(00:03) hello everyone welcome to another episode of the legal lunch bite very excited today to have Andrew Hubert on with me he is the president of North American strategy strategic planning Andrew uh you have retooled yourself uh from China area to Latin America now you and I talked before but really happy to have this opportunity to catch up and hear what you’re doing do you want to start with a little bit of background uh I I mean your story’s fascinating on how you how you started in Asia and now you pivoted to Latin America okay I’m I’m
(00:34) basically an old China hand I think is still appropriate to say I lived in China for 10 years uh before that it’s a very common it’s a common road map before that I was Japan then Taiwan brief s in Hong Kong 10 years in Shanghai from uh from 2002 to 2012 so I I was there for the big move I was there for the you know when China went from being a sort of backwards semi-social economy to the beginnings of what we see now not quite but the beginnings uh after that I was Thailand and then Vietnam I was lockedown in Vietnam for
(01:12) covid um and when was it um 2018 uh Mike Pence went in front of the Heritage Foundation and basically laid out the uh the new strategic competition between us and China and that is when I decided to start start studying Spanish and making the move so I was studying Spanish in Vietnam during lockdown and then came to aaka for two weeks uh two and a half years ago and I’ve been learning about you I’ve been studying uh the Mexican economy I’ve been talking to other old China hands near Shores who are moving
(01:52) their operations uh from from China and well from China to uh to Mexico which is a great move but I’m finding the big competition is still Vietnam and to a lesser extent India so that comes up in in in our conversations uh one of the things I’ve been looking at very carefully here is the Triangular economy between us Mexico and China and I think that’s that’s a good jumping off point yeah absolutely I’m I’m very curious from your perspective what are China’s goals for Mexico and near sh because we I know I
(02:30) I’ve been there been to Mexico once a year the last few years talking to Business Leaders uh lawyers and so I know it’s happening but you’re on the ground so what is China trying to do with regard to Mexico and capturing recapturing some of the near Shoring let’s go big picture and then very quickly move to a focus Mexico is not China’s first choice shipping from China to the United States is the First Choice that’s what they want to do they’ve got excess capacity in China they’ve got
(02:59) unemployment in China they’ve got a bad economy in China they would love to be able to just move that out move that capacity directly to San Diego and Los Angeles and into the US market they can’t do that because of the tariffs and because of Biden’s restrictions so Mexico is uh shaping up as a plan b or a plan C uh the other issue with China and Mexico is China’s big foreign investment platform right now is BR the belt and Road initiative and they’ve been pretty act they’ve been very very
(03:35) active in Southeast Asia very active in Africa they’re getting more active in Central Asia another for another day they’ve been active in Latin America except for Mexico it seems you’re the lawyer so I want to check with you on this but it seems that Clause I think it’s 3210 of the US MCA agreement um uh prohibits Mexico from doing business doing D you know high level business with a non-market economy that seems to be enough that that’s vague and people go back and forth on that whether or not that
(04:11) prohibits Mexico from doing direct deals with China on a on on a state level but uh China has been more active on infrastructure with other parts of Latin America Argentina Brazil uh they’re building Peru they’re building a port a CH the Chun Port uh they’re building nuclear power plants they’re they’re doing a lot of big infrastructure the way China likes to do big infrastructure they can’t do that in Mexico at least not yet um we’ll double back to that so the way they’re setting up in Mexico is
(04:44) sort of like a plan B plus they’re setting up private it’s all private private businesses in Mexico and what they are basically doing is setting up uh setting up Manufacturing uh manufacturing capacity in Mexico as a platform for export to the United States so they are here to access the US market Mexico is trying to be on the fence uh the last president or the the the outgoing president we’ll call him amlo um he was he he he was not a big fan of the US and he tried to play one side against the other he tried to to be
(05:30) very clever about us China relations with Mexico and that is coming to an end so going forward we’re going to see a lot more decisions being made about China’s presence in united in Mexico and now with the possibility of a a trump presidency that go that those concerns that the business community in Mexico has about Chinese FDI under a trump presidency see that becomes a little bit more um of an immediate issue Biden would be a status quo everything stays the same kind of kind of situation where incrementally uh the Biden
(06:14) Administration and the she Administration and the Shane Bal Administration would work things out incrementally under Trump Administration that’s not going to happen under a trump Administration um you’re going to see a lot of pressure on on Mexico to curtail restrict or or otherwise uh affect the exports of Chinese companies or Chinese invested companies from Mexico into the United States excellent and let’s talk in terms of of concrete projects let’s say how is China Investing in Mexico is it real estate
(06:55) acquisition is it uh you know they doing Mador what’s the what’s the model for these Chinese companies coming in as private companies to do business in Mexico that’s a great question wish we knew uh not sure China knows here’s what seems to be happening uh China is these Chinese companies are moving they’re all private companies but there are a couple of national champions and I’ve noticed that some companies are referred to as state companies like there’s a a machine company a machine tools producer called
(07:27) lingon and they just announced a very big big uh investment I believe it’s about5 billion a very big investment into uh Mexico my first move as an old China hand was to see if this is a state champion like huawe or if it’s a total independent like I don’t know you know all these smaller companies that are second or third third tier suppliers setting up in in Mexico sort of going Bandit go going on their own and there seems to be a new designation of State company where they’re they’re with the
