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A Conversation on China-Mexico Relations

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Karen Hooper: Hi, thanks for joining us today. I'm Karen Hooper, the director of Latin America analysis at Stratfor, and I'm here with Jen Richmond, our vice president for international projects. We're going to discuss Chinese President Xi Jinping's visits to Mexico and Costa Rica, and the implication that those will have for bilateral and multilateral relations. Jen, I'd like to hear your perspective as a China expert on what China's goals are as Xi comes to the Western Hemisphere and what is China looking for in a relationship with Mexico.

Jen Richmond: This is a very interesting, newly developing relationship. Prior to the visit, Chinese media started to call this a comprehensive strategic relationship. In the Chinese lexicon, this is actually important, albeit subtle. The only other relationships that the Chinese consider comprehensive strategic relations are with South America and with the European Union. So this kind of dynamic — this change  in the lexicon — actually shows that there actually making efforts to really dynamically change the relationship with Mexico, which has been tense for the past decade or so. They are natural competitors. They're both export markets. So this is a significant shift in China, and we've seen this developing since before the recent leadership transition. What we are seeing is their professionalization of foreign policy. Prior to the global financial crisis, China really didn't have much of foreign policy. Prior to the shift late last year, they had a new institution under the Ministry of Foreign Affairs that focused on strategic economic relationships. So this trip to Mexico is an indication of the professionalization of foreign policy.

Karen: I think it's an interesting parallel because you've also got a shift in Mexican politics. We've got the new administration of President Enrique Pena Nieto. He's really had an opportunity to take advantage of the change in administration to push a whole bunch of reforms. And one of the things that has happened over the past couple years is that trade with China has gotten a little bit more liberalized, because the deadlines on China's WTO integration dropped and a whole bunch of tariffs dropped on Mexican goods. So there's a lot of concern in Mexico about competition with Chinese goods — a lot of concern about things like shoes and toys — really being unable to compete with Chinese goods on the Mexican domestic market. So Pena Nieto has the opportunity at this point to reshape the relationship with China, which under the previous administration had been strained but also just sort of non-existent. It very focused on security and very focused on the United States, so it's really interesting to see Mexico turning toward China and really having an open dialogue.

Jen: I think the timing is right for both of them. If you look right now, the cost of labor in Mexico is actually cheaper in many regards than it is China, so that opens up Mexico to the dialogue. For China, with the economic crisis, they're looking for new places to park their money.  China is particularly interested in getting involved in the automobile sector in Mexico. The Chinese are also interested in piggybacking on NAFTA to get some of their goods into the United States. And most important is the opening up of the oil and energy sector in Mexico. That is very, very important to China — something that they want to get in on the ground floor.

Karen: I think if the Chinese are serious about investing in Mexico, that's something that Mexico going to be very receptive to. Mexico has had this boom in the automobile sector after the financial crisis, but they haven't really seen broad-scale investments, broad-scale employment, and they really would like to get employment up and really enhance their export-driven growth. They would also like to be able to export to China, which I don't know if that's something that's going to be very feasible in the near future.

Jen: Next week, Mexico's agriculture secretary is going to China for a visit, and this relationship is really going to develop. We can expect to see trade development, particularly in pork. China is really looking all over the world to import all kinds of foodstuffs, from meat to soy to wheat and rice. So pork is going to be a big thing on the agenda next week. Tequila will also be on the agenda. That's where Mexico can capitalize on what China needs, and its desire to export more will probably be mostly in agricultural business.

Karen: Well that will be pretty interesting, especially if the Chinese are willing to sink some money into improving Mexico's agriculture sector. It's not a particularly competitive one. And one of the impacts of NAFA that we have seen is that Mexican agriculture was immediately out-competed by U.S. agriculture, and the blending of those two markets led to a significant amount of price instability in Mexico, particularly as the United States has moved into corn-based ethanol. And then of course there's the energy sector opening up. We saw during his visit that Xi Jinping was able to offer Mexico a loan of $1 billion dollars for equipment offshore. Pemex itself is working to modernize its operations, develop its own technological capabilities, but it's going to have to employ a lot of capital. If China's going to be available to help Mexico employ some capital, that will be a huge boon. Mexico is still going to need to get major investment from elsewhere — from companies with offshore technologies to explore the Gulf of Mexico. But that capital that China can bring to bear might be something that could really help Mexico.

Jen: China still has the deep pockets. I mean, even with the financial crisis, which is starting to hit China now, they're still looking to develop their energy security and energy diversity. This is still a very important goal for China, especially with the change in government Venezuela. So in Latin America, they're looking to expand relationships just to diversify them. Now, of course geopolitically speaking, this isn't going to be smooth path, although I think that right now the timing is right for both countries on many different levels to develop this relationship. But when you talk about the energy sector, getting oil and natural gas and other commodities to China considering the transportation costs is obviously going to be a little bit more tricky than getting it from, say, Africa or places that are a bit closer geographically. So again, tomorrow we're not going to see this boom in relationships, but I think this is the start of something  very important. This is incredibly important to China for several different reasons, including the diversification of energy sources. Something that we haven't touched on that I think is equally important is this is — to use a term that has been somewhat contentious — "America's backyard." So what we see is America is coming in with its "pivot" to Asia, but the Chinese aren't very happy about America in Myanmar. This is something they look at with a lot of skepticism. So again the timing is right on so many levels, but it's also another opportunity for China to show its way. They want a new foreign policy. And in addition to this new foreign policy, they also want to show that they are important global actors.

Karen: I think that's really interesting just in terms of having watched Chinese investment and Chinese financing become so important in Latin America over the past several years since the financial crisis. For China to actually have an opportunity to open a dialogue with Mexico is a new step in Chinese relationships with Latin America. We have seen intense cooperation between China and Venezuela already. And for this developing relationship with Mexico, it's going to be interesting to see whether or not the United States is able or willing to be an arrestor on the development of that bilateral relationship. That's something we'll definitely be watching as we move forward.

Thank you for watching. I'm Karen Hooper with Jennifer Richmond, and I hope you'll join us on our website for further coverage on these issues.