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China in the automotive industry in Mexico: perspectives and challenges in the
transition from NAFTA to T-MEC
Ortiz-Velásquez, Samuel
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Marcial-Flores, Aurora
Arteaga-García, Arnulfo
This paper proposes a first approximation on the possible repercussions of the T-MEC in
the performance of the Chinese automotive industry in Mexico. A brief review of the content
of the agreement is made, emphasizing the possible limitations to the presence of the Asian
country in the North America region. Next, we review the characteristics of the main Chinese
investment companies in the country, which gives us an interesting clue to the magnitude of
the corporations that already have a presence in the automotive industry in Mexico (AIM).
Although Chinese investments can be considered modest, they could tendentially grow
significantly. Finally, we refer in an exploratory way the possible influence of the "Chinese
model of production" and the type of union relations that could be deployed throughout the
country base don the so-called corporate unionism linked to the previous regime.
On November 30th, 2018, the Mexico-United States-Canada Treaty (T-MEC) was signed to
replace the North American Free Trade Agreement (NAFTA). The signing occurred without
solving the problem of tariffs on steel and aluminum, combined with the inclusion of chapter
4 that seeks a greater regional added value (VCR) in the autoparts-automotive chain (CAA),
the maximum winner of NAFTA. It is argued that these actions seek to raise the
competitiveness of the industry in the region against China, since in addition to Chapter 4,
Article 32.10 requires the economies to report their intention to start free trade agreement
negotiations with economies of no market at least three months in advance. In the following
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División de Estudios Profesionales, Facultad de Economía de la UNAM. Proyecto financiado por la
UNAM a través del programa UNAM-PAPIIT IA303118 “El aparato productivo mexicano en los
albores del siglo XXI: entre la integración comercial con Estados Unidos y China y la desintegración
nacional”.
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lines, chapter 4 is examined, identifying the conditions and challenges presented by the
triangular relationship between Mexico, the United States and China before the new rules
of origin in the CAA.
T-MEC: new rules of origin for the CAA
Chapter 4 (SE, 2019) contains new rules of origin for the CAA to increase the level of local
integration: i) based on the net cost method the VCR is raised: for passenger and light
vehicles from 66% to 75% %, with a transition period of 3 years, and for heavy vehicles, the
transition period is 7 years to raise the VCR from 60% to 70%; ii) describes a different
typology to classify auto parts, now divided into essential, main and complementary. The
VCR of the 15 essential auto parts for light vehicles should go from 66% to 75%; iii) a vehicle
will be originative if the producer certifies that it complies with a labor content value of 30%
at the beginning, and 40% three years after the T-MEC enters into force; iv) defines seven
essential auto parts, which must be originative in North America so that the vehicle can be
considered as originative as well; v) Article 4-b.6. establishes that a vehicle will be originative
if at least 70% of the producer's steel and aluminum purchases in North America are
originative during the previous year.
The CAA in North America: conditions and challenges in the T-MEC.
Based on the CAA segments identified in the T-MEC, the foreign trade statistics were
generated between 2001-2017 to understand the conditions and challenges that the
economies of the region face with the NAFTA update (see table 1).
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Table 1. United States and Mexico: Import structure of the automotive auto parts chain
(CAA) (2017)
The figures preceded by the% sign refer to the percentage structure of imports in 2017; figures in
brackets refer to the value of imports in millions of dollars (mdd) in 2001; the figures in parentheses
refer to the percentage variation experienced by the import structure between 2001 and 2017. Source:
prepared by the authors based on the Global Trade Atlas (2019).
In 2017, the United States imported 541,830 million dollars (USD) in CAA, that is, 2.2 times
more compared to 2001; 74.5% corresponded to imports of passenger vehicles and main
auto parts. Mexico is the main supplier of that market with a 30% share in 2017. China raised
its relative share from 1.6% in 2001 to 9.6% in 2017. In contrast, Mexico imported 131,955
million dollars in CAA in 2017 (2.8 times more compared to 2001), 90% was in auto parts.
In 2001, USA accounted for 72% of CAA imports in Mexico; While in 2017 its share fell to
53%, China raised its relative share in Mexico from 0.5% to 9%.
