VZCZCXRO6289
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1656/01 0882150
ZNR UUUUU ZZH
R 292150Z MAR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 9862
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0341

UNCLAS SECTION 01 OF 03 MEXICO 001656 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE PASS USAID FOR LAC:MARK CARRATO 
TREASURY FOR IA MEXICO DESK: JASPER HOEK 
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV MX CH
SUBJECT: FORUM HIGHLIGHS CHALLENGES, OPPORTUNITIES IN MEXICO- 
CHINA ECONOMIC RELATIONSHIP 
 
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SUMMARY 
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¶1.  The UN Economic Commission for Latin America, the 
Mexican Senate, and Mexico's Secretary of Foreign Relations 
hosted a bilateral forum March 6-7 on Sino-Mexican economic 
relations.  Participants in "Opportunities in the Economic 
and Commercial Relations: China - Mexico in the Latin 
American Context," urged Mexicans to start viewing China as 
a potential partner instead of a threat.  The forum began 
with Autonomous University of Mexico (UNAM) professor 
Enrique Dussel Peters emphasizing that Mexico must devote 
more energy to developing the relationship, something in 
which it has not put much effort up to this point.  Yin 
Xingmin, Professor at the Fundan University in Shanghai, 
pointed out that as an emerging world power, China has taken 
an interest in its prospects in Latin America.  While other 
countries, such as Brazil, Argentina, and Chile are leading 
the way in commerce with Asia, Mexico has fallen behind. 
Participants considered the prospects for bilateral trade, 
focusing on Mexico's comparative advantages and weaknesses. 
Chinese exhibitors Yin Xingmin and Li Jian Hua, President of 
Sinatex, a Chinese textile company with investments in 
Mexico, suggested ways in which Mexico could work with China 
to complement its trade and attract Chinese investment. 
Participants paid special attention to the textile, 
electronics, and tourism sectors comparing strengths and 
weaknesses of the Mexican and Chinese economies.  End 
summary. 
 
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PAYING MORE ATTENTION TO CHINA 
------------------------------ 
 
¶2.  Head official of the International Trade and Investment 
Promotion Office of the Secretary of the Economy, Eduardo 
Solis Sanchez, emphasized that Mexico must devote more 
energy to developing its relationship with China, a point 
all three major candidates for the Mexican Presidency have 
mentioned in their platforms.  While Solis said Mexico did 
not want to negotiate an FTA with China, other exhibitors 
promoted the idea of an Agreement for the Protection and 
Reciprocal Promotion of Investments, (APPRI) as a step 
towards improving commercial relations. 
 
¶3.  While Mexico is the top importer of Chinese goods in 
Latin America, its exports to China fall far behind those of 
its counterparts.  Solis argued that "the U.S. and EU did 
not wait for China to join the WTO, they anticipated it. 
Mexico has to anticipate further developments in China," but 
suggested that it may be too late.  Moreover, China has been 
participating as an observer of many Latin American 
institutions, and some exhibitors called for Mexico to pay 
more attention to Asian banks and organizations. 
 
¶4.  Other participants, however, including Valentin Diez, 
President of the Mexican Chamber for Foreign Trade, and 
Mexican Senator Dulce Maria Sauri who heads the Asia-Pacific 
Relations Committee, hinted that Mexico has missed its 
window of opportunity by depending too heavily on trade with 
North America and ignoring options for diversifying exports. 
 
¶5.  Fulbright scholar Carol Wise and UNAM Professor Enique 
Dussel Peters presented viewpoints on the Mexico-China 
economic relationship.  While Wise believed Mexico still had 
time to close the gap with China, Dussel felt that Mexico 
has recognized too late the importance of China.  Although 
Mexico could still find niches for cooperation with China, 
advocating its position as a platform to reach the western 
hemisphere will be difficult since China has stronger ties 
to South American countries.  Several exhibitors at the 
conference made suggestions:  Mexico must exploit its 
advantage of being a member of NAFTA and the U.S.'s southern 
neighbor to compete with Asia.  Instead of focusing on jobs 
lost in the manufacturing sector, Mexico needs to turn its 
attention to increasing the global services it offers and 
developing high value added products to move into the next 
stage of economic development. 
 
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MEXICO'S POTENTIAL BENEFITS AND LOSSES 
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MEXICO 00001656  002 OF 003 
 
 
¶6.  Participants discussed the prospects for bilateral 
trade, focusing on Mexico's comparative advantages and 
weaknesses.  Mexico's proximity to the U.S. reduces 
logistics and transport costs.  China-U.S. transport costs 
increased seven per cent in 2005.  Mexico could offer 
alternative ports south of the border such as Manzanillo or 
Lazaro Cardenas to take advantage of overburdened facilities 
in the western U.S.  One participant argued that Mexico 
could also offer a base to produce or finish Chinese goods 
for the U.S. market to minimize shipping costs. 
 
