LatinFinance - Latin America-China Investment Guide 2016 CLONE - 63

$3.75 billion bullet-train project, an upset
Beijing reportedly froze some planned
projects in the country.
More recently, however, political relations have improved. Some potential Chinese investors appear to be eyeing Mexico's
stable economy, set to gain 2% to 3% this
year, according to the Bank of Mexico.
"Mexico's infrastructure market is opening up very rapidly, attracting lots of investments that Chinese companies like, such as
energy, roads, gas pipelines and power and
oil infrastructure," says one senior M&A
banker. For these, "the government is looking for long-term investors from China and
elsewhere in Asia."
Soon after the high-speed train fiasco,
China and Mexico launched a $2.4 billion
joint fund to bankroll energy infrastructure, auto parts and telecommunications
investments. Despite the much-ballyhooed
announcement, both nations failed to make
significant commitments, says an official
with export lobby ProMéxico.
However, the improving political climate, coupled with increasing pressure
from China that the money be used in the
energy sector, "means that we can expect
a big transaction to close by the end of the
year", he says.
In that vein, says the ProMéxico executive, a state-owned Chinese energy conglomerate is mulling a partnership with grid
operator Comisión Federal de Electricidad
(CFE) to build a renewable-energy plant in
Mexico.
Meanwhile, Chinese investment in
Mexico overall is expected to pick up this
year. The ProMéxico source says that,
beyond energy, interest is rising in a wide
range of manufacturing areas, including
auto parts, electronic component and appliance manufacturing.
Moreover, José Rogelio Garza, Mexico's
Industry and Commerce undersecretary,
told the Mexico-China Cooperation Forum
in May that Chinese firms, mainly from
the Guangdong Province, were looking to
strike strategic alliances with their Mexican
counterparts in those same sectors.
Agustín García, who heads the Asia-Pacific division of Mexico's Foreign Commerce
Enterprise Council, COMCE, adds that the
partnerships could usher an additional
$480 million in near-to-midterm investments.
China appears especially interested in
Mexico's Special Economic Zones, which
the government is promoting to develop
the country's poorer Chiapas, Oaxaca and

Guerrero states. The administration hopes
to lure Chinese funds into rail, road and
port infrastructure development, with a
view to securing commitments this year
and next, according to García.
"China is an expert in these types of
projects," he says, adding that the country's
businesses have developed comparable
projects in similar economic development
zones, giving authorities confidence that
they can replicate that success in Mexico.
China's Beijing Automotive Industry
Corp. is also keen to muscle into Latin
America's second-largest economy. In June,
a spokesman announced that the company
will invest an undisclosed sum to build a
Mexico-based car factory by 2019 to supply markets in Latin America, the US and
Canada.
Growth in question
Not all observers are expecting Chinese FDI
into Latin America to rise, however. Sam
Wang, a research associate at the Council

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of Hemispheric Affairs, says volumes could
stay flat or even decline compared to 2015.
This is mainly because the Chinese government, in the face of its continued economic
doldrums, is becoming more risk averse.
The IMF predicts Chinese GDP will fall
below 6% in 2020, from 6.6% this year.
"The recent economic slowdown is
making Chinese companies and the government more cautious about investing abroad
and assessing risks in Latin America," says
Wang.
He expects future Chinese FDI to shy
away from Mexico, concentrating instead in
South America - mainly Brazil, but also in
Peru, Colombia and Chile.
"I am not optimistic about future Mexico-China relations," says Wang. "Mexico's
economy is very tightly integrated with the
US, so there are fewer opportunities for Chinese firms to build market share there than
in Colombia, Ecuador or Peru."
Wang also warns that slumping oil and
commodity prices may signal a deceleration in Chinese spending in coming
months, and that government support
through the China Development Bank or
the Export-Import Bank of China could be
winding down. (See page 65 for more on
official Chinese lending in Latin America).
Environmental and social responsibility
standards are also rising in Latin America,
which could make acquisitions less profitable.
A case in point is Ecuador's $1.7 billion
Coca Codo Sinclair Hydroelectric project,
led by China's Sinohydro with ExportImport Bank of China funding. Environmentalists are concerned that it will create
an ecological disaster by destroying the
nation's San Rafael Falls.
The 1,500 MW project also faces huge
opposition from labor and indigenous
rights activists.
A similar situation unfolded in Nicaragua. The Hong Kong Nicaragua Canal
Development Group, the operator behind
Nicaragua's highly controversial, $50 billion
grand canal project, is also facing steep opposition from green and indigenous groups.
They claim the shipping route meant to
connect the Caribbean and the Pacific
Ocean will wreak havoc on Lake Nicaragua
and leave thousands homeless.
"When they started doing projects in
Latin America, the Chinese were little
known. But now activists and NGOs are
following them closely," adds Wang. "Environmental and social scrutiny is only going
to intensify." LF

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