Mexico is the twelfth largest economy on the globe, with a GDP exceeding one trillion dollars. It has the highest per-capita income and the highest purchasing power parity out of all the countries in Latin America. Mexico is also the only South American member of the Organization for Economic Cooperation and Development. Mexico has been experiencing constant economic growth over the past years. It is estimated, in one of Goldman Sachs' studies, that the country will be one of the world's economic leaders by 2050, along with Brazil, Japan, China and the US. Mexico's economy is quite mature and stable, although the gap between the rich and the poor is continuously growing.

1994 was a rough year for Mexico's economy. The administration has been trying since then to ameliorate the country's macroeconomic situation. In 2002 South Africa suffered an economic crisis, but this didn't have a considerable effect on Mexico's economic state. In the present day, Mexico is affected, like many other countries, by the run up in food and oil. The levels of inflation and the interest rates are very low, especially since the Mexican government has been making sure of it.

Recent studies have shown that, in spite of its economic growth, Mexican economy has plenty of fundamental problems. There is an economic discrepancy between one region of the country and another, especially between the south and the north. Rural areas are being left way behind the urban areas, from not only the economic point of view, and the gap between the rich and the poor has increased over the past few years.

A certain level of inequality exists also as far as incomes are concerned. This inequality needs to be decreased in order to improve Mexico's economy and to minimize the chances of social and political instability. Mexico's infrastructure also needs to be improved. The tax system has to be modernized and labor laws have to be amended.

An important role in the Mexico Economy is played by agriculture. The private sector has begun to get more and more involved both in the industrial and in the agricultural sector. Competition exists in certain sectors such as generation and distribution of power, airports, railroads, seaports, and telecommunications. This is due to the measures taken by the government, hoping to improve the Mexican economy by building infrastructure while clamping down on its black economy.
Juan Abdel Nasser is a writer with the economic reports site Economy Watch , an extensive resource on economics, finance, investing and business worldwide.

This week Marcelo was once again on about the positive economic relations which are developing between China and Argentina. At the other end of the scale is Mexico. This article from the Providence Journal once more illustrates the problem. And it isn't that Mexico's wages have rocketed upwards, more to the point is that China's wage advantage is enormous. And Mexico has failed to really get the full advantage from the good times, the infrastrucure hasn't been built. The principal labour market problem still is demographic: the 1 million workers who enter the labour force every year. On the China front, if you want to know more about how the 'my job just went to China syndrome' is a little wide of the reality, you could check out my piece 'who stole my job', where you will find that manufacturing jobs are even disappearing in China at a rapid rate: the culprit - increased productivity and the transition to a services economy.

Blue-smocked, blue-jeaned and youthful, maquiladora assembly plant workers stream across busy Porfirio Diaz Boulevard, nine hours of labor -- the fruits of NAFTA dreams -- behind them and the destiny of Mexico in their future. The debate in Mexico and the United States over the North American Free Trade Agreement centered on this generation: Young people, given productive lives, would be able to raise their standard of living and buy American products -- spurring U.S. exports and jobs, suppressing illegal Mexican immigration and cementing a win-win-win scenario among Mexico, the United States and Canada.

"NAFTA for Mexico has been a success in terms of increasing trade and foreign investment until about 2000," said Kevin P. Gallagher, a research associate at Tufts University's Global Development and Environment Institute. But the benefits of trade -- the billions in foreign investment -- were to be used to finance development, according to stated goals in Mexico's National Development Plan. "They missed the opportunity to take their foreign investment and build domestic demand and the economy. Now that their investment has dried up, there are no legs for growth," Gallagher said.......

But real wages in Mexico are lower today than when NAFTA was approved and have not kept pace with productivity gains, a study by the Carnegie Endowment for International Peace found. The rural sector has lost some 1.3 million jobs, causing farm families to depend more heavily on the $12 billion in remittances sent annually from the United States. Neither poverty nor the flow of undocumented workers has abated.Mexico's weak economic growth can't absorb the 1 million young people who enter the work force every year, so the flow of undocumented workers to the United States has ballooned from an estimated 200,000 a year in 1994 to more than 300,000 a year today, according to Mexico's National Institute of Statistics. Government statistics show that while extreme poverty has fallen sharply, the number of people classified as poor or extremely poor has risen from 62 million to 69 million, out of a population of more than 100 million..................

Since 2000, factories in Chinese export zones have replaced towns like Reynosa as the favorite factory floor of U.S. multinationals. More than 300,000 Mexican maquiladora workers have lost their jobs since 2000, some because of the U.S. economic downturn, some because of an outflow to Central America but more because of the exodus to China. Mike Allen, president and chief executive of the McAllen Economic Development Corp. and Foreign Trade Zone, said Reynosa has competed well with China compared to other border towns that have lost scores of assembly plants.
Prospective companies arrive with a list of Chinese costs and tell Mexico, "You match this," he said.

