Bill Chan has never set foot anywhere in Mexico, let alone the lonely stretch of desert in the north of the country where he suddenly decided to build a $300 million factory. But that seems like a minor detail amid the pressure to adapt to the rapidly changing global economy.
It’s January 2022, and Mr. Chan’s company, Man Wah Furniture Manufacturing, is facing serious challenges moving sofas from its factories in China to customers in the United States. shipping cost has skyrocketed. Washington and Beijing have been locked in a fierce trade war.
Man Wah, one of China’s largest furniture companies, eagerly manufactures its products on the North American side of the Pacific Ocean.
“Our main market is the United States,” said Chan, managing director of Man Wah’s Mexican subsidiary. “We don’t want to lose that market.”
That same goal explains why so many large Chinese companies are investing heavily in Mexico, taking advantage of the expanding market. North American trade deal. Following the path outlined by Japanese and Korean companies, Chinese companies are setting up factories that allow them to label their goods as “Made in Mexico”, then ship their products to them. they enter the United States tax-free.
The interest of Chinese manufacturers in Mexico is part of a broader trend known as near the shore. International companies are moving production closer to customers to limit their vulnerability to shipping issues and geopolitical tensions.
The participation of Chinese companies in this shift demonstrates the deepening assumption that the breach of the US-China divide will be a lasting feature of the next phase of globalization. However, it also reveals something more fundamental: Regardless of the political tensions, the commercial forces linking the United States and China are even stronger.
Chinese companies have no intention of giving up on the US economy, which is still the largest in the world. Instead, they are setting up operations within the North American trade bloc as a way to supply Americans with goods ranging from electronics to clothing to furniture.
The Mexican border state of Nuevo León has positioned itself to reap the bounty. Led by a 35-year-old governor, Samuel García, the state has attracted foreign investment while pursuing highway improvements for easy access. border line.
Mr. García recently attended the World Economic Forum in Davos, Switzerland, to recruit more companies.
“Nuevo León is having a geopolitical planetary alignment,” the governor announced in an interview in the state capital of Monterrey, inside the government palace, a large suite with high ceilings and a balcony overlooking out to the jagged peaks of the Sierra Madre. “We are taking in a lot of Asians who want to come to the US market.”
Since García took office in October 2021, nearly $7 billion in foreign investment has poured into Nuevo León, making the state the largest recipient of money after Mexico City, according to the Mexican Ministry of Economy.
In 2021, Chinese companies account for 30% of foreign investment in Nuevo León, second only to the United States with 47%.
A portion of this money is financed by factories that will manufacture finished products for sale in the United States. But much of it focuses on the broader reconstruction of global supply chains.
As the pandemic disrupted Chinese industry and the gate is stuck, companies with factories in the United States suffer from a shortage of parts made in Asia. Many are now asking their suppliers to set up factories in North America or risk losing their business.
Lizhong, a Chinese car wheel manufacturer, is building the company’s first factory outside of Asia in an industrial park in Nuevo León. Lizhong’s biggest customers, including Ford and General Motors, have pressed the company to open a factory in North America, Mexico’s general manager, Wang Bing, said.
A Korean company, DY Power, which makes components for construction equipment, is considering northern Mexico as the site of a factory near a major customer in Texas.
“After going through the pandemic and supply chain crisis, with China shutting down because of Covid, many North American manufacturers want to get rid of them,” said Sean Seo, chief executive officer of Seattle-based DY Power. risk.
He declared: “Globalization is over. “It’s localized now.”
César Santos has made substantial bets on such claims to be proven true.
A corporate lawyer, Mr. Santos, 65, runs a side business as a developer in Monterrey, an industrial boom town filled with upscale restaurants, shopping malls and spas. sparkling.
A decade ago, he was approached by a developer in Los Angeles, representing a Chinese electronics company that was contemplating opening a factory in Mexico. Mr. Santos controls a property of interest – a 2,100-acre piece of land.
