Chinese manufacturer investing $5B to expand production in Mexico

October 18, 2023

China-based Lingong Machinery Group (LGMG) is building a manufacturing facility and industrial park in Mexico’s northern state of Nuevo Leon that will generate $5 billion in investments.

Monday’s announcement from LGMG is one of the latest expansions of Chinese investments in Mexico, especially in the state of Nuevo Leon, which is situated about 140 miles from the U.S.-Mexico port of entry in Laredo, Texas.

Trina Solar, a China-based solar panel producer, will invest up to $1 billion for a new factory in Nuevo Leon, while Japan-based Kawasaki Heavy Industries will invest $200 million to set up a production plant in the state, Mexican authorities announced in recent days.

The LGMG project includes a 25-acre industrial park that will house the company’s plant, as well as the development of three “clusters” to draw more foreign investments in manufacturing, warehousing and logistics, and business support services.

LGMG will build its factory and industrial park near the Mexican city of Monterrey. The company, which manufactures construction and transportation machinery, moved its North American headquarters to Dallas last year.

“[Monterrey’s] excellent transportation and logistics infrastructure, along with its strategic proximity to the United States, make it an ideal location for international trade and investment,” LGMG said in a news release. “[The] clusters will provide a one-stop service environment for overseas investment, with a primary focus on energy, heavy industry, automobile manufacturing, and new materials industries.”

Samuel Garcia, governor of Nuevo Leon, said in a post on social media platform X that about 120 enterprises have already expressed interest in joining the LGMG project and creating more than 7,000 local jobs.

“Six months ago, we made the big announcement that Tesla, the largest electric car manufacturer in the world, was going to build the largest factory in the world, twice the size of the one in Austin in … Nuevo Leon,” Garcia said. “We are going to announce that another $5 billion is coming to Nuevo Leon, just as important and big as Tesla. Today we closed the agreement for LGMG to go to Nuevo Leon, the epicenter of nearshoring and the best place to invest.”

In March, electric vehicle maker Tesla announced plans to build a $5 billion assembly plant near Monterrey, where the company could reportedly produce an entry-level EV line of vehicles.

Foreign direct investment (FDI) into Mexico reached a record $40 billion in 2022, according to fDi Markets. In the first half of 2023, FDI in Mexico increased by 40% compared to the same period in 2022, led by automotive and industrial manufacturing projects.

Mexico continues to benefit from nearshoring, in which manufacturing companies move production closer to their end consumers, according to investment firm Morgan Stanley.

“Nearshoring has the potential to boost the growth of Mexican manufacturing exports to the U.S., from $455 billion today to an estimated $609 billion in the next five years,” Morgan Stanley said in a recent report titled “Mexico is Poised to Ride the Nearshoring Wave.”

“If U.S. manufacturing is to be less dependent on China, we think the path will be via Mexico,” Morgan Stanley Research equity analyst Nikolaj Lippmann said in the research report. “Nearshoring is expected to be a long and sustained race that could help build new ecosystems in Mexico’s existing manufacturing hubs.”

Other analysts said China is using Mexico to bypass tariffs while rerouting exports to the U.S.

David Rees, a senior emerging markets economist at London-based asset management firm Schroders, said in a recent report that China’s trade balance with Mexico has recently risen by about 1% of gross domestic product during a period of time when China has had weak bilateral trade with the U.S.

“It appears that Chinese firms are rerouting exports via third parties in order to circumvent tariffs and sanctions imposed by the U.S. government in recent years,” Rees said. “While China’s share of bilateral trade with the U.S. has fallen, its share of the global export market has not. … China’s exports to other countries in Asia and Mexico itself have increased markedly in recent years, just as US imports from those countries have also grown strongly. This is consistent with a re-routing of trade via third parties in order to rebadge shipments and avoid trade sanctions.”