Considering the readjustments in the import structure of the CAA in the USA between 2001
and 2017, characterized by a relative increase in imports of main auto parts and a drop in
passenger vehicles, it is possible to identify the levels of competition closely following Lall
CAA total (mdd) 541,830 [250,316] 163,263 [49,459] 51,905 [4,026] 326,662 [196,831]
Vehículos de pasajeros 32.6% (-10.0) 18.3% (-10.6) 3.2% (3.2) 44.3% (-2.6)
Camión Ligero 3.4% (-2.3) 10.9% (-2.0) 0.0% (0) 0.1% (-3.9)
Autopartes 38.2% (4) 40.4% (0.4) 61.2% (-9) 33.5% (5.3)
Esenciales 8.6% (-1.5) 9.3% (3.5) 7.0% (5.3) 8.5% (1.0)
Principales 20.9% (4.2) 20.8% (2.7) 38.7% (-4.5) 18.2% (2.4)
Complementarias 8.7% (1.3) 10.2% (-5.8) 15.6% (-9.8) 6.8% (1.9)
Camión pesado 2.4% (1.4) 6.6% (5.6) 0.0% (0) 0.7% (-0.4)
Autopartes 23.4% (4) 23.8% (6.7) 35.5% (5.8) 21.3% (1.6)
Principales 21.0% (3.6) 23.2% (6.7) 29.7% (5.6) 18.5% (1.1)
Complementarias 2.5% (0.4) 0.6% (0) 5.8% (0.2) 2.8% (0.5)
CAA total (mdd) 131,955 [47,198] 69,747 [33,770] 12,209 [230] 49,999 [13,199]
Vehículos de pasajeros 8.7% (-2.1) 5.1% (-3.6) 3.8% (3.8) 15% (-1.5)
Camión Ligero 1.4% (-1.1) 1.0% (-1.6) 0.0% (0) 2% (0.1)
Autopartes 53.2% (0.5) 54.4% (0.1) 63.2% (-21.5) 49.0% (1)
Esenciales 16.9% (3.9) 19.5% (6.4) 8.7% (8.1) 15% (2.2)
Principales 24.9% (-0.6) 24.7% (-1.5) 33.1% (13.9) 23% (-0.5)
Complementarias 11.3% (-2.8) 10.2% (-4.8) 21.3% (-43.5) 10% (-0.7)
Camión pesado 0.3% (0) 0.4% (0) 0.0% (0) 0% (0)
Autopartes 36.4% (2.7) 39.1% (5) 33.0% (17.7) 33.5% (0.4)
Principales 32.7% (2.3) 36.5% (5.3) 27.1% (17) 29% (0.1)
Complementarias 3.7% (0.4) 2.6% (-0.3) 6.0% (0.7) 5% (0.3)
Importaciones de Estados Unidos
Importaciones de México
Total
Desde Estados Unidos
Desde China
Desde resto del mundo
Total
Desde México
Desde China
Desde resto del mundo
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and Weiss (2005). It is observed that: i) Mexico and China increased their competition in the
US market in main auto parts for heavy trucks; ii) in main auto parts for light vehicles Mexico
displaces China; iii) Both countries have increased their competition in the essential auto
parts segment and have withdrawn from the market of complementary autoparts for light
vehicles; iv) the relative fall in imports of passenger vehicles in the US has caused Mexico
and the rest of the world (without China) to withdraw from that market.
Following a similar procedure, it was found that Mexico increased the share of imports of
essential auto parts and main auto parts, and that it reduced its imports of complementary
auto parts for light industry. It is observed that: i) USA and China have increased their
competition in main parts (for heavy trucks) and essential ones, in a race that China is clearly
leading; ii) China displaces the USA in the main auto parts market for light industry; iii) both
economies have withdrawn from the market of complementary autoparts for light vehicles.
It is significant to note that the growing competition in major auto parts (for heavy trucks)
and essential parts between China and Mexico in the United States, as well as between
China and the United States in Mexico, was captured in the T-MEC, as they are precisely
the segments that They have the greatest commitment to raise the VCR. That is, the T-MEC
seeks to raise the VCR in the most dynamic segments, without making it explicit, to contain
the advance of China. Although, from a Global Value Chains perspective, it has been pointed
out that many Chinese imports have their origin in the US companies that make up the Asian
country, the fact is that the Chinese exports of CAA to the NAFTA area have significantly
increased its national added value (TiVA OECD, 2019).
