China-Mexico Economic Relations: Trade, Investment, and Opportunities

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China and Mexico economic relations are thriving, with bilateral trade reaching US$100.2 billion in 2023. China is Mexico’s second-largest trading partner, and the trade dynamic continues to expand despite challenges posed by US trade policies. Both countries stand to benefit from collaboration in green technologies, particularly in solar, wind, and battery storage. Mexico’s lithium reserves present a significant opportunity for China to enhance its renewable energy supply chain, while the electric vehicle (EV) sector shows strong potential for localized manufacturing, with Chinese automakers investing in plants and sales in Mexico. Mexico offers Chinese businesses access to the North American market, thanks to its favorable trade agreements like the USMCA. This, combined with Mexico’s lower labor costs and developed infrastructure, makes it an attractive location for manufacturing and investment, complementing China’s global expansion strategy.

China and Mexico have maintained a long-standing diplomatic relationship that has blossomed into a powerful economic partnership over the decades. Since the establishment of formal ties, the two countries have deepened their cooperation across trade, investment, and infrastructure. In recent years, this relationship has only strengthened as China and Mexico explore new avenues for collaboration amid global economic shifts.

Today, China is Mexico’s second-largest trading partner, while Mexico’s position as a key North American gateway provides Chinese businesses with strategic access to the US market. Chinese firms are increasingly investing in Mexican industries, with many tech and manufacturing companies setting up operations to leverage Mexico’s favorable labor costs, developed infrastructure, and extensive network of trade agreements.

This growing alliance reflects each country’s strengths and needs: China, with its demand for energy resources and global expansion interests, and Mexico, seeking infrastructure investments and economic growth. With over 44 trade deals in place and strong ties to the US economy, Mexico offers Chinese businesses unique opportunities to access North American and Latin American markets.

In this article, we examine the evolving economic partnership between China and Mexico, exploring how their deepening ties are creating a new economic landscape for both countries.

China-Mexico bilateral trade China and Mexico have a longstanding trade relationship, and as of 2023, their total trade reached US$100.2 billion—an increase of 6 percent compared to the previous year. China ranks as Mexico’s second-largest trading partner, with electronic products, machinery, and automotive parts making up a substantial portion of imports. Mexico, in turn, exports raw materials, agricultural products, and electronic components to China.

In 2023, China-Mexico trade reached significant monthly peaks, highlighting a strengthening trade relationship. Monthly trade volume peaked in August 2023, reaching US$9.55 billion, a US$516.68 million increase over August 2022’s US$9.03 billion. This year-to-date growth, which saw cumulative trade reach US$66.3 billion by August, reflects a year-on-year increase of 4.8 percent, highlighting ongoing trade expansion.

Breaking down this growth by category, exports from China to Mexico reached US$81.56 billion in 2023. China’s top exports to Mexico included electrical and electronic equipment (US$22.33 billion), machinery (US$13.67 billion), and vehicles (US$10.17 billion), reflecting Mexico’s reliance on China for industrial and automotive imports. Plastics (US$3.14 billion) and furniture, lighting, and prefabricated buildings (US$2.23 billion) were also significant.

Top Exports from China to Mexico, 2023

Product Value (US$, Billion)

Electrical, electronic equipment 22.33

Machinery, nuclear reactors, boilers 13.67

Vehicles other than railway, tramway 10.17

Plastics 3.14

Furniture, lighting signs, prefabricated buildings 2.23

Source: United Nations COMTRADE

Imports from Mexico to China also saw robust growth, rising by US$18.74 billion in 2023. China’s main imports from Mexico were electrical and electronic equipment (US$5.82 billion) and ores, slag, and ash (US$4.8 billion), reflecting China’s demand for both industrial inputs and raw materials. Other significant imports included optical, medical, and technical apparatus (US$2.68 billion), vehicles (US$1.48 billion), and mineral fuels and oils (US$0.9 billion), underscoring the diverse nature of trade between the two nations.

Top Exports from Mexico to China, 2023

Product Value (US$, Billion)

Electrical, electronic equipment 5.82

Ores slag and ash 4.80

Optical, photo, technical, medical apparatus 2.68

Vehicles other than railway, tramway 1.48

Mineral fuels, oils, distillation products 0.90

Source: United Nations COMTRADE

These trends highlight China’s steady role as a supplier of goods to Mexico while underscoring the growing import of Mexican goods into the Chinese market, enhancing bilateral trade.

China-Mexico trade under US scrutiny: Challenges and opportunities Recent US measures targeting Chinese companies operating in Mexico are reshaping the bilateral trade dynamic. In compliance with the US-Mexico-Canada Agreement (USMCA), Mexican authorities have increased scrutiny of Chinese imports. For example, in August 2024, Mexico’s tax authority seized more than 1.4 million Chinese goods due to documentation issues, part of broader efforts to curb tax evasion and smuggling through stricter import regulations.

