Author Archives: Dorothy Kronick

Keeping up

The Mexican export sector can’t compete with China’s.  Why?

In yet another reminder of the uneven evolution of the Sino-Mexican bilateral relationship, Mexican President Felipe Calderón visited China last week with the goal of encouraging investment in Mexico. The press took the opportunity to rehash the striking change in trade between the two countries since the turn of the century: Chinese exports to Mexico have grown from $569 million in 2000 to $28 billion last year; in contrast, Mexican exports to China have barely tripled, from $310 million in 2000 to $895 million last year. China replaced Mexico as the United States’ second-largest trading partner.

In other words, China’s export sector has thrived, while Mexico’s has stagnated. Why? Is it that Chinese goods have reduced global demand for Mexican manufactures? Is it simply that China has lower labor costs? In a recent paper, Gordon Hansen of the University of California at San Diego attempted to pinpoint the causes of growth (or lack thereof) in the Mexican export sector. His conclusion: Competition from China and economic slowdown in the United States bear significant responsibility for slow growth in Mexican exports since 2000.

Still, some of the problems are internal to Mexico, and some of the potential remedies—expanding the supply of skilled labor, reducing transportation costs, improving logistics capabilities, improving communications infrastructure, and strengthening property rights and protections for investors—are readily available to Mexican policy makers. Last week’s Agreement for the Reciprocal Promotion and Protection of Investment, which clarifies protections for capital flows between the two countries, was a step in the right direction in that it will encourage bilateral direct investment (which may provide needed capital and expertise for Mexican industry, as well as expand the Chinese market for Mexican products). By itself, though, it won’t be enough to reverse the erosion of Mexico’s share of the global market for manufactures.

Is Venezuela selling oil to China instead of to the U.S.?

The United States is importing less oil from Venezuela, and China is buying more. Is Venezuela putting its resources where Hugo Chávez’s mouth is and using the country’s major export as a geopolitical lever? Or are U.S. imports just catching up with a 10-year decline in Venezuelan production?

The U.S. Energy Information Administration released April data on Monday, revealing that imports of crude and petroleum from Venezuela in the first four months of 2008 fell 10.7 percent from the same period last year—from about 1.3 million barrels/day to about 1.16 million b/d.

If we take a longer-term view of U.S. imports of Venezuelan crude and petroleum, the drop is even more significant: Venezuela sold about 1.6 million b/d to the United States in January–April of 2005, as it had since the mid-1990s (except in the oil strike years of 2000 and 2003). This means that Venezuelan sales to the United States have declined 30 percent over the past three years. Why?

AP’s Rachel Jones reports that the drop is likely due to three factors: (1) falling demand in the United States, (2) falling production in Venezuela, and (3) Venezuela’s decision to sell more oil to China. Does this make sense? Let’s take a closer look at the numbers:

  1. Total U.S. oil imports in January–April 2008 dropped 2.5 percent compared with the same period last year (you can download the raw data here, or check out the Transpacifica digest below (after the jump). This, then, might explain one-fourth of the decline in imports from Venezuela.
  2. There are no reliable numbers on Venezuelan oil production, but those that exist (for example, the monthly OPEC report) indicate at most a 2 percent drop in production from last year—which, like the change in U.S. demand, would explain only part of the 10.7 percent drop in sales. Over the past 10 years, however, Venezuelan production has declined about 25 percent—about the same as the change in U.S. imports over the past three years (according to EIA data here).
  3. The AP report states that Venezuela now sends 250,000 b/d to China, up from next to nothing a few years ago. The story does not source this figure, and PDVSA, Venezuela’s state oil company, recently stated that China buys 398,000 b/d, as a result of increased CNPC operations. Venezuelan President Hugo Chavez has said that the country plans to sell China 1 million b/d by 2012.

Is China buying 250,000 b/d or more of Venezuelan oil? If so, does that purchase explain declining sales to the United States? Or would sales have declined anyway, as a result of falling production in Venezuela? What is the role of Chávez’s oil donations to countries throughout the region? Perhaps there are other explanations. If the United States wants control over how much oil it buys from Venezuela, the answer is critical. Continue reading

Cuba–China Ties in Focus as Standing Committee Member Visits Fidel

Fidel Castro met with He Guoqiang, a member of China’s powerful Politburo Standing Committee, for more than two hours yesterday, discussing numerous and diverse topics such as Tibet, Taiwan, food prices, the Olympics, and Fidel’s health (He conveyed President Hu Jintao’s wish for Castro’s speedy recovery). Earlier in the week He met with Cuban President Raul Castro.

He’s visit is just one of many recent signs of strengthening Cuba–China relations. Trade between the two nations surged to $2.2 billion last year, up 23 percent from 2006, and nearly 250 percent from 2005; China is Cuba’s second-largest trading partner (after Venezuela). China recently expanded broadcasts in Cuba of Chinese television stations and sold railway engines to the Cuban government for use in the public transport system.

He Guoqiang’s Cuba visit marked the beginning of a four-country tour that will take him to Brazil, Angola, and Trinidad and Tobago.

Venezuelan–Chinese Investment and an Industrial Showcase

2008 China Industry Expo-VenezuelaLest a week go by without new evidence of strengthening ties between China and Venezuela, a massive trade show featuring Chinese companies and products opens tomorrow in Caracas. The fair includes more than seventy Chinese firms from numerous industries, ranging from porcelain to automobiles.

The fair, organized by the Chinese Ministry of Commerce, is an especially visible sign of the exponential growth in trade between China and Venezuela, which has surged from about $100 million in 1998 to $6 billion last year, according to the Chinese Embassy in Caracas.

The trade show comes on the heels of the government’s announcement that it has begun to spend some of the resources committed to the “China-Venezuela Investment Fund” earlier this year. Venezuela tagged $2 billion for the fund; China promised $4 billion, “the largest credit China has offered to any one country,” according to Zhang Xiaoqiang, a vice chairman of China’s National Development and Reform Commission (NDRC).

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.