China has announced plans to open a dragon mart in Cancun,Mexico,which is expected to increase trade between the two countries. It will be the second dragon mart to open outside of China,the first being a highly successful venture that opened in Dubai in 2004.
The Chinese government will invest 10 billion yuan,which equates to around $1.54 billion in US dollars,and will retain a 40% stake in the project,followed by the Mexican and US governments,which will each have a 30% stake. The Cancun Dragon Mart is sponsored by the Chinese Ministry of Commerce’s foreign trade development bureau,and will take up around 283,600 square meters of space,housing a shopping area,warehouse space and residential communities.
“I believe such a large-scale trading site is highly necessary in the Middle East,Latin America and Africa,” stated Hao Feng,who is chairman of Chinamex Middle East Investment & Trade Promotion Centre,Ltd. “A Chinese commodity fair will be held at the Cancun Dragon Mart after Spring Festival,which starts with the Chinese New Year in 2013."
The project will take between five and seven years to complete,but the first phase will be open in the fall of 2014 and China expects to find huge business opportunities in Mexico. There are already more than 1,700 enterprises from China that have expressed interest,including those that sell electronic products,building materials,medical instruments,textiles and home appliances.
“Most of Mexico’s imports come from Japan,India,South Korea and the US,which can cost about three to five times more compared with Chinese goods in the Dubai Dragon Mart,” Hao shared.
Also of note,the value of Chinese exports to Mexico is already on the rise,up 34.16% to $23.9 billion over the last year. In addition,Mexican exports to China are also growing,hitting $9.39 billion in 2011,which is an increase of around 36.3% over the previous year.
According to a report last month by Reuters,2011 saw a record $31.65 billion in bond investments flowing into Mexico’s local currency debt instruments,the central bank announced. This is due in large part to global investors looking for a safe place to invest following Europe’s ongoing economic crisis.
Compared to 2010,the total amount invested in peso debt rose 37% when foreign investors contributed around $7.547 into the market during the last quarter of 2011. This is the most that has been invested since the first quarter of 2011,and so far 2012 is seeing the same trend emerge,even though concerns surrounding another global financial crisis have eased and the US Federal Reserve will likely keep interest rates at close to 0% until at least 2014.
“As this ‘risk-off’ mood from Europe ends,there will be a renewed search for yield,” stated Gabriel Casillas,who is an economist at JP Morgan in Mexico City.
The additional inflow of money is expected to further strengthen the peso,which rose to 11% recently after late 2011 saw it hit the lowest level in more than two years. The peso’s recovery has also helped to reduce fears surrounding that an increase in import prices could also cause inflation to rise.
With the increase in Mexico bond investment,the country’s central bank has accumulated exceptional international reserves,which will help it defend the peso should we experience another global financial crisis. In fact,Mexico added an impressive $28.6 billion to its international reserves in 2011,with numbers reaching $149.2 billion,according to the central bank.
“The recent rally in oil prices and improved global sentiment bode well for the strength of the external accounts through 2012,” said respected Goldman Sachs economist Alberto Ramos. “The balance of payments has been a clear source of macroeconomic strength for Latin America’s second-biggest economy and supported the peso.”