The US has also advocated for strict USMCA standards on “melt-and-pour” steel, mandating that steel entering the US through Mexico must be produced within North America to avoid tariffs. This policy places additional restrictions on Chinese metals and complicates trade for Chinese exporters hoping to access the U.S. market via Mexico.

Automotive trade is another key area of tension. There have been growing calls for new tariffs and regulations on Chinese-made vehicles assembled in Mexico, underscoring US efforts to limit China’s role in North America’s EV market.

Despite these hurdles, China and Mexico continue to find strong mutual benefits in their partnership. For China, Mexico offers a strategic gateway to North America, while Mexico gains significant investment in infrastructure and industrial growth. As US trade policies evolve, China and Mexico remain poised to strengthen economic ties, carefully navigating the challenges and opportunities posed by North American trade agreements and shifting geopolitical dynamics.

China’s investment in Mexico Chinese foreign direct investment (FDI) in Mexico reached a 13-year high in 2023, with capital expenditure surging to US$5.6 billion, up significantly from US$267 million in 2018. Since 2020, the arrival of new Chinese firms in Mexico has grown 2.8 times, though reinvestment by established Chinese companies has slowed.

Most Chinese FDI remains concentrated in basic manufacturing sectors, particularly in automotive parts and electronics assembly. In 2023, China allocated US$3.5 billion to automotive original equipment manufacturing (OEM) in Mexico, highlighting its focus on foundational industries. High-tech investment, however, is still limited, with only 3 percent of Chinese-occupied industrial space in Mexico dedicated to advanced manufacturing such as electronics, telecommunications, electric vehicles, and microchips.

Despite the relatively small share of high-tech investments, Chinese tech companies in Mexico have expanded their industrial footprint by 39 percent over the past two years, suggesting a potential shift toward more advanced manufacturing in the future.

Trade and investment agreements China-Mexico bilateral investment agreement In 2008, China and Mexico entered into a bilateral investment agreement (BIT) aimed at strengthening economic ties and fostering a mutually beneficial investment environment. This BIT, which came into effect in 2009, reinforces legal security and investor protections for both Chinese and Mexican investors, establishing a solid foundation for economic collaboration between the two nations. Key provisions include:

Investment protection: The BIT safeguards investments from actions like expropriation, nationalization, and discriminatory practices, ensuring that investor interests are secured under a framework of fairness and legal protection. Dispute resolution mechanisms: To manage potential conflicts, the agreement incorporates several avenues for dispute resolution, including negotiation, mediation, and arbitration, with an investor-state dispute settlement (ISDS) clause ensuring impartial arbitration processes.

The China-Mexico BIT also encourages the flow of investments by offering guarantees, support, and incentives, fostering a favorable environment for economic growth. The principles of non-discrimination are upheld, guaranteeing that investors from each country receive fair and equitable treatment equivalent to that afforded to other investors.

Additionally, the BIT prioritizes transparency and rule of law, mandating clear and consistent investment regulations and providing investors with access to legal remedies when necessary.

China-Mexico double taxation avoidance agreement Alongside their BIT, China and Mexico have also established a double taxation agreement (DTA) that prevents companies and individuals from being taxed on the same income in both countries. The China-Mexico DTA, effective since January 1, 2006, aims to promote cross-border investments by offering clarity and tax relief on international income.

The DTA pertains to income taxes imposed by both China and Mexico, covering:

The agreement defines the concept of “permanent establishment” concerning tax liability in each contracting country. Under the DTA, a permanent establishment arises if a business operates in a contracting state through employees or hired personnel for a related project for more than 183 days within any 12-month period.

Withholding tax rates under the DTA are as follows:

Dividends: Rates vary depending on ownership and income source, generally ranging from 5 percent to Interest: Generally set at 10 percent. Royalties: Set at 10 percent.

The DTA also specifies cases where capital gains derived by a resident of one contracting state may be taxed by the other, including:

Gains from the sale of immovable property; Movable property associated with a permanent establishment; and Shares that derive substantial value from immovable property in the other contracting state.

Double taxation relief methods differ for each country. China generally follows the credit method, allowing taxpayers to claim credit for taxes paid abroad, thereby lowering the overall tax burden on income that is subject to taxation in both countries.

Mexico, on the other hand, typically uses an exemption method, whereby income earned abroad may be exempt from Mexican taxes, provided certain conditions are met. In some cases, however, Mexico may opt to apply the credit method to particular income types, in alignment with its national tax legislation.

