The China Signal - July 26
Concordia Americas Summit, Ganfeng to purchase Lithea, Chinese manufacturers look to nearshore to Mexico, Uruguay's FTA negotiations
G’day, and welcome to The China Signal. This week, China was top-of-mind among business and political leaders at the Concordia Americas Summit in Miami; Ganfeng announces purchase of lithium miner Lithea; Chinese manufacturers look to nearshore to Mexico; Uruguay’s FTA negotiations with China advance; plus more. Read on.
It was a pleasure to catch up with some TCS readers at the Concordia Americas Summit recently. Please stay in touch, and I hope to see you at the Annual Summit in New York in September!
Concordia Americas Summit 🤝🎙📑
ESG issues and geopolitics were top of mind for business leaders and current and former heads of state at the Concordia Americas Summit in Miami on July 13 & 14. I attended the two day conference for Veracity Worldwide alongside CEO Jay Truesdale and MD Ben Weiss, who led events on these two themes. It was clear from our events and side conversations that geopolitics, and in particular the US-China rivalry is impacting strategic and tactical decisions business leaders and governments in the region are making to an extent most didn’t anticipate until recently. Some issues that I argue businesses and governments in Latin America need to consider are how they:
Partner and compete with Chinese firms - Many firms are unable to compete with Chinese firms on price, who benefit from the state’s implicit or explicit backing, cheaper financing, and operate without shareholder pressure to turn quarterly profits. How can firms emphasize other aspects of their offering, such as the quality of their product, or their ESG capabilities to compete with them? How do companies looking to partner with Chinese firms conduct due diligence so they’re fully aware of the political and ESG risks they’re engaging with?
Attract Chinese investment, while protecting sovereignty, and safeguarding against national security concerns - Latin American countries have a tremendous need for foreign investment to drive their economic recoveries from the Covid-19 pandemic. Yet some countries lack appropriate mechanisms to assess the impact of Chinese investment from a national security perspective. State Grid’s takeover of Naturgy in Chile (TCS April 2 and December 4) was a telling example.
Source materials from China - Businesses must be aware of the labour practices of their Chinese suppliers, as consumer awareness of forced labour in China grows. Firms should also understand their exposure and risk to sanctions on their suppliers from the US and EU, and have plans in place for alternative suppliers. (MH)
You can watch Ben’s discussion with Veracity’s Senior Advisor Ambassador Paula Dobriansky on ESG at the Concordia Summit here, and read his op-ed below:
Critical Minerals ⛏
~Article above is in Spanish~
On Monday July 11, China's largest producer of lithium compounds Ganfeng Lithium Co., Ltd. (see TCS June 12 backgrounder) said it will buy Lithea Inc. for up to $962 million as it seeks to secure access to more resources for production of key battery metals.
Privately held Lithea owns rights to two lithium salt ponds in Argentina's Salta province, in the northwest of the country. Argentina, part of the so-called "lithium triangle" along with Chile and Bolivia, has been trying to attract more investors with new infrastructure for miners, and tax cuts. (RP)
Supply Chain 🚢📦
While Washington has urged the nearshoring and “friendshoring” of suppliers from Asia to Mexico in the context of their geopolitical rivalry with Beijing, some Chinese firms, looking to expand into the US market, are taking advantage of this themselves. (MH)
Mexico’s zero-tariff trade agreement with the US has made the Central American country very attractive to Chinese television manufacturers, stymied by the trade dispute between China and the US and wishing to gain better access to the world’s biggest market for color TV sets.
A color TV industrial chain is being formed between China, Mexico and the US, several industry insiders told Yicai Global. Although the main components are still made in China, the TVs are assembled in Mexico and the finished products are sold in the US, Central and South America.
The China-US trade tiff is the main reason why Chinese manufacturers are building factories in Mexico, said Hu Hai, head of the Hofushan Industrial Park in Monterrey, northeastern Nuevo León state.
To reduce costs, Hisense has increased localized raw materials and parts production, such as injection molding and sheet metal manufacturing, so that over 20 percent of the TVs’ main parts are now sourced locally. The liquid crystal display panels, a core component, still come from the Chinese mainland and Taiwan.
China’s Contemporary Amperex Technology Co. Ltd., the world’s biggest maker of batteries for electric vehicles, is considering at least two locations in Mexico for a manufacturing plant to potentially supply Tesla Inc. and Ford Motor Co.
The battery manufacturer is considering Ciudad Juarez, in the state of Chihuahua, and Saltillo, in Coahuila, according to people familiar with the deliberations. Both are near the Texas border. The company is contemplating an investment of as much $5 billion in the project, said the people, who asked not to be identified discussing private information.
During an event that took place simultaneously in China and Mexico City, mayor Claudia Sheinbaum said while this first train was entirely assembled in China, the others will be finished in Mexico thanks to an agreement with CRRC.
The agreement requires that part of each train is assembled in Mexico. CRRC will train Mexican professionals to that end.
“The 28 other [trains] will be 65% fabricated in China and the rest at a plant in Querétaro state to have participation from national providers, generate technological know-how transfer from China to Mexico, and boost generation of employment in our country,” Sheinbaum said.
Note: Sheinbaum is a close political ally of Mexican president Andrés Manuel López Obrador, and is the frontrunner to win the Morena party’s nomination to run for president in 2024. (MH)
~Article above is in Spanish~
On Wednesday 13 July, Uruguayan President Luis Lacalle Pou announced that an agreement on a feasibility study with China to begin formal negotiations on a Free Trade Agreement (FTA) was reached, and that he had already personally informed the leaders of local political parties and the Mercosur partner governments, which include Argentina and Brazil.
Lacalle Pou initiated FTA discussions last year with a feasibility study commissioned in September 2021. The President caused a stir with his Mercosur partners when he announced his intention to pursue a bilateral agreement, rather than as a bloc through Mercosur. However in a statement to media on July 18, Lacalle Pou appeared open to Mercosur’s involvement, stating his aim “is to move forward together, [as] Mercosur has much more negotiating power as a whole than Uruguay alone". During a subsequent meeting with Mercosur partners on July 19 and 20, he said: “Once the first stages are finished, we will invite the [Mercosur] partners to join in, so as to make a bloc with more negotiating power, but otherwise Uruguay is going to advance anyway”.
On July 25, the director general for Latin America and the Caribbean of the Chinese Foreign Ministry, Cai Wei, said Beijing was open to the possibility of “cooperation with Mercosur as a whole”. (RP)
For further background on Uruguay-Mercosur tensions over China, see TCS March 11.
Also at the Mercosur meeting: Mercosur didn’t allow Ukrainian President Volodymyr Zelensky to address the group, after its leaders failed to reach a consensus. This continues an emerging pattern of some leaders in the region refusing to fall in line with the US and Europe’s condemnations of Russia’s invasion, and their unwillingness to alienate themselves from Moscow. I first identified this trend in TCS March 4.
Andean Community 🇧🇴 🇨🇴 🇪🇨 🇵🇪
~Article above is in Spanish~
China is the Andean Community’s (CAN) largest trading partner, capturing 19.3% of the group’s exports, and 25.1% of its imports. The US trailed second with 18.5% of the CAN’s exports, and the EU 11.8%. Twenty percent of CAN’s imports were from the United States and 11.6% from the EU. Notable exports included crude petroleum oils, copper ores, crude forms of gold for non-monetary use, fresh cavendish valery bananas, and bituminous coal. (RP)