MEXICO VS. CHINA - ECONOMIC CHOICES
This insightful article was written by Charles Simpson and is reprinted here with his permission.
He can be reached firstname.lastname@example.org
Mexico: A better economic choice than China
Another large exodus from the U.S.A is high paying skilled jobs. The job shift in automobile
sector, both car and parts manufacturing, is already known by most investors. In the last few
months as John Deere and Caterpillar have been laying off thousands of workers in the U.S.A.,
and hiring equal numbers in Mexico. The most recent industry that is making the shift is the
aerospace manufacturers. In the city of Zacatecas there is currently a $210 million aerospace
facility being built. With the 11 U.S. companies moving there, it is estimated to provide over200,000 new high paying jobs in the coming years. One of the main factors for the shift in job south to Mexico instead of China is realistic analysis of total production, labor anddelivery costs. While the labor costs in China are 40% less on average, the overall transportation costs and inherent risks of along distance supply chain, and quality control issues, gives Mexico a distinct financial advantage.
Mexico’s real economic future.
Mexico has avoided completely the subprime problem that has devastated the U.S. banking industry. The Mexican banks are healthy and profitable. Mexico has a growing and very healthy middle and upper middle class. The very recent introduction of residential financing (for Mexican citizens) has Mexico in a unique position of having over 90% of current homeowners owning their house outright. U.S.banks are competing for the Mexican, Canadian and American crossborder loan business. It is and will continue to be a very safeand very profitable business. These same banks that were loaningin a reckless manner have learned their lesson and are loaninghere the old fashioned way. They require a minimum of a 680credit score, 30% down payment, and verifiable income that can support the loan. In most areas of Mexico where Baby Boomers are moving to, with the exception of Puerto Penasco (which did nothave a national and international base of buyers), there is noreal estate bubble. The higher end markets ($2- 20 million) inmany of these destinations are going through a modest correction.The Baby Boomers market here is between $200,000 and $600,000. With the continuing demand inside the Bay of Banderas, that pricepoint, in the coming years, will disappear. This is the reason the Mexican government is spending billions of dollars on more infrastructure north along the coast all the way up to Mazatlan.
The other major area where America has become overpriced is inthe field of health care. This massive shift of revenues isestimated to add 5-7% to Mexico’s GDP. The name for this“business” is Medical Tourism. The two biggest competitors forMexico were Thailand and India. Thailand and India’s biggest drawback is geography. Also recent events, Thailand’s inabilityto keep a government in place and the recent terrorist attack in Mumbai, have helped Mexico capture close to half of this growth industry. In Mexico today there are over 56 world class hospitals being built to keep up with this business.
Mexico is currently sitting on a cash surplus and an almostbalanced budget. Most Americans have never heard of Carlos Slimuntil he loaned the New York Times $250 million. After that itbecame clear to many investors around the world what Mexicans already knew: that Mexico had been able to avoid the worst of the U.S. economic devastation. Mexico’s resilience is to be admired.When the U.S. Federal Reserve granted a $30 billion loan to eachof the following countries Mexico, Singapore, South Korea, and Brazil, Mexico reinvested the money in Treasury bonds in anaccount in New York City.
According to oil traders, Mexico’s Pemex wisely as the price of oil shot to $147 a barrel put in place an investment strategy that hinged on oil trading in the range of $38-$60 a barrel. Since the beginning of 2009 Mexico has been collecting revenueson hedged positions that give them $90-$110 per barrel today.Mexico’s recent and under reported oil discovery in the Palaeo Channels of Chicontepec has placed it third in the world for oil reserves, right behind Canada and Saudi Arabia.
The following is a quote from Rosalind Wilson, President of theCanadian Chamber of Commerce on March 19, 2009. “The strength ofthe Mexican economic system makes the country a favoritedestination for Canadian investment”.
e calling this the EXIT TAX.