Dotted by cactus, the property sits less than 150 miles from the Texas border. While surrounding countries grapple with violence related to drug trafficking, Nuevo León has a reputation for security. The state prides itself on a highly skilled workforce, with the presence of universities producing engineering graduates, among them Tec de Monterrey, often referred to as the “Mexico of MIT.” “.
The land used to be his family’s cattle ranch when Mr. Santos was a child, the site of horseback riding adventures. Now, he sees a lucrative opportunity to turn it into an industrial park.
He took a trip to China, taking a high-speed train from Shanghai to the lakeside city of Hangzhou to meet the Holley Group, which has built an industrial park for Chinese companies in Thailand.
“China is a country that has developed everything too quickly,” Mr. Santos said. “I was really surprised.”
By 2015, he had formed a joint venture with Holley and another Chinese partner, Hofusan Real Estate. They plan a network of warehouses and factories to front a hotel and temporary apartments for visiting managers, plus more than 12,000 homes for workers.
Holley Group appoints Jiang Xin to oversee the joint venture. Before that, he worked at the company’s project in Thailand. Mexico offers another proposal.
“Chinese companies know nothing about Mexico, and the only things we know are bad things, dangerous things,” Jiang said. “Then Trump came.”
When he became president in 2017, Donald J. Trump demanded that American companies abandon China. In 2018, he imposed high tariffs on hundreds of billions of dollars of Chinese imports.
“The tariffs helped us,” said Mr. Jiang. “Chinese companies want more options. And we are one of their options.”
By the time Mr. Chan began looking into Mexico in the fall of 2021, another 27 Chinese companies had purchased land inside Hofusan Park. Only one large parcel left.
Man Wah responded to the tariffs by building a factory in Vietnam and using it to manufacture products for the US market. But soaring shipping prices have stymied that strategy.
Man Wah is moving 3,500 40-foot containers a month across the Pacific from Vietnam. Trips that used to cost $2,000 suddenly increased tenfold.
Mr. Chan used the Chinese social media platform WeChat to connect with Mr. Jiang. His questions were very blunt. How long can Man Wah start building? (Immediately.) How’s the highway? (Not great, but improving.) Are there any authentic Chinese restaurants nearby? (No.)
Within weeks, Man Wah pledged to buy the land. In January 2022, Mr. Chan signed the contract before boarding a flight to Mexico, leaving behind his wife and two children in the Chinese city of Shenzhen.
While the new factory was under construction, Man Wah had already started manufacturing sofas in a small rented factory nearby.
Even before the temporary location was determined, Mr. Chan had loaded 70 containers full of machinery and raw materials in China, loading them onto a ship bound for Mexico.
“We always do things quickly,” he said. “Don’t worry about anything, just do it.”
Man Wah worries about a few things: hiring enough workers and nurturing local suppliers.
The company plans to produce nearly 900,000 pieces of furniture a year in Mexico. That would require hiring and retaining 6,000 workers.
Man Wah is used to operating in China and Vietnam, where independent labor unions are essentially banned, and where rural people flock to industrial zones in search of work.
In Nuevo León, the unemployment rate is 3.6%. The increase in investment has caused a fierce competition for workers.
Savvy companies have lured their employees with additional benefits like quality meals and transportation to work. But Man Wah and other Chinese companies respond to bosses in China, who tend to be frugal while thinking workers are easy to replace.
Finding local suppliers is also a challenge. Under the terms of the North American trade agreement, manufacturers must source a minimum percentage of parts and raw materials from within the region to qualify for duty-free entry into other countries in the bloc.
Three years ago, Lenovo, a Chinese computer manufacturer, opened a new factory in Monterrey that specializes in the production of servers and data containers for cloud computing.
Until last year, Lenovo shipped a key component — the so-called motherboard — from a factory in China. But as international shipping troubles increased, the company turned to a supplier in the Mexican city of Guadalajara.
Lenovo also stopped importing packaging materials from China, buying them instead in Mexico.
But Lenovo continues to import many key components from China, from memory devices to specialized cables.
“There is no supply chain for these things in Mexico,” said Leandro Sardela, the company’s western operations manager.
At least not yet.