¶7.  Exhibitors also noted that Mexico's intellectual 
property rights record, while spotty, is much better than 
China's, making it a better option for the production of 
easily copied technical goods, such as printer cartridges. 
Custom made products such as individually designed PCs 
require a quick turnaround time and are therefore easier to 
manufacture south of the border than overseas.  For some 
products such as medical supplies and measuring instruments, 
quality outweighs price and production has remained in 
Mexico.  Larger products with a high weight to value ratio, 
such as refrigerators or automobiles benefit from Mexico's 
lower shipping costs. 
 
¶8.  Conversely, cheap, easily shipped, labor intensive goods 
such as textiles, toys, games, dolls, counter-top 
appliances, sporting goods, and footwear lend themselves to 
production in China.  Mexican manufacturers of these 
products are losing market share in the U.S. to Chinese 
exports.  Additionally, China benefits from knowledge 
spillover from manufacturing high tech products and uses 
foreign investment to promote fast learning techniques which 
allow China to catch up on the latest technology, while 
Mexico does not.  Mexican competitors complain that China 
reaps unfair advantages by neglecting human rights, 
subsidizing production, and violating property rights, which 
allows the Chinese to export cheap, illegal copies of high 
value products to flood the Mexican market. 
 
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RECOMMENDATIONS TO BOOST MEXICO'S COMPETITIVENESS 
--------------------------------------------- ---- 
 
¶9.  Chinese participant Li Jian Hua, President of Sinatex, a 
Chinese textile firm operating in Mexico, suggested ways in 
which Mexico could work with China to complement its trade 
and attract Chinese investment.  According to Chinese 
businesses investing in production in Mexico, tax and fiscal 
policies hamper their efforts to expand investment.  They 
suggest simplifying the bureaucracy to facilitate opening a 
business, which takes much longer than in other countries 
and varies greatly from state to state.  Moreover, they 
complained about lack of loyalty of employees and the 
restrictions on the number of foreign employees permitted 
per company, which decreases their productivity. 
 
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TARGET SECTORS FOR COOPERATION 
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¶10.  Beyond the general discussion, the conference focused 
on the textile, electronics, and tourism sectors to 
illustrate strengths and weaknesses of the Mexican economy 
in comparison with China.  Textile producers noted the 
upcoming decline of Mexican textile exports as the U.S. 
drops import quotas and exports from China and other Asian 
countries take market share due to cheaper labor costs. 
Producers will consolidate supply chains to five or six 
countries versus as many as twenty.  Rafael Zaga, President 
of Canaintex, the Mexican National Chamber of the Textile 
Industry, and Tony Kuri of the Mexican National Dress 
Industry Chamber, criticized China's human rights abuses and 
the non-transparent manner in which China supplies its 
factories with resources.  They noted Mexico's time-to- 
market advantage was a niche and suggested that Mexican 
producers switch to heavier items, such as jeans, or high 
quality designer clothing. 
 
¶11.  Participants commented that the electronics sector will 
face several challenges from increasing Chinese competition. 
Plants along the border will confront a decreasing pool of 
skilled and unskilled labor as the Mexican birthrate 
declines and a number of eligible applicants migrate north. 
Mexico must further develop talent in basic technical skills 
 
MEXICO 00001656  003 OF 003 
 
 
and encourage the development of regional clusters to 
exploit economies of scale as Chinese producers make up lost 
ground.  China has also invested in R&D, but bureaucracy and 
frequent personnel shuffling behind R&D efforts in China 
have hindered the innovation process.  The electronics 
producers suggested that Mexico could exploit this weakness 
by aggressively pursuing comprehensive R&D policies in order 
to sustain an advantage in the sector over a longer period. 
 
¶12.  Gabriel Szekely, Chief of Staff to the Mexican Tourism 
Secretary, noted that many affluent Chinese tourists have 
 
SIPDIS 
already traveled to Mexico for leisure following its 
approval as an "acceptable" destination.  He added that 
Mexico would exploit its tourist infrastructure to attract 
the growing Chinese market, which is expected to become the 
world's 4th largest provider of tourists by 2020.  Szekely 
added that tourism can be a tool to help bridge the gap 
between the two countries and help alleviate Mexicans' 
suspicions of Chinese culture.  Problem areas for increased 
Chinese tourism in Mexico include visa regulations and the 
lack of information available in the Chinese language. 
Presenter Vivian Lee of Omega International Group suggested 
a training program for Mexican tour guides in China, a 
multilingual tourist assistance hotline, and that Mexicans 
direct themselves to the appropriate regulating officials 
and target consumers of China's tourism market. 
 
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COMMENT 
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¶13.  Mexico's difficulties raising its level of exports to 
China are no different than its problems expanding exports 
globally.  While rising fuel, and hence rising transport 
costs have given Mexico a temporary pause in the growing 
onslaught of Chinese products destined for the U.S. market, 
Mexico is far from achieving the level of innovation 
necessary to compete with the Chinese. 
GARZA