Experimental feature

Listen to this article

00:00
00:00
Experimental feature

China’s manufacturing crown is slipping. Shoe, textile and electronics makers have been shifting capacity to lower cost centres such as Vietnam and Bangladesh for several years.

Foreign direct investment into China’s manufacturing sector posted a rare overall decline last year. Now there are signs that even in car manufacturing — a national strength — competitiveness is diminishing.

Auto manufacturers are increasingly finding Mexico a more attractive location to expand production as China slips back, beset by an average 16.8 per cent rise in automotive salaries between 2009 and 2014.

Data compiled by fDi Markets, an FT data service, shows that an inflection point was reached in 2013, when Mexico attracted 12.6 per cent of global foreign direct investment into the auto industry, surpassing the 12.4 per cent share that China took.

Data for 2014 are not yet available but appear likely to reaffirm a trend that has been evolving since 2011, when auto investment flows to Mexico began to surge (see table).

Over the past year or so, seven Asian and European auto manufacturers have opened new Mexican assembly factories, or announced plans to do so, while others have boosted their capacity in the Latin American country, according to company announcements.

China and Mexico: Automotive sector — market share (%)
200520062007200820092010201120122013
China17.0616.2610.813.0615.1613.9913.5812.7112.4
Mexico1.934.283.854.355.754.535.059.0512.56
Source: fDi Markets
Based on number of inbound greenfield FDI projects

In March, VW said it would invest $1bn expanding its production of small SUVs in Mexico for export to the US. Nissan Motor, General Motors, Ford Motor and Fiat Chrysler are also boosting their Mexico operations.

Labour costs are a significant part of Mexico’s relative appeal, as pay in China has risen more sharply than in Mexico since 2009. In absolute terms, Chinese wages are now significantly higher than Mexico’s for unskilled production workers, though they remain lower for engineers and skilled workers.

An unskilled worker in a Mexican auto plant could expect to earn annual pay of $3,645 in 2014, less than an average of $5,726 a year in China, according to fDi data.

Growth in overall annual salary costs of automotive OEM workforce* (% change) 
200920102011201220132014Mean
Brazil4.3613.3619.92-6.68-2.23.825.43
Mexico10.06-8.936.12-0.756.1716.714.9
China14.48.9232.9322.3111.0711.2516.81
Malaysia0.67-11.4316.10.27-3.315.131.24
Thailand-8.4616.420.8710.328.2910.239.61
India13.977.6410.9-6.63-5.9312.595.42
Indonesia9.4-2.2813.18-1.482.36-18.620.43
Source: fDi Benchmark 
*Headcount: 700

In addition to labour considerations, Mexico’s trading alliances are far superior to China’s. Mexico has free trade agreements (FTAs) with 45 countries, including the North American Free Trade Agreement, which allows it to export products without duty into the all-important US market. China, by contrast, has only 12 FTAs (though it aims to create 20 more), so its products hit tariff barriers upon entering North American and South American markets.

None of this means that China has faded into the slow lane. Having displaced the US as the world’s largest manufacturer in 2010, it is investing feverishly in automation to sharpen up.

The International Federation of Robotics estimates that the stock of operational industrial robots in China will more than double to 428,000 by 2017, when the country is set to lead the world in installed robots.

While China may be ceding ground to Mexico in auto manufacturing for now, the race is far from over.

Follow us on Twitter @em_sqrd

Copyright The Financial Times Limited 2018. All rights reserved.