China has different strategies when it comes to Mexico and Brazil

It is tempting to assume that China might employ monolithic economic strategies with Latin American countries, but this is not the case. Mexico and Brazil have radically different trade relationships with China which have important implications for the commercial real estate markets in both countries. 

Brazil runs a large trade surplus with China, primarily due to the export of natural resources such as iron ore, soybeans, and crude oil. China is by far Brazil’s largest trade partner, accounting for 31.3% of its total exports. President Lula doubled down on this net export relationship when he travelled overseas to visit Chinese leader Xi Jinping earlier this year. With China primarily focused on natural resources, its investments in Brazil primarily focus on infrastructure and mining operations. This activity creates some demand for office and manufacturing uses, but the overall impact on CRE is minimal. 

Unlike Brazil, Mexico has a massive trade deficit with China, due to the heavy import of electronics and manufactured goods and minimal exports. China’s relationship with Mexico is primarily focused on the manufacture of goods for export to the United States, particularly in the automotive industry. Mexico also has a free trade agreement with China. This gives China convenient “backdoor” free trade access to the US market via Mexico’s participation in The United States-Mexico-Canada Agreement (USMCA) - the trade deal that replaced the North American Free Trade Agreement (NAFTA) - and this access has been a key strategic lever for China as navigates supply chain disruption and tense trade relations with the US. To solidify this position, China is rapidly accelerating its investment in Mexico’s maquila manufacturing markets which has caused a dramatic impact on industrial real estate in US border markets. For example, the overall vacancy rate for industrial properties in Tijuana stands at just 0.18% and average market rents have increased by 38% over the past year according to SiiLA in Mexico. This trend is poised to continue with over 577 thousand square feet of new industrial stock in the pipeline driven primarily by insatiable demand from Chinese manufacturing operations.