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Analysis

China Makes Inroads into Mexican Market, Wants More

Fri, 09/01/2017 - 10:51

NAFTA renegotiations have spurred Mexico to look at other markets for growth and China appears to fit the bill. China is eager to expand its global footprint — and its image. Mostly regarded as a low-quality source of both vehicles and auto parts, China’s latest ventures into Mexico are shifting the industry’s perspective

As the “Three Amigos” — Mexico, Canada and the US — begin the work of modernizing NAFTA, another economic powerhouse is letting it be known that it could also be a good friend to Mexico. China, the world’s second-largest economy behind the US, is making a play for a larger share of the Mexican auto market and turning heads in the process. Often viewed as a producer of low-quality goods, the Asian dynamo is rapidly changing its image and making inroads in a market dominated by the US.

In just a few years, China has dramatically expanded its presence in the Mexican market. It is Mexico’s secondleading supplier of imports, with an 18 percent share, according to data from the US Congressional Research Service. It also enjoys a trade surplus with the country, unlike the US. According to Mexico’s central bank, Banxico, the country’s trade deficit with China totaled US$30.3 billion between January and June 2017. In a July 2017 interview with Xinhua News Agency, Francisco Gonzalez, Director General of Bancomext, said trade between the two countries was expected to hit US$70 billion in 2017, an increase of 9 percent from 2016. González also highlighted the opportunities to grow in the Chinese market, saying that “exports to China represent barely 2 percent of Mexico’s total exports while the US maintains a share of 80 percent.”

According to the Ministry of Economy, figures from 2015 show imports of auto parts from the US to Mexico totaled US$19.8 billion and US$4.0 billion in assembled vehicles, while Mexico’s exports to the US totaled US$46.0 billion in auto parts and US$49.3 billion in assembled vehicles. China, however, is already a significant player in Mexico’s aftermarket with ambitions to do more. According to Óscar Albin, Executive President of INA, 40 percent of the components used in the national aftermarket are imported, mainly from China. If according to Alejandro Calderón, President of ARIDRA, Mexico’s aftermarket consumption accounts for US$18 billion. This would mean that China represents approximately US$7.2 billion in aftermarket imports alone.

Although very few pundits expect the US to leave NAFTA, the talks have awoken Mexico to the need to diversify. With an established footprint in the country, China could be the biggest beneficiary, since both Mexico and Canada have shown willingness to open more trade with the country.

Even after TPP negotiations fell through, there were discussions about creating a new agreement without the US and including China.

China’s main challenge in Mexico is overcoming the shoddy image of its brand. Particularly in the aftermarket, lowquality Chinese products have had a negative impact on the development of a price competitive market. Eugenio Bergeyre, National Sales and Service Manager of Haldex Products de México says, “tires imported from unofficial suppliers can cost between US$150 or US$300 dollars, which is much lower than the commercial price of a quality product.”

Chinese players are now playing a different game, however, latching onto advanced technologies and international standards that has companies gradually changing their previous views of the “Made In China” brand. “Standards in (Chinese) brands were much lower than any other competitor in the market but I believe that has changed,” says Carlos López de Nava, Director General of Grupo Alden. “Chinese companies are getting rid of their stigma for copying technology and the way they are perceived is changing.” Companies like Fast Autopartes and Blue Side have found reliable partners in Chinese companies, ensuring reduced costs without compromising quality. China, also, is taking its own steps to ensure growth in the North American region and, regardless of the outcome of NAFTA negotiations, the country is becoming a stronger presence.

Branching out from the auto parts segment, the country has now exported two of its light-vehicle brands to Mexico. Chinese BAIC and JAC have partnered with Chinese heavy-vehicle manufacturers that have a local presence, as well as with local players Grupo Picacho and Grupo Inbursa, respectively, in an effort to target Mexico’s domestic market and Latin America, with the ultimate goal of penetrating the US. A previous effort by Chinese OEM FAW left only bad memories in the Mexican market but BAIC and JAC are pulling all the stops to show their commitment to the country. “We determined that we needed a formal distribution channel to properly target the Mexican market, just like other international OEMs,” says Patrick Yang, Director General of BAIC de México. “We are trying to use as many resources as we can from international companies to build our own strengths and advantages. Right now, we are in Mexico and we are a Mexican company as well.”