The Rise of China Plus One Strategy and Its Impact on Mexico’s Industrial Landscape

In recent geopolitical developments, the visit of U.S. Treasury Secretary Janet Yellen to China, and her critical remarks regarding China’s push to bolster its manufacturing industry, have intensified tensions between the two global powers. This tension arises as China demonstrates robust economic growth, with a reported 5.3% increase in GDP in the first quarter of 2024, compared to the previous year, as per China’s National Bureau of Statistics.

Following the aftermath of the real estate crisis, Chinese President Xi Jinping initiated an intensive strategy to leverage the country’s manufacturing sector, aiming not only at the domestic market but also towards satisfying global demand through strategic alliances.

The focus lies particularly on three industries: electric vehicles, solar panels, and batteries, in addition to investments in hi-tech sectors. This move is evident in recent announcements such as UTAS-NOVA Automotive Lighting Systems Mexico’s investment of over USD 34 million in a new plant in Aguascalientes, alongside other major players like FengMei, NBHX, and MINTH investing in battery production for electric vehicles in the same region.

Mexico, with its abundant labor force and strategic location, emerges as a key player in international relations, transcending mere nearshoring to embrace what is termed “friendshoring” – a concept intertwining diplomatic relations with nearshoring strategies. Mexico is thus positioned as an ideal partner for China’s “China Plus One” corporate strategy, facilitating diversification of production considering factors such as labor costs and agile supply chains, which has been well received in the Latin American region.

China’s investments in Mexico not only revolve around establishing production bases but also aim to strengthen diplomatic ties to maintain proximity and access to the U.S. market, while also exploring commercial relationships with emerging markets in Latin America.

Pedro Godínez, founding partner of Mexican firm Hernández Godínez & Martínez, notes that Mexico’s geographical advantage plays a crucial role in attracting Asian companies, particularly from China and Taiwan. The firm’s strategic location in Guadalajara, another potential nearshoring hub, combined with its expertise in Asian regulations, distinguishes it within the Mexican legal sector.

However, amidst these opportunities, Mexico faces challenges in terms of infrastructure investment, particularly in energy and water resources, as well as cultural and language barriers. Establishing a solid administrative structure, implementing ESG policies, investing in real estate and legaltech, and prioritizing intellectual property are identified as key areas for businesses aiming to capitalize on the China Plus One strategy.

As Mexico continues to position itself as a nearshoring destination, the expansion of the industrial real estate sector becomes increasingly significant. Initiatives such as Tesla’s announcement of a mega production plant in Monterrey reflect the growing industrial activity, particularly in regions like the Bajío, which already hosts numerous automotive assembly plants.

Ultimately, for companies eyeing Mexico’s industrial real estate, understanding the location’s potential and its regulatory framework, while aligning with project demands and investment complexities, will be crucial for success.

Resumen en Español:

La estrategia “China Plus One” está redefiniendo el panorama industrial de México, atrayendo inversiones y fomentando alianzas estratégicas, en medio de tensiones geopolíticas y crecimiento económico. China busca diversificar su producción y fortalecer lazos comerciales, mientras que México emerge como un socio clave, aprovechando su mano de obra y ubicación estratégica. A pesar de las oportunidades, México enfrenta desafíos en infraestructura y barreras culturales. La expansión del sector inmobiliario industrial refleja el dinamismo económico, especialmente en regiones como el Bajío y Monterrey. Para las empresas interesadas en México, comprender el potencial de la ubicación y su marco regulatorio será crucial para el éxito en un entorno cada vez más competitivo.