After losing hundreds of thousands of jobs to China in recent years, Mexican industry is rebounding, thanks to the county's proximity to the United States, the world's largest import market. As shoe, toy and garment factories leave Mexico for China, car part, steel and cement factories are taking their place. 'Our government has decided not to compete with China but collaborate,' said Mexico's consul-general to Hong Kong, Mario Leal. 'We have seen bad examples of what happens when you fight with people.' Call it collaboration or capitulation but Mexican policy now acknowledges the reality that many of its light industries cannot compete with counterparts in China. Costs in China are 12 per cent of those in Mexico for unskilled labour and 33 per cent for skilled factory workers, according to Mr Leal. From 2000 to 2003, Mexico lost 240,000 jobs in export-oriented factories, or maquiladoras, mostly to China. The worst-hit sectors in Mexico were the toy, shoe and garment industries, whose investors included Hong Kong firms. China now dominates the global manufacturing trade in all three. 'China has been doing a great job improving the quality of its products and facilities. That is why some maquiladoras moved to China,' said Mr Leal. Another cause of the slump has been a slowdown in consumer spending in the US. Most products manufactured by the maquiladoras, mainly clustered along the United States border and employing 1.2 million people, are exported to the US. The solution for Mexico has been a new focus, on heavier industries, in which transport expenses from Asia often outweigh savings achieved from lower labour costs. Mexico's proximity to the US also provided an advantage for sectors such as electronics, in which fast delivery was paramount, said Mr Leal. By the middle of this year, Mexico's maquiladoras will have recovered all the 240,000 jobs lost earlier in the decade, Daniel Romero Mejia, chairman of the National Export Maquiladora Industry Council has predicted. The maquiladoras had recovered 80 per cent of lost jobs by the end of last year and were expected to create 70,000 jobs this year, he said. Mexico's industrial output grew 3.5 per cent last year and is projected to grow 3 per cent this year, according to Economist Intelligence Unit estimates. The move towards heft also marks a sustained shift towards higher value-added production and away from the traditional cheap, low-skilled assembly that has been the mainstay of Mexican industry for decades. The car parts industry, which employs 420,000 workers, is enjoying particularly strong growth. Mexico is the leading supplier to US car factories, having exported US$16.4 billion worth of car parts across the border in the first nine months of last year, according to the US Census Bureau. Mexico is increasingly perceived as a mid-echelon producer and the resulting foreign investment has helped it outgrow the periodic economic upheavals that afflicted the country in the latter half of last century. The last true Mexican economic crisis was in 1995. The stunning rise of China in global trade and manufacturing, while painful for traditional light industry, has served to accelerate the country's climb up the value-added chain. 'We will focus on developing new sectors. If I see China do better than me in one job, I should find another job,' said Mr Leal. 'Maybe we can develop some industries with Chinese companies.' As a sign of increasing ties between the two countries, the first ministerial meeting between Mexico and China was held in Beijing last year, and resulted in a new air-services agreement and opened promising avenues of economic co-operation. Negotiations between Mexico and China on a reciprocal investment protection agreement are scheduled for later this year. Mexico was seeking to increase its exports to Asia as it was over-dependent on the US market, said Mr Leal. Mexican exports totalled US$200 billion last year, more than any other Latin American nation, he said. 'What worries us is 90 per cent of this is to the US.' Mexico runs a trade deficit, importing goods worth US$212 billion last year, as it lacks domestic raw materials for its factories. The country hopes to sell to China products like Mexican abalone. Hong Kong should be an important cornerstone in Mexico's efforts to improve economic co-operation with China, he said. 'We are advising our companies, especially small and medium enterprises, to come to Hong Kong.'