What’s driving Chinese trade and investment into Mexico?
Trade and investment between China and Mexico is growing but remains small when compared to other countries in the region. For example, while China is now Mexico’s third largest trading partner the value of this trade is less than a tenth of Mexico’s trade with the US.
Increased interest from Chinese entities is driven by interest in the telecommunication and auto parts sectors. There has also been some increase in financing for projects related to transportation and infrastructure, though this does still not meet the full potential of Mexico-China bilateral relations.
So far, all of China’s notable investments in Mexico have been made by SOEs. These investments have been focused on transportation (mainly in connection with railways and trains), infrastructure and projects (for example, the Mayan Train Project), mining and energy (specifically in renewable energies and exploration and extraction of hydrocarbons, including oil refining), telecommunication and auto parts.
How is Basham positioning itself to help clients capitalise on these opportunities?
To help clients navigate the rise of Chinese trade and investment, Basham is setting up a China desk. In the long-term this will include Mexican lawyers fully knowledgeable about Chinese business, culture and language.
Because Chinese entities are still relatively unfamiliar to Mexican clients, we provide as much information as possible, giving a clear and detailed explanation in connection with ongoing investment opportunities and projects being developed or planned in Mexico, including the challenges that such projects represent. In addition, we work as firm to ensure the lawyers advising on these projects and serving clients engaged with PRC counterparties are fully aware of the cultural and legal requirements typically associated with these counterparties. We also
work to help our clients overcome the cultural barriers that exist between Latin American parties and PRC parties.
From our experience of these matters, we identify the following important considerations:
Tax considerations and impacts: It is important to be clear on who will be covering the corresponding taxes of the operation;
Immigration: It is essential to analyse the immigration status of any Chinese workers that will be brought to the project, when applicable. More generally, it is important to undertake due diligence around labour, especially when Chinese workers will be brought to the project;
Compliance: Carrying out a detailed and accurate due diligence revision of the project to verify compliance with Mexican legislation;
Clients must also understand which guarantees are to be executed as part of the transaction, the extent to which FCPA and anti-bribery laws come into play, any relevant import and export legal dispositions and anti-corruption issues that may arise.
What are some of the challenges Latin American entities need to be mindful of when engaging with PRC counterparties?
In business as in general culture, Mexico is closely aligned to the US. Therefore, there is a significant cultural barrier when it comes to doing business with Chinese counterparties. Developing Chinese business contacts and networks should be a long-term aim of any Mexican entity that is looking to capitalise on growing Chinese trade and investment.
The cultural and language barriers and differences are particularly notable when one compares how businesses are developed and managed in Latin America with how they are handled and managed in the PRC.
The best way to remedy this is to create an environment in which both parties can trust and understand each other, facilitating a positive business relationship. However, Mexican parties must be aware that bureaucracy in connection with some PRC internal procedures may result in delays to the project timeframe.
Recent experience and representative matters
Basham’s experience in dealing with Chinese cross-border work includes advising on:
The proposed participation of a Chinese company in the tender procedures called by the Mexican federal government regarding the development and construction of the Mayan Train Project, one of the most significant projects that Mexican federal government intends to carry out in the region Yucatan Peninsula. This project saw Basham give advice in areas related to transport, corporate, and contracts, among others.
The participation of a Chinese company, as general contractor, in a solar power project in Mexico.
The participation of three major Chinese companies in two tenders organised by the Federal Electric Commission for liquefied natural gas transactions in the Mexican cities of Altamira and Manzanill.
The participation of a Chinese SOE in the possible purchase of onshore wind and solar assets owned by a Mexican company.