of major Chinese companies are investing aggressively in Mexico,
taking advantage of an expansive North American trade
deal.
Tracing a path forged by Japanese and South Korean companies, Chinese firms are
establishing factories that allow them to label their goods “Made in Mexico,”
then trucking their products into the United States duty-free.
The interest of Chinese
manufacturers in Mexico is part of a broader trend known as nearshoring.
International companies are moving production closer to customers to limit
their vulnerability to shipping problems and geopolitical tensions.
The participation of Chinese
companies in this shift attests to the deepening assumption that the breach
dividing the United States and China will be an enduring feature of the next
phase of globalization. Yet it also reveals something more fundamental:
Whatever the political strains, the commercial forces linking the United States
and China are even more powerful.
Chinese companies have no
intention of forsaking the American economy, still the largest on earth.
Instead, they are setting up operations inside the North American trading bloc
as a way to supply Americans with goods, from electronics to clothing to
furniture.
The
Mexican border state of Nuevo León has positioned itself to reap the bounty.
Led by a brash, 35-year-old governor, Samuel García, the state has courted
foreign investment while pursuing highway improvements to ease
the passage to border crossings.
Mr. García recently attended
the World Economic Forum in Davos, Switzerland, to recruit more companies.
“Nuevo León is having a
geopolitical planetary alignment,” the governor declared during an interview in
the state capital of Monterrey, inside the government palace, a warren of grand
rooms with high ceilings and balconies looking out to the jagged peaks of the
Sierra Madre. “We’re receiving lots of Asians that want to come to the U.S.
market.”
Since Mr. García took office
in October 2021, nearly $7 billion in foreign investment has poured into Nuevo
León, making the state the largest recipient after Mexico City, according to
the Mexican Ministry of Economy.
In 2021, Chinese companies
were responsible for 30 percent of foreign investment in Nuevo León, second
only to the United States at 47 percent.
Some of this money is
financing factories that will make finished products for sale in the United
States. But much is focused on a broader refashioning of the global supply
chain.
As the pandemic disrupted
Chinese industry and jammed ports, companies with factories in the United States suffered
shortages of parts made in Asia. Many are now demanding that their
suppliers set up plants in North America or risk losing their business.
Lizhong, a Chinese manufacturer of automobile wheels, is erecting the
company’s first factory outside Asia at an industrial park in Nuevo León. Lizhong’s largest customers, including Ford Motor and
General Motors, pressed the company to open a factory in North America, said
its general manager for Mexico, Wang Bing.
A South Korean company, DY
Power, which makes components for construction equipment, is considering
northern Mexico as the site for a factory near a major customer in Texas.
“After going through the
pandemic and the supply chain crisis, the China Covid shutdown, many North
American manufacturers would like to eliminate the risk,” said Sean Seo, a Seattle-based executive for DY Power.
“Globalization
has ended,”. “It’s local-ization now.”
César Santos has placed a
substantial bet on such pronouncements proving true.
A corporate lawyer, Mr.
Santos, 65, runs a sideline enterprise as a developer
in Monterrey, an industrial boomtown full of upscale restaurants, glittering
shopping malls and spas.
A decade ago, he was
approached by a developer in Los Angeles who was representing a Chinese
electronics company that was contemplating a factory in Mexico. Mr. Santos
controlled an asset of considerable interest — a 2,100-acre parcel of land.
Dotted by cactus, the
property sat less than 150 miles from the Texas border. While surrounding
states grappled with violence linked to drug trafficking, Nuevo León carried a
reputation for security. The state boasted a highly skilled work force, given
the presence of universities that churned out engineering graduates, among them
Tec de Monterrey, often referred to as “Mexico’s M.I.T.”
The land was his family’s
cattle ranch when Mr. Santos was a child, the scene of horseback riding
adventures. Now, he saw a lucrative opportunity to turn it into an industrial
park.
He took a trip to China,
riding a high-speed train from Shanghai to the lakefront city of Hangzhou to
meet the Holley Group, which had constructed an industrial park for Chinese
companies in Thailand.
“China was a country that
had developed everything so fast,” Mr. Santos said. “I was really amazed.”
By 2015, he had joined with
Holley and another Chinese partner to forge a joint venture, Hofusan Real Estate. They plan a grid of warehouses and
factories fronted by a hotel and temporary apartments for visiting managers,
plus more than 12,000 homes for workers.
The Holley Group dispatched
Jiang Xin to oversee the venture. He had previously worked at the company’s
project in Thailand. Mexico presented a different proposition.
“Chinese companies had no
idea about Mexico, and the only things we knew were bad things, dangerous
things,” Mr. Jiang said. “Then Trump came.”
“The tariff thing did help
us,” Mr. Jiang said. “Chinese companies wanted more options. And we are one of
their options.”
By the time Mr. Chan began
contemplating Mexico in the fall of 2021, 27 other Chinese companies had
already locked up land inside the Hofusan park. Only
one large parcel remained.
Man Wah had already responded to the
tariffs by building a factory in Vietnam, and using it to make products for the
American market. But the soaring price of shipping beggared that strategy.
Man Wah
was moving 3,500 40-foot shipping containers a month across the Pacific from
Vietnam. Voyages that previously cost $2,000 were suddenly 10 times as much.
Mr. Chan used the Chinese
social media platform WeChat to connect with Mr. Jiang. His questions were
blunt. How soon could Man Wah begin construction? (Immediately.) How were the
highways? (Not great, but improving.) Were there any authentic Chinese
restaurants in the vicinity? (No.)
Within weeks, Man Wah had
committed to purchase the land. In January 2022, Mr. Chan signed the contract
before boarding a flight to Mexico, leaving his wife and two children behind in
the Chinese city of Shenzhen.
While the factory is being
constructed, Man Wah has already begun producing sofas at a small, leased plant
nearby.
Even before he located the
temporary site, Mr. Chan loaded 70 containers full of machinery and raw
materials in China, putting them on a ship bound for Mexico.
“We always do things
quickly,” he said. “Don’t worry about anything, just do it.”
Man Wah
does worry about a few things: hiring enough workers and cultivating local
suppliers.
The company has plans to
manufacture nearly 900,000 pieces of furniture per year in Mexico. That will
require hiring and retaining 6,000 workers.
Man Wah
is accustomed to operating in China and Vietnam, where independent labor unions are essentially barred, and where rural people
stream into industrial areas in pursuit of jobs.
Savvy companies have wooed
their employees with extras like quality meals and transportation to work. But Man Wah and other Chinese companies answer to bosses in
China, who are conditioned toward thrift while thinking of workers as easily
replaceable.
Finding local suppliers is
also a challenge. Under the terms of the North American trade agreement,
manufacturers must employ minimum percentages of parts and raw materials from
within the region to qualify for duty-free access to the other countries in the
bloc.
Lenovo also stopped
importing packaging materials from China, instead buying them in Mexico.
“There’s no supply chain for
these things in Mexico,” said Leandro Sardela, the
company’s Western operations director.
At least, not yet.