Additionally, the DTA includes an anti-abuse provision that restricts treaty benefits if transactions are undertaken primarily to obtain these benefits, thus ensuring that treaty provisions align with the original intent of fostering fair and genuine economic cooperation between China and Mexico.

Multilateral treaties China and Mexico, both members of the WTO, are signatories to various multilateral treaties concerning trade and investment. These include:

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which mandates WTO members to extend intellectual property rights to owners in any member state. It incorporates a most-favored-nation (MFN) clause, ensuring equal treatment for IP rights protection across all member countries. Additionally, it provides mechanisms for dispute resolution and compensation. The Agreement on Trade-Related Investment Measures (TRIMs), which prohibits the implementation of investment measures that restrict trade between members. This includes measures like local content requirements, which mandate the use of locally-produced goods or services by companies operating in a market. The General Agreement on Trade in Services (GATS), which grants most-favored-nation status to service providers of any WTO member, excluding governmental services such as social security, public health, education, and certain services related to air transport.

Reshoring China to Mexico VS. adopting a “China+1” strategy The question of reshoring manufacturing operations from China to Mexico has gained attention, especially in light of recent global disruptions. Rising labor costs in China, exacerbated by the US-China trade war and stringent COVID-19 policies, have led some companies to consider relocating to lower-cost countries closer to the US Analysts point to Mexico as an attractive option due to its proximity to the American market, lower operational costs, and participation in the USMCA, which facilitates tariff-free trade. Additionally, Mexico’s familiarity with US business practices and products makes it a viable option for companies serving North and South American markets.

However, concrete evidence of a large-scale reshoring trend from China to Mexico remains limited. Reports indicate that while some companies have moved operations out of China, the numbers are still largely anecdotal. Many businesses continue to recognize China’s advantages, including its robust manufacturing infrastructure, skilled labor force, and extensive supply chains. For industries relying on high-tech manufacturing, China’s well-developed capabilities in automation and data-driven production provide unique efficiencies that can be difficult to replicate elsewhere. Additionally, China’s massive consumer base remains an attractive market in itself, with many companies choosing to establish operations specifically to serve local demand.

For companies serving markets outside of the Americas, Mexico’s geographic and market advantages are less compelling compared to alternatives in Asia, like Vietnam or Indonesia, where labor costs are even lower. Instead of fully relocating, many companies are adopting a “China+1” strategy, diversifying supply chains by supplementing Chinese operations with facilities in other low-cost regions. This approach allows businesses to maintain the advantages of China’s manufacturing ecosystem while mitigating risks associated with geopolitical tensions and rising costs.

Outlook and opportunities New energy and green technologies The global push for a green transition has presented a wealth of opportunities for China and Mexico, particularly in the renewable energy sector. China, a global leader in green technology development, offers advanced expertise in solar power, wind energy, and battery storage. Mexico, with its strategic geographic location and abundant natural resources, is well-positioned to become a key player in this sector.

Collaborative efforts in areas like wind turbine and solar panel manufacturing, as well as energy storage solutions, can spur sustainable development in both nations. Furthermore, Mexico’s lithium reserves make it a prime candidate for partnerships in lithium extraction and refining, a key component for green energy storage technologies.

EVs manufacturing The EV industry stands out as a promising sector for bilateral collaboration. With China’s leading position in EV production, including major manufacturers like BYD, Mexican markets present a lucrative opportunity. Chinese automakers have already made significant strides in Latin America, particularly in Mexico, where sales and local manufacturing plants are expanding.

This shift from trade-based to locally integrated manufacturing opens doors for long-term industrial cooperation and supply chain development, benefiting both China and Mexico.

Mineral mining and refining The demand for critical minerals, such as lithium, cobalt, and copper, is increasing as part of the global shift toward clean energy technologies. Mexico, with its vast mineral resources, especially lithium, is a valuable partner for China’s green energy supply chains.

Chinese companies with expertise in solar, wind, and battery technologies can collaborate with Mexican counterparts to develop domestic refining capabilities, ensuring a steady supply of raw materials necessary for renewable energy production.

Such partnerships could make Mexico a key player in the global green transition, while also benefiting from China’s technological expertise and investment.

About Us

China Briefing is one of five regional Asia Briefing publications, supported by Dezan Shira & Associates. For a complimentary subscription to China Briefing’s content products, please click here.

Dezan Shira & Associates assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Haikou, Zhongshan, Shenzhen, and Hong Kong. We also have offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Dubai (UAE) and partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh, and Australia. For assistance in China, please contact the firm at china@dezshira.com or visit our website at www.dezshira.com.

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China-Mexico Economic Relations: Trade, Investment, and Opportunities

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