(07:59) plan they’re down with the the general party plan but they are not getting they’re not directly they’re not directed by the the party so the big project that I’m looking at uh when people ask me for a success story or for an indication of what China is doing it direct them to husan Industrial Park this is a giant industrial park that is we don’t really know what’s behind it there’s a myth that uh a Furniture maker a furn the owner of a Furniture Factory got on the phone from that from from China called Mexico and
(08:39) said I I’ve got to do this let’s go ahead I site unseen I want to buy all this land I want to park which is of course Very strain crul uh it’s more likely that this was a state directed or or this was an official or quasi official move they set up a massive massive Industrial Park um just outside of you know it’s in no Leone just outside of montere which is a about 200 miles from the border from the US border and B the heart of the new Auto industry in Mexico Mexico has like half a dozen Detroits of Mexico uh but no Leon and
(09:20) montere seem to be winning especially if Tesla that’s where Tesla is going to be Tesla is um just a 45 minute drive from husan and that seems to be uh the the as as official as it gets less official though what China seems to be doing is just it’s just private companies engaging in madora type moves that Chinese tend and this is just anecdotal this what I’ve been able to glean from Mexican context the Chinese seem to be trying to save money they they move into established Mador areas and there two
(10:00) big ones is the one around the co On the Border that stretches roughly from Tijana down to Monteray so from the California from the Pacific coast to the Gulf of Mexico and Texas that that whole line there with a with small exception is old school Mador territory uh the Chinese are moving there but they’re favoring noon they like Chihuahua because that’s where the Auto industry is that’s where the Chinese that’s the seems be the Chinese uh number one priority is accessing the Auto industry uh in Mexico because
(10:36) that’s going to be their big Market in the US with the exception of EV of electric vehicles for now that’s off the table because the US has is playing the National Security C and they’re saying they’re not going to allow uh electric vehicles there’s another section of of uh industry called the uh bajio area bajio technically means low lands even though it’s in a a mountain valley and it’s just a big for for our purposes let’s draw a map from guad lahara all the way up to Monteray just north of
(11:08) Mexico City so it looks like a big Z you know the Mexican uh the industrial Zone in Mexico the industrial zones form roughly a v a z shape so the Chinese seem to be preferring this bakio area it’s a little bit it was a little bit cheaper it’s getting expensive it was a little bit cheaper uh it was a little bit off the radar the Chinese prefer to go a little bit outside of town and save money on real estate what they don’t seem to realize is they’re going to have to spend more on Hol now let’s just stop for one quick
(11:42) second and let me let me tell you about a strategic challenge that all of us analysts are facing between the time uh a there’s no contract Manufacturing in Mexico the way we have it in China in China if you had uh uh in the old days if you had an idea for a cool little device you bring you sketch it out on the back of a napkin you bring it to shenzen and some some someone will turn that into a product someone will turn that into a production run that’s not a thing in Mexico in Mexico you need fa you need your own
(12:19) Factory that may change going forward but so far it hasn’t so the problem for us is from the time you read the headline about Ling gon setting up their giant production facility you’ve got to wait six months to two years before that factory is complete and they’re actually producing so I can tell you the beginning of the story but I don’t know the end of the story because we haven’t seen the end of the story we haven’t seen these uh factories hire people and then produ start producing
(12:52) output so for these Chinese companies coming in the biggest challenge they’re facing is the regional Regional value Regional Regional content value the rest of us known as local content but be because of the usmca US Mexico Canada agreement or down here we call it Tac which is way cooler uh because of TAC the Chinese are going to have to Source locally now what they’re going to be doing you’re going to see companies like high sense lingon and byd they are going to set up and then they’re going to start bringing in all
(13:30) their second and third tier suppliers that way they’re going to be able to uh comply with you usmca rules uh not just about tariffs but also about customs and they’re going to be able to access the US market very cheaply so far though we haven’t seen how that’s going to work out so that’s a big question mark about whether or not the Chinese are going to be able to get over that that Regional uh region region content value requirement which is about 75% for the kinds of for the kinds of products they want to export to the
(14:07) US so that’s what I’m seeing on the ground we’ve got two big classes of Chinese investment the state directed like husan and then the the large you know the top tier companies uh like high sense and DD and lingon who are going to bring in their their own supply chain and it’s be very ious what kind of impact this has on the Mexicans yeah it’s amazing it’s great to hear this from you we’ve just got uh about 30 seconds left can you give me uh your your stance on uh how are the Mexicans
(14:42) receiving this is this is this a positive thing for them are they are they genuinely optimistic or are they pessimistic or somewhere in between they are naively optimistic the Mexicans are um pretty happy about Chinese investment they it’s basically it’s a real estate deal right now so yeah they want to buy big properties and they want to pay all the fees and they want to pay a lot of people so yeah everyone loves them what I’m telling Mexican Mexicans aren’t listening to me what I’m telling
(15:10) the Mexican side of this is just wait until these Mexican factories start churning out uh product and they are um undermine they are competing directly with Chinese manufact sorry with Mexican manufacturers here in in Mexico uh so right now the Mexicans are happy uh about the Chinese FDI I don’t know how they’re going to react to the uh realities on the ground once Mexico starts producing at full speed I think there I think there are other conversations ahead absolutely absolutely I’m looking forward to
(15:48) catching up with you again in the near future Andrew appreciate your time and certainly fun and wish you well on on your continued adventures in Mexico thanks very much Jonathan next time you find yourself in w give me a call and uh I look forward to talking to you again soon