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Production of car parts is being moved to Mexico as manufacturing costs there now are lower than in China despite the increase in wages in the past 10 years. Photo: Bloomberg

New | Cheaper costs beckon manufacturers from China to Mexico

Cheaper production costs and US market proximity cited as advantages

CHIM SAU-WAI

Manufacturers are relocating from China to Mexico to take advantage of the lower production costs and the proximity of the United States market, according to a Mexican diplomat and a consulting firm.

The relationship between the two countries is not only complicated by the recent suspension of a high-speed rail project in Mexico, but also by the competition for investment in manufacturing.

Boston Consulting Group said manufacturing in Mexico was now 4 per cent cheaper than in China, while a decade ago it was 6 per cent more expensive.

Alicia Buenrostro Massieu, Mexico's consul general, said the relationship between the two countries in the manufacturing shift was "complementary" rather than competitive.

Massieu said in many cases, imports from China were used for making end products that would be shipped to the US.

She said the Mexican government was actively promoting the country in Shenzhen and Guangzhou as a place for manufacturing.

"We are bringing our [small and medium-sized enterprises] to Hong Kong to take advantage of the added-value chain that China is moving for," she said. "We are also trying to convey the message to Hong Kong businessmen that have manufacturing in mainland China to move to Mexico and take advantage of Mexico having the Nafta (North America Free Trade Agreement) and the same time zone as the US.

"Mexico is focusing more on a manufacturing economy and not only a commodity economy."

As an oil producer, the country has suffered from the plunge in oil prices, with budget cuts leading to the suspension of a high-speed rail project that a Chinese-led consortium was bidding for. It was the second time the project was halted, with Mexico previously cancelling a contract awarded to the same consortium.

As China moves up the value chain, the manufacturing of some basic products, such as brooms and plastic utensils, shifted to Mexico.

Production of more expensive items, including electronics and car parts, is also being moved to Mexico.

"Johnson Electric is opening its second plant in Mexico in the next few months," Massieu said, adding that the country had become a top producer of flat screens and two-door refrigerators.

"Asian companies such as Sharp, Sony and Samsung accounted for about one-third of investment in Mexican electronics manufacturing, compared with only 8 per cent a decade ago," Boston Consulting said in a report.

Taiwanese electronics-manufacturing giant Foxconn Technology Group was second only to General Motors as Mexico's leading exporter, it said.

"The primary reason is that in China, labour costs soared and productivity were not able to keep up," the report said. "In Mexico, the 67 per cent rise in average manufacturing wage from 2004 to 2014 was almost entirely offset by productivity gains in the modern industrial sector and an 11 per cent depreciation of the peso against the US dollar."

The Mexican government was seeking to persuade three banks - Banco Interacciones, Monex and Banorte - to set up branches in Hong Kong to finance trade between Mexico and China. This would enable traders to pay in yuan directly instead of having to convert pesos into dollars first, Massieu said.

This article appeared in the South China Morning Post print edition as: Mexico beckons manufacturers in China
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