For Mexico, the migration to China costs more than jobs. Of equal concern is the drop in foreign direct investment that was to finance economic advancement. "We are now witnessing the beginning of the end of the preferential agreement," said Mexico's former deputy trade minister, Luis de la Calle, who ran Mexico's NAFTA office in Washington. "We reached the end of the benefits of NAFTA in 2003." Mexico failed to use NAFTA's initial flood of capital to invest in education and urgently needed infrastructure projects such as power plants, roads and water treatment facilities, said Tufts' Gallagher. This lack of infrastructure is glaring along the border. While Reynosa's skies are relatively unpolluted compared to other border cities, and manicured new industrial parks house modern facilities, the city's water treatment plants have not kept pace with the growth in population. Snaking to the border near Reynosa's international bridge is a canal choked with lime-green slime. A recent report by the Fitch credit rating agency, "Boom Times at the Rio Grande: U.S.-Mexico Border Region Expands," warned that lagging infrastructure was causing Mexico to become uncompetitive. "The long delay or the postponement of investing in all the infrastructure is really putting Mexico at a huge disadvantage compared to China," said Gersan Zurita, managing director of international public finance at Fitch. "It is limiting the potential growth of the country."

Mexican President Vicente Fox completed the first half of his six-year term on Monday amid increasing criticism that he has failed to live up to promises made during his election campaign: especially those related to economic growth and reform. In the last two years Mexico's economy has been struggling to pick up steam following a recession in 2001. In 2002 GDP expanded a modest 0.9 percent. Right now Mexican growth is lagging far behind the breathtaking spped of the U.S. recovery. The Mexican central bank forecasts gross domestic product growth of 1.5 percent for 2003, way behind the 8.2% rate recorded by the United States in the third-quarter GDP. This has to be worrying for Mexico since about 90 percent of its exports go to the United States. Obviously high on the candidates list for culprits comes China, what else. One thing which is interesting to note is that some countries in LA - Brazil, Argentina - seem to be seeing the China factor as a plus, whilst others - Mexico - are definitely having a hard time of it.

Despite Mexico's proximity to the United States, local exporters say they will not reap the benefits of a U.S.-China spat over import quotas for Chinese bras, knit fabrics and robes. The United States last month slapped import quotas on the Chinese products but Mexico, home to 13,000 apparel manufacturers, has lost past trade advantages and will struggle to fill the gap left by fewer Chinese textiles.

"The Americans are going to come looking because we are the nearest neighbors but in the end it will come down to price and our prices, these days, are high," said Saleh Penhos Erfeli, director of lingerie makers Mas Lenceria. Penhos, who used to export 24,000 robes a week to the United States but since 2000 has shipped nothing abroad, said an overvalued peso currency and higher labor costs have eaten into Mexico's apparel export advantages. "The problem with Mexico is that it is no longer a third-world nation but it is not yet a first world nation and we are not competing on price any more," said Penhos. Mexico's clothing industry lapped up business with the United States and Canada immediately after the North American Free Trade Agreement took effect in 1994. A huge peso devaluation in 1994-95 also gave apparel exporters a big price advantage.

But by 2000, Mexico's advantages had disappeared. Other nations -- from Africa to the Andes -- ushered in mirror trade pacts with the world's No. 1 economy, leveling the playing field. The final nail in the coffin came when China joined the World Trade Organization in 2001.

Mexican exporters said other textile countries with cheaper labor costs than Mexico and similar trade pacts with the United States would also seek bra and robe export orders left open by the Chinese quota cap that is not yet in place. "The market that is going to open up in the United States, the slice of the pie that will emerge, is going to be sought by Mexicans, Guatemalans, Hondurans, Koreans, Taiwanese and by Vietnamese," said Raul Garcia, director of the National Apparel Chamber. "It's not going to be an automatic opportunity for Mexico's clothing industry." Noel Slater, export manager for underwear maker Van Dior which employs 1,000 people, said he no longer makes bras for export because of price restraints. Slater focuses foreign sales on less labor-intensive lingerie such as panties and boxers.

"Because of lower costs the Chinese can be more labor-intensive and they end up with marvelous bras," Slater said. Mexican textile workers are paid about $50 to $75 per week, a third more than their Chinese counterparts and also more than workers in other emerging textile nations such as Honduras and Vietnam. Mexico's labor costs rose 50 percent between 1999 and 2002 as the peso held rock solid against the dollar and inflation outpaced U.S. price hikes. Garcia of the National Apparel Chamber likened China's government-aided and undervalued-yuan economy to handing out subsidies for industry. "We are never going to be able to compete with this type of economy," Garcia said.
Source: Forbes
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The Argentine chancellor Rafael Bielsa, together with representatives of Argentina's biggest companies, will begin in a couple of weeks a business tour through China and Japan.

A few years ago this might have been a trip to "exotic markets" looking for new opportunities, but nowadays Asia is the main destination for Argentine exports. And keep in mind that since the devaluation of the peso, and driven in part by Chinese demand for raw agricultural materials, exports have been the fiscal lifeline of the government, which in turns allows it to finance its social and political projects.

Still, Argentina isn't as oriented towards international commerce as some zones of China itself. According to this article mentioning the visit of Chinese businessmen to Argentina yesterday, the Guangdong province alone has the same GDP as Argentina, but five times its volume of international commerce (which, adding imports and exports, is higher than its own GDP!).

By the way, I can't help but wonder about whether Latin American businessmen, long used to doing business at, let's say, more of a personal than a strictly formal level, might find it easier to relate to unique Chinese relationship patterns like Guanxi than american and european executives coming from a different cultural background.