China's investment in the Automotive Industry in Mexico
The factors that drive capital investment and a high level of technical innovation in Chinese
companies both locally and globally are basically two: i) national strategies in China that
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seek and drive an era of rapid growth and development and ii) the efforts of traditional
companies in the global field to develop intelligent connected vehicles. The investment
schemes of Chinese companies have been deployed in the Mexican territory not only with
a view to overcoming the trade slowdown that is already experienced in the local market
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,
but also to take advantage of the new capabilities that they have been developing as part of
national strategies growth that drives the assimilation of artificial intelligence and the internet
of things in processes and finished products.
Between 2001 and 2017, several companies with headquarters in China announced
investment projects in Mexico for 5.9 billion dollars, projecting to generate 40.4 thousand
direct jobs. Nine of these companies allocated their investments to the automotive industry
(terminal sector and auto parts) accounting for 46.2% of total Chinese investments in Mexico
and 21.1% of the employment generated during the period indicated (OFDI Monitor of China
in LAC, 2019). Although China's presence in the NAFTA area has been practically irrelevant
in terms of investment, it is possible to observe the enormous potential that the area
represents for China as a global expansion strategy, even in the context of the renegotiation
of the agreement between the partners of North America and before the modifications and
new régulations that the projected T-MEC seeks to establish to contain the potential
advance of China in the region.
Companies that have undertaken investment projects in Mexico during the aforementioned
period have a significant presence in their local market, in which close to 25 million finished
units are sold with a Chinese share of 44% (BAIC, 2017). Companies in the terminal industry
and the parts and components sector have established their presence in Mexico through the
establishment of subsidiaries or through partnerships with local companies in various states
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Since January 1, 2018, the purchase tax discounts for small displacement vehicles in China have been
completely canceled, so a greater deceleration is expected in the sale of finished units.
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of Mexico, with announced amounts of investment that, although they are practically
irrelevant as a share of their overall capital spending, they are relevant in terms of jobs
generated in the places where they are allocated in Mexico (Table 2).
The hypothesis that one of the main intentions of the new T-MEC is to stop the advance of
China in the competition for the market in North America is notoriously visible when
considering the production strategies in process and product developed by the large
corporations in the automotive industry in China. An example of this is the Minth Group, a
company focused on lightweight technologies, intelligence and electrification. This
corporation developed an intelligent application (known as ACC emblems), to reduce the
weight of automobiles through more intensive use of aluminum components such as the
Nissan and Renault aluminum battery packs, among other advances and production
strategies. The possibility of continuing with technologies of intensive use of aluminum,
should adapt to a greater or lesser presence in the North American area.
Employment, working conditions and union organization in Chinese companies of
the automotive sector in Mexico. A first approach
Although the presence of China in the automotive sector in Mexico can be considered
discreet and recent, both by the amount of investments of $ 2,841 billion and by its recent
data in the national territory, the oldest registered in 2010 (see table x ), the presence of this
industry in Mexico must also be weighed for more than 9 decades, particularly in the context
of the boom it has had in the previous four decades. The importance of the companies of
the Asian giant that have ventured into the automotive industry in Mexico is still significant,
among them: BAIC, JAC, Key Security Systems, Minth Group, Nexteer, Suzhou Sonavox
Electronics and Sanhua Holding Group, to mention a few; these companies have generated
11,809 jobs in Mexico. (see table 2)
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Selected Chinese companies with presence in Mexico, by beginning of operations, jobs
generated and investment amount in the automotive sector
Source: own elaboration with data from the OFDI Monitor of China in LAC (2019).
Three aspects should be considered about the Chinese presence in the productive sphere.
First, the transfer of the productive models of the Asian country to Mexico, secondly, the
general perspectives of the development of work in Mexico within the sector and, thirdly, the
influence of the still existing model of corporate unionization based on the control of the labor
force from the floor of the factory, and the processes of election, negotiation and participation
of the members of the organization.
