The Dragon Flies High, But Not Over Mexico

Perhaps the most indelible moments of Chinese Prime Minister Hu Jintao’s September stopover in the Mexican capitol, were the ones he spent stuck in a balky elevator during a courtesy visit to the nation’s Supreme Court. For over 15 minutes, Hu dangled there in the gilded elevator cage until rescuers arrived.

Mexican-Chinese trade relations bear an uncanny similarity to that incident, stalled in mid-air, suspended against the breath-taking panorama of new Chinese investment in Latin America.

What Mexico and China are at loggerheads about is, of course, access to the U.S. market. At the turn of the millennium, Mexico, enervated by the North American Free Trade Agreement, was still the U.S.’s number one supplier of imported goods but by 2002, the Peoples Republic of China had nudged the Aztecs off the top of the heap and has never relinquished its position since, although the competition between the two remains brutal.

While Hu traverses Latin America doling out upwards of $30 billion USD in mew Chinese investments, Mexico gets the scraps–an agreement to swap its grapes for Chinese pears and to build a tortilla factory in Shanghai.

For China, Mexico is a key beachhead in the global trade war over meaningful access to free-spending U.S. consumers. But Mexico looks upon China as a suspicious intruder seeking to nullify trade advantages that accrued to the United States’ southern neighbor as the result of the now 12 year-old NAFTA agreement.

Although NAFTA swelled the number of maquiladoras (foreign-owned assembly plants) along the U. S. -Mexican border, China soon had lured over 600 of them to relocate to its 30-U.S.-cents-an-hour industrial complexes in the inscrutable Orient, leaving Mexico with 250,000 unemployed workers on its hands.

Moreover, Chinese textile exports to the U.S. now outstrip Mexico’s ($10 billion to $8 in 2004) and Mexican farmers cannot compete against state-subsidized agriculture–Chinese chilies now dominate the Mexican market.

Although China is Mexico’s second supplier of imported goods behind the U.S., relations between the two feel more like a hostile takeover than an equitable arrangement. In 2004, Mexico sold $1.9 billion worth of goods to Beijing while China sent a whopping $9.1 billion back to Mexico. For every dollar Mexico put out, it got back 31 U.S. cents–not the win/win proposition that President Vicente Fox sold the Mexican people when he hyped “the opening to the Orient.”

The trade imbalance includes about $6 billion USD in hard goods to keep Chinese-owned factories in Mexico churning out consumer goods for the U.S. market.

But the inequities are not restricted to legitimate commerce. In Mexico, China has become a code word for pirate goods. Tens of thousands of containers overflowing with counterfeit products stack up in West Coast ports each year and make their way to big city thieves kitchen markets like the brawling Tepito bazaar in the capitol. To Mexico’s unflagging shame, an astute Shanghai impresario now owns the copywrite on the image of the country’s most venerated icon, the Virgin of Guadalupe and Mexico is flooded with Guadalupana knock-offs “made in China.”

19 times over the past decade, Mexico has filed dumping charges with the World Trade Organization against China–the Mexican government was the last to sign on to Chinese membership in the WTO. At various moments in its history, Mexico has singled out its tiny Chinese population, mostly shopkeepers and restaurateurs, for retaliation against imagined evils and even today, Chinese free traders are drawn by political cartoonists here as racist stereotypes.

While Mexico and China square off in an ugly turf war, the Dragon is wheeling and dealing for oil, iron ore, bauxite, timber, precious metals, and new markets all over Latin America. Chinese investments in Latin America, $12 billion USD in 2002, rose to $40 billion USD this year and are expected to soar to $100 billion USD by 2010.

Kirschner’s Argentina (rebaptized by wags “Argenchina”) has just inked a $20 billion USD trade deal with the Far East powerhouse for development of its railroads and hydrocarbon production with. Lula’s Brazil–China is its second-most important trade partner–will build a Petrobras pipeline with Chinese money. And even Castro’s Cuba picked up a half billion for nickel production on Hu Jintao’s recent swing through the region. Chile and China have signed 19 bi-lateral agreements and Santiago now sends more copper to Beijing then it does to Washington.

Hu also took a look at prospects in Peru, Ecuador, and Colombia for oil infrastructure development on his September spending spree. At an international conference in the Yangtze river delta port of Tanzhau last year, China disclosed it is looking at the development of three Latin American ports as possible trade hubs–Iquique Chile, Santos Brazil, and Ensenada on Mexico’s Baja California peninsula.

But the big winner in the Chinese sweepstakes has been Venezuelan president Hugo Chavez. Last January, Chavez journeyed to Beijing (his third trip) to unveil a statue of Simon Bolivar and sign a series of joint accords that opens up the previously inaccessible Venezuelan oil industry to the Chinese. Both countries will cooperate in the renovation of 15 depleted oil fields in eastern Venezuela. In addition, China will go partners in the development of the San Cristobal field and in preliminary exploration on the Orinoco. Venezuela will also export 120,000 barrels of fuel oil to China each week–a drop in the bucket for a nation that guzzles 2.7 million barrels daily (second only to the U.S.) Finally, China will build a refinery in Venezuela and finance 700,000 units of worker housing.

The deal grooves nicely with President Chavez’s moves to make Venezuela more independent of U.S. oil demands. Venezuela sells 60% of its petroleum production to Washington and twice in recent months when confronted by perceived U.S. aggressions, Chavez has threatened to cut off the oil flow north. The Chinese opening will give the Bolivarian president more room in which to maneuver. U.S. Senator Richard Lugar, head of the influential foreign relations committee, recently declared that a Venezuela cut-off constituted a threat to Washington’s national security.

Washington has indeed grown more fretful about Chinese intentions in Latin America. The Bush administration recently used the national security card to prevent the sale of the oil giant Unocal to the Chinese and Pentagon documents speak of Beijing as “an inevitable foe.”

In another less globalized time, China’s incursions in Latin America might have triggered charges of Monroe Doctrine meddling. China’s thirst for oil fuels all sorts of political paranoias. Without sufficient supply to feed 9% growth rates over the past two decades (Latin America’s were 0%), China will lose steam in global markets. In the first six months of 2005, Chinese oil consumption boomed 40% in a $60-a-barrel market and only the U.S. uses more imported oil (12 million out of 20 million daily.) Like a an unslakable giant, China stalks the earth seeking fresh infusions and with no significant Latin American suppliers in his oil basket (Africa and Iran are key sources), the once-red Dragon has its sights set on that southern continent.

Mexico, the world’s eighth largest oilocracy, which ships 90% of its production to the U.S., is not exempt from Chinese offers. During his recent stay in this capitol, Hu Jintao is thought to have discreetly inquired about the privatization of PEMEX, the nationalized oil monopoly.

PEMEX remains as impervious as ever to all privatization schemes but that could change radically after the 2006 presidential elections. If the Chinese and the Mexicans overcome the Great Trade Wall between them and patch things up (both are APEC members), the one-time Commies from Beijing might even be in line to pick up a little PEMEX action.

JOHN ROSS is the author of Murdered By Capitalism.


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JOHN ROSS’s El Monstruo – Dread & Redemption in Mexico City is now available at your local independent bookseller. Ross is plotting a monster book tour in 2010 – readers should direct possible venues to johnross@igc.org

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