MEXICO CITY (Reuters) - A major state-owned Chinese company has struck a preliminary deal to develop an industrial park in western Mexico that could be one of China’s biggest-ever investments in Latin America’s second largest economy, Mexican officials said.
The government of Jalisco state will on Tuesday formally sign the agreement with China Communications Construction Company (CCCC) (601800.SS) to create a park to host Chinese manufacturers, two officials from the western region said.
Speaking on condition of anonymity, the officials said the two sides had undertaken to carry out a feasibility study to identify a suitable location for the park and to stage two trips to China to assess which companies could come to Mexico.
The officials said the plan is to develop a site of around 500 hectares, with the Jalisco government paying for half the land, and the Chinese the rest. Paying for the park’s development would fall to the Chinese alone, the two added.
CCCC did not immediately respond to requests for comment.
Jalisco, which at the weekend emerged relatively unscathed after bearing the brunt of the impact of Hurricane Patricia, is home to Guadalajara, the second biggest city in Mexico.
How much the Chinese invest and where the park would be will depend on a six-month study process, one of the officials said, adding that formal adoption of the project would also hinge on the Chinese agreeing to send manufacturing firms.
Industrial parks of a similar size developed in Mexico by global manufacturers have involved investment of sums ranging from hundreds of millions to more than $1 billion.
Guadalajara occupies a strategic position between Mexico’s top container port Manzanillo and the industrial belt of central Mexico, which is well connected to the United States.
The city’s advantageous location, including good links to Mexico City, has made it a target of powerful drug gangs.
The planned park would provide China with a base to supply both the Mexican and U.S. markets, the two officials said.
If the project in Jalisco proceeds, it would help mend economic fences between Mexico and China after they were damaged last year when President Enrique Pena Nieto abruptly canceled a $3.75 billion Chinese-led project in Mexico.
The high-speed rail contract awarded to a group led by China Railway Construction Corp Ltd was revoked as media reports were surfacing that Pena Nieto’s wife was in the process of buying a luxury house from one of the consortium’s Mexican partners.
The cancellation caused dismay in Beijing and came right ahead of Pena Nieto’s first official state visit to China, which has so far made little foreign direct investment (FDI) in Mexico.
Between 1999 and June 2015, Chinese FDI in Mexico was $380 million, less than that of Ireland, Puerto Rico and Taiwan, and accounted for under 0.1 percent of the total amount, according to Mexican government data. The U.S. sum was $186 billion.
China’s rapid economic growth over the past two decades has led to a much sharper rise in its labor costs than in Mexico, making the latter increasingly attractive for manufacturers.
Additional reporting by Brenda Goh in Shanghai and Gabriel Stargardter in Mexico City; Editing by Paul Simao