On the first aspect, the history of the expansion of the automotive industry over more than
a century has shown that, although dominant paradigms exist, they can not be implemented
as they developed in the countries of origin. Firstly, due to the disparities existing in the
productive structures of the various countries that have been recipients of the investments
Date
Company
Automotive Sector
Jobs
generated
Investment
amount (US
million
dollars)
2017/07
BAIC
Autos ensamblados
500
30.0
2017/02
JAC Motors
Componentes
4,400
1,000.0
2017/09
Key Safety
Systems
Componentes
1,800
88.7
2017/04
Minth Group
Componentes
1,800
350.0
2014/10
Nexteer
Automotive
Componentes
400
40.0
2017/06
Sanhua
Automotive
Componentes
600
15.0
2017/06
Sanhua Holding
Group
Manufacturas
21
600.0
2017/03
Suzhou Sonavox
Electronics
Componentes
205
3.4
Otros
Varios
2083
641
Total
11,809
2,841.00
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of transnational companies in the sector. Secondly, because of the specific conditions that
the development of labor relations in the countries receiving these activities deploy. The
strategy that China has executed internally is based on a high technological content in the
final assembly phases, with a highly qualified work force and the intensive use of
outsourcing, so the supply chain is based on workforce precarious (Di Tomasso 2018). This
model resembles in a certain way the condition of development of the IA in Mexico, between
the terminal industry and that of auto parts, in which, despite having a competitive
performance in terms of productivity, this is not reflected in the salary level (Salazar-
Xirinachs, Dussel Peters and Armony, 2018).
The last aspect leads us to identify the location zones of some of the productive plants in
the terminal sector, in auto parts or in some of the clusters in the country. It also allows to
identify the areas of influence of some of the corporate union organizations linked to the PRI
that have traditionally been, together with companies and local, state and federal authorities,
the main promoters of the so-called collective contracts of employer protection.
The plants of Chinese companies in Mexico characterized by their proximity to clusters or
plants in the terminal sector are: Nexteer, in the Queretaro cluster, Sanhua Holding Group
in Coahuila; Suzhou Sonavox Electronics as well as Sanhua Holding Group in Tlaxcala, a
state close to Puebla where VW and Audi operate. Key Security Systems in the state of
Tamaulipas, where there is a large concentration of maquiladora companies that are part of
the center-east automotive supply corridor in the US; Minth Group, located in
Aguascalientes, near the Nissan plant. Finally, BAIC, in the state of Veracruz and JAC in
the state of Hidalgo with projects for the assembly of finished vehicles under the CKD
modality, a strategy that would inhibit a dynamic link with the auto parts sector. The last
company plans to install a stamping plant, but until 2020. This panorama is a first
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approximation to the eventual productive framework that could mean the Chinese presence
in the AIM.
Finally, we refer to the presence of the main corporate union organizations linked to the
institutional revolutionary party (PRI, for its acronym in Spanish) in the entities where
factories of Chinese origin are located: there are 26 labor union centers and 190 unions
throughout 23 federative entities that participate in a total of 1,020 plants in the auto parts
sector in Mexico (Arteaga García, Álvarez, C. 2016). Also regarding the location of the
plants, there are 55 unions in Querétaro; 48 in Coahuila and 43 in Puebla.
Although we still do not have the specific reference on the productive models and the system
of labor relations that are developed in Chinese companies, it is important to point out that
both dimensions will be marked by the results of the T-MEC ratification, with possibilities of
expansion of the operations for these companies, or, maintaining them with a low profile.
This will determine, to a certain extent in the medium and long term, the possibilities of
implementing productive frontier models at a technological and organizational level.
Regarding the labor union dimension, the corporate organizations linked to the PRI will be,
at least, under pressure on aspects of transparency, on the unrestricted application of the
ILO Agreement 189 concerning freedom of association, and on the democratizing airs of
new organizations such as the Federation of Independent Labor Unions of the Automotive,
Auto Parts, Aerospace and Tire Industries (FESIIAAAN, for its acronym in Spanish) as a
new actor that vindicates democracy, the independence of the labor union centers and
transparency as an internal way of life for their organizations.
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