Tacos in China

A Mexican mall opens in China—good news for China residents who like good tequila. But the mall is a rare example of Mexico selling to China. Usually China does the exporting, to Mexico and to Mexico’s most important market, the United States. Mexican companies are struggling to compete.

The Mexican consulting firm Latinasia will inaugurate a USD$300 million retail pavilion in Hebei next week, providing a space for sales of Mexican products such as Sangría Señorial, Tequila Noche Mexicana, and the unbeatable tacos of El Fogoncito. The megamall is likely the largest Mexican project in China to date, surpassing last year’s $100 million Maseca tortilla factory.

Niu Shuhai, president of Latinasia’s partner Hebei BODA Jituan Group, said he hoped the space will strengthen ties between the two nations.

Mexico and China have been strengthening ties for years. At a forum on Sino-Mexican relations at the Universidad Nacional Autónoma de México last week, Carlos Jiménez Macías, President of the Asia relations committee of the Mexican senate, pointed out that trade between the two nations has increased 500 percent since 2002.

This is good for China: Mexico provides yet another market for its manufactures. For Mexico the relationship is problematic. Unlike other Latin American countries such as Chile, Brazil, and Argentina, which send China colossal quantities of natural resources (providing more than half of all China’s imports of soya bean, fishmeal, poultry, and wine, for example), Mexico is trying to export textiles, electronics, and machinery—the very products China so successfully sells. (A recent paper from scholars at University of Southern California explores the details of this dynamic.)

But China’s products are often cheaper. This year, Mexico will sell China just $1 billion of goods, while Mexico will buy $15 billion of Chinese products. Worse, Mexico competes with China not only for the domestic market but also for U.S. buyers, who purchase more than 80 percent of Mexican exports. In 2005 China replaced Mexico as the U.S.’s second-largest trading partner (after Canada).

Thirteen years after the implementation of NAFTA, China is eroding Mexico’s share of the U.S. market. This is due in part to China’s raw advantage in price of inputs, quantity of semiskilled labor, and exchange rate. But it is also the result of Mexico’s failure to reform. When NAFTA was signed, economists were already clamoring for energy sector modernization, labor market liberalization, fiscal restructuring, and other measures—most of which are still unrealized. Mexican President Felipe Calderón has made some inroads since taking office last year, but there is a long way to go. China won’t wait.

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