BYD, China's largest automaker, seemed poised last year to build its first factory in Mexico, but then Donald Trump returned to the White House.
A project that was expected to create 10,000 jobs and cost approximately $600 million has stalled amid Donald Trump's trade war, which escalated this week when he announced new tariffs on cars.
Now, the budding relationship between China and Mexico has cooled as the two sides distance themselves. Mexico, led by President Claudia Sheinbaum, has been appealing to Trump to avoid a conflict with its main trading partner.
"At the moment, we are not actively seeking Chinese investment," said Cindy Blanco, Secretary of Economic Development of Jalisco, the state where Guadalajara, the potential site of the BYD factory, is located. "We are very aware of the implications. Therefore, we are seeking an agenda aligned with that of the United States."
Meanwhile, China has shown its detachment from Mexico, as it moves closer to the United States and rejects Chinese imports. For example, China's Ministry of Commerce delayed approval of BYD's plant in Mexico over fears that the technology could leak to the United States, the Financial Times recently reported.
This is a major change from just a few years ago. During Trump's first term, the United States imposed tariffs on Chinese imports, prompting Chinese companies to invest in construction operations in Mexico to avoid the levies.
The COVID-19 pandemic subsequently disrupted global supply chains, making Mexico and its proximity to the United States, including a new free trade agreement with the country, even more attractive. Groundbreaking ceremonies for facilities built by Chinese companies became commonplace. This is no longer the case.
“This whole geopolitical chess game has affected Chinese companies’ willingness to invest in Mexico,” said Laura Acacio, manager of Jiangyin Hongmeng Rubber Plastic Product, in a January interview.
China Plans to Invest in Peru
The Chinese medical supply manufacturer is seeking to expand into nearby Peru due to the existence of a new port connected to Shanghai and the Peruvian government's greater receptiveness to Chinese companies than the Mexican government, he said.
Peru has the added attraction of having signed a free trade agreement with the United States that went into effect in 2009. "There is a perception on the part of the Chinese government that the Mexican market has changed a lot," Acacio said.
Direct investment by Chinese companies in Mexico exceeded $2 billion in each of the last three years, according to data from the Latin American and Caribbean Academic Network on China. This figure is almost double that of a decade ago.
Some of that money has gone to the Hofusan Industrial Park, a large farm about 190 kilometers from the U.S. border, partially backed by Chinese investment.
Up to 40 companies with ties to China operate there, according to César Santos, president and co-owner of Hofusan. These include furniture manufacturer Kuka Home, electronics company Hisense, and auto parts manufacturers.
But Trump has tried to prevent Chinese companies from avoiding tariffs through Mexico. The president announced that 25 percent tariffs on Mexico would take effect on March 4, but later postponed them until April 2 to allow for further negotiations. These tariff threats caused some companies to reconsider opening plants in Hofusan.