Mexico’s Alibaba Deal Unlikely to Boost Trade With China to Defy Reliance on US

© East News / Imaginechina--FILE--View of the headquarters of Chinese e-commerce giant Alibaba Group in Hangzhou city, east Chinas Zhejiang province, 18 September 2014. Alibaba Group Holding Ltd. is knocking Inc. off its perch as the world's largest online retailer by market capitalization, signaling the ascendance of a global rival for investor and consumer dollars.
--FILE--View of the headquarters of Chinese e-commerce giant Alibaba Group in Hangzhou city, east Chinas Zhejiang province, 18 September 2014. Alibaba Group Holding Ltd. is knocking Inc. off its perch as the world's largest online retailer by market capitalization, signaling the ascendance of a global rival for investor and consumer dollars. - Sputnik International
The Mexican government’s new deal with Chinese e-commerce giant Alibaba is unlikely to boost Sino-Mexico trade significantly or alter the nation’s heavy reliance on exports to the United States, experts told Sputnik.

MOSCOW (Sputnik), Tommy Yang — During Mexican President Enrique Pena Nieto’s official visit to China last week, Mexico’s Ministry of Economy signed a memorandum of understanding with the largest Chinese online retailer Alibaba Group to promote Mexican products on the firm’s popular e-commerce platforms.

President Pena Nieto said he expected the deal to expand "Mexico’s export options in China and in Asia more broadly" while "enhancing Mexican knowledge" of e-commerce and cross-border trade. The deal is expected help Mexico’s small-and-medium-sized enterprises (SMEs) to sell more products in the world’s largest consumer market.

One Deal Impossible to Solve All Problems

However, Mexican scholars who have been studying Sino-Mexico relations for over 20 years argued that it is impossible for one deal to overcome all the problems accumulated in bilateral relations between the two countries.

"China-Mexico relations, in terms of diplomatic relations and trade, have been full of tensions, contradictions and accusations in the last 5-10 years. You cannot overcome the problems generated in the past 5-10 years with one deal. Some people tend to be overenthusiastic [about the Alibaba deal]. I’m very skeptical," Enrique Dussel Peters, the director of Institute for China-Mexico Studies at Universidad Nacional Autónoma de México (UNAM), told Sputnik.

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The Mexican expert noted that the nation’s exports to China have actually decreased in the last five years and are only a tiny fraction of Mexico's annual exports to the United States.

According to official figures from Mexico’s Ministry of Economy, the nation’s exports to China have fallen for two consecutive years since 2013, before rebounding by 10 percent year-on-year in 2016 to $5.4 billion. But the 2016 exports figure is still 16.3 percent lower than its annual exports to China of $6.47 billion in 2013.

At the same time, official figures showed that Mexico’s exports to the United States stood at $302.6 billion in 2016, accounting for about 80 percent of the nation’s total exports of last year. Mexico recorded a trade surplus of $123 billion against the United States in 2016, while posting a trade deficit of $64.1 billion with China in the same year.

No Romantic Miracle

As the deal with Alibaba primarily targets SMEs in Mexico, Dussel Peters believes that local SMEs are unlikely to profit at once, because doing business with China has been proven to be a long-term process that requires a lot of investment and patience.

"I would not start with such a romantic picture of SMEs from Mexico flock to China to do business. If a Mexican firm is currently only selling products from Chapa to Mexico City, I would tell them please do not try to start exporting to China. It’s going to be a very expensive and long-term process, as they have to face different consumers and distributors. Most of the time, SMEs do not have the resources for such a long-term and expensive process," the expert said.

The Mexican scholar gave an example that, after ten years on the Chinese market, Mexican bakery products maker Bimbo is still suffering losses today. The expert warned that SMEs in Mexico could also face trouble meeting potential massive demands from Alibaba.

"If Alibaba comes and says we want to order 10 million bananas a week, while SMEs in Mexico tell them I can only offer you 100 bananas a year. There will be no result," he said.

Overly Dependent on the US

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With the administration of US President Donald Trump repeatedly threatening to terminate the North American Free Trade Agreement (NAFTA), which could disrupt Mexico’s relations with its biggest trade partner, the Mexican government started to look for new options for local companies to help them expand their business into other regions such as Asia or Europe.

But many Mexican companies have grown too complacent when trading with the United States, which could make them less competitive in other markets in the world, experts argued.

"The problem with Mexican companies is that they have grown too accustomed and too comfortable of just trading with the United States. They have fooled themselves to say they’re doing international business, while in fact they only sell to the United States. Over the year, it has become easier and easier to sell to the United States. When you try to do business [with US companies], you don't have to speak English anymore, because Spanish has become the second most popular language in the United States," Adrian Cisneros Aguilar, a lawyer and director-general of Chevaya, a firm that specializes in helping Mexican firms expand in China, told Sputnik.

The expert suggested Mexican companies have become overly dependent on the United States.

"When someone like Donald Trump comes into office and threatens to back out from NAFTA, they [Mexican companies] just don’t know what to do. They will be desperately looking for new markets," Cisneros Aguilar said.

The Mexican lawyer gave an example that, when Hurricane Harvey disrupted oil production in Texas, Mexico faced serious oil supply problems as it depends heavily on oil refineries in the neighboring US state for oil products.

Change of Mindset

For Mexican companies to succeed in the Chinese market, they need to change their mindset and try to have a better understanding of China, the expert pointed out.

"Many Mexicans in the political and business circles have an outdated view of China, because a lot of them have rarely visited the country. I was a student in China and I worked there. I started my company also with China in mind. But I belong to a minority, when you consider the whole universe of Mexican business people. That’s why I’m working so hard through my company to change this situation," Cisneros Aguilar said.

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The expert suggested that Mexican companies need to avoid competing in industries where Chinese companies have an obvious advantage such as manufacturing. Instead, they should focus on exporting agricultural products such as fruits, which China has massive demand for.

"If we see China needs our goods, we need to upgrade our facilities to be able to export sustainably. We can’t tell our Chinese customers that after two months, we run out of products. That’s the reason why Chilean companies or Argentine companies have larger share in the Chinese market than we do. Chile is a smaller country than Mexico, but they export more avocados to China than Mexican companies," Cisneros Aguilar said.

Take Advantange of Alibaba's Expansion

China-based experts following Alibaba’s business expansion closely told Sputnik that Mexican companies could take advantage of increased efforts from the Chinese online retailer to introduce more foreign brands on its various platforms.

"The number of new businesses signing up on Tmall Global [Alibaba’s platform for foreign brands] went up by 169 percent last year. And the sales went up around 40 percent and general cross-border transactions went up around 89 percent last year," Mark Tanner, founder of Shanghai-based consultancy China Skinny, told Sputnik.

The Shanghai-based expert suggested that food and beverages from Mexico have a good chance in the Chinese market, as other countries in Latin America have already enjoyed success in China with similar products.

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