It  is no secret that the wage gap between Mexico and China has been narrowing in  recent years. While labour costs in China were roughly 200 per cent lower than  those in Mexico a decade ago, wage inflation in China and wage stagnation in  Mexico have combined to close the gap to nearly zero .

But could labour in Mexico now actually be CHEAPER than in China? Yes,  according to Carlos Capistran, an economist at Bank of America Merrill Lynch.  Not only are average hourly manufacturing wages in Mexico now lower than those  in China in constant dollar terms, they are 20 per cent less.

Here’s the chart from Capistran’s note to clients on Thursday:

But is this necessarily a good thing for Mexico?

True, stagnant salaries over the past decade have been credited with reviving  Mexico’s manufacturing sector, which was hard hit by China’s entry on to the  world stage following membership into the World Trade Organisation in 2001.

A study by Barclays last year reckoned that the rise of China as the “world’s  factory floor” chipped about 60 basis points off Mexico’s gross-domestic-product  growth every year between 2002 and 2006. Some of the biggest casualties in  Mexico’s manufacturing sector were textiles, clothing and shoes.

And now thanks to soaring wages in China, high transportation costs and the  steady recovery seen in the US economy, the tide is turning back in Mexico’s  favour.

As Capistran explained:

Mexico has been able to regain participation in the US market since the Great  Recession and the international financial crisis. Part of the gain has been  against China: from 2007 to 2012, China gained 1pp in market share, compared to  7.5pp between 2001 and 2007, while Mexico gained 1.6pp, compared to -0.74pp  between 2001 and 2007. A larger share of the US market positions Mexico better  to benefit from the US recovery. In our view, an important force behind this  trend is Mexico’s hourly wages are 19.6% cheaper than those of  China.

Optimism over Mexico’s growth prospects has made the country a darling among  international investors. Some $80bn of foreign investment were poured into the  country’s stocks and bonds last year, compared with the $16.5bn received by  Brazil. Mexico’s stock market hit a record high earlier this year and banks  ranging from Spain’s BBVA to the US’s JP Morgan have been busy bulking up their  operations there.

Yet what about the human costs of wage stagnation?

Minimum wage in Mexico today is about 60 cents an hour, while average pay in  manufacturing is only about $4.50 an hour. This compares to the $6.27 paid in Brazil.

Writing in the Miami Herald last month, Andrés Oppenheimer  made the observation that “Everybody is upbeat on Mexico – except Mexicans.”

During my visit [to Mexico City], I found widespread skepticism in the local  media, and among Mexicans in general, about the sudden international love affair  with Mexico.

“After so many years of mediocre economic growth, there is a lingering mood  of frustration,” pollster Ulises Beltran, head of the BGC polling firm, told  me.

In Brazil, falling unemployment and wage increases have helped millions rise  out of poverty and spark a domestic spending boom.

By contrast, in Mexico, wage stagnation, under-employment and inflation have  eroded the income level of some 31m Mexicans, according to Jose Luis de la Cruz, an economist and director  of the Center for Research on the Economy and Business at the Mexico state  campus of Monterrey Tech. And he reckoned that as many as 60m people are living  below the poverty line. This in a nation of 113m.

As Luis de la Calle, a former Mexican government official who helped  negotiate the North American Free Trade Agreement recently told the New York Times:

We need to increase wages to become a true modern country.

MEXICO CITY — Robert Moser moved the manufacturing of his company’s lines of cleaning products and kitchen gadgets to China during the last decade. Now his company is moving its manufacturing again — to Mexico.

“When you look at total costs, you’re pretty much at parity,” says Moser, president of Casabella, based in Congers, N.Y.

Companies like Casabella couldn’t move out of Mexico fast enough a decade ago, sending production to China to take advantage of the cheaper wages and prices in a country keeping its currency artificially low.

But the cost of doing business in China has been rising steadily, say companies that have returned to Mexico. Salaries are surging there. The Chinese currency, the yuan, has risen in value, making goods more expensive to export. Shipping costs have risen as well, making a move to Mexico even more attractive to companies whose primary markets are in the Western hemisphere.

The Mexican peso this week rallied on optimism about the country’s economic prospects following an unexpected rate cut last week. The peso has risen 2.8% in 2013.

Recently installed President Enrique Pena Nieto, meanwhile, has promised changes to Mexico’s tax system and reforms of its government-run energy sector to attract more outside investors and businesses from the USA and elsewhere.

“Mexico is a stable country, close by, but unfortunately with cheap wages,” says Eduardo Garcia, publisher of online business journal Sentido Común.

Wages were six times higher in Mexico a decade ago, but only 40% higher than those paid in China in 2011, according to a recent report by the International Monetary Fund. Mexico is part of more than 40 free trade agreements, which tends to reduce costs further. Then there is the weariness of doing business in China what with the midnight telephone conferences and 16-hour flights to Beijing — says Ed Juline, whose Guadalajara-based company, Mexico Representation, consults and represents manufacturers moving to Mexico.

“I have a dozen projects on my plate” of companies that want to get out of China, Juline says.

The upswing in manufacturing — about 20% of Mexico’s GDP — is driving the Mexican economy. Mexico says it expects its economy to expand by 3.5% in 2013.

It’s a reversal of fortune for Mexico, which lost manufacturing jobs to China during the last decade and watched rival Brazil boom by selling boatloads of raw materials to the emerging Asian economy.

“Mexico was uncompetitive,”  Juline says.

But China was gaming the system against places such as Mexico, he says. Along with keeping its currency low, China has subsidized fixed costs to benefit its commercial activity, which hurt Mexico, he says.

Meanwhile, lead times for Chinese factories are increasing and manufacturers there are showing less interest in handling smaller orders, says Mike Rosales, whose Los Angeles-based company, Manufacturing Marvel, makes toys and trinkets in both China and Mexico.

Rosales says that shipping costs for him jumped when oil prices hit $100 a barrel, and the lack of protection in China for industrial and intellectual property became problematic.

“They would ship your product out the front and your product with someone else’s name out the back,” he says.

Some of the merchandise being made in Mexico ranges from figurines to flat-screen TVs, along with advanced items such as aerospace parts and automobiles — 2.8 million of which were assembled south of the border last year.

Some here say more manufacturing in Mexico benefits U.S. businesses because it offers them suppliers on both sides of the border. Jim Raptes, custom sales manager at Deco Products, which makes zinc castings in Decorah, Iowa, says his Mexican business has increased from 1% of total sales to 10% over the past five years, due to orders from manufacturers in Mexico.

Security remains a concern in Mexico, Juline says. But he feels the violence, due largely to drug wars, has given few companies pause about coming south.

Executives won’t travel to Mexico, he says. “But the Americans who do come down here secretly love it.”

That boom coming from North America’s southernmost state isn’t just gunfire

by David Agren on Monday, March 18, 2013 11:50am

Mario Armas/AP

A new truck rolls off the assembly line every minute at the GM factory in the conservative Catholic heartland of Mexico’s Guanajuato state. The factory in Silao, set in the shadow of a giant Christ statue considered the geographic centre of the country, produces so many trucks that GM has expanded its workforce by more than 60 per cent since 2008 and has plans to hire even more. The nearby Volkswagen plant just opened a $550-million engine plant and Toyota has announced plans for a facility down the road.

Manufacturing activity is mushrooming across Mexico, mirroring an upswing in the overall economy. The country produced more than 2.8 million cars last year, while factories in border towns like Tijuana and Ciudad Juárez churn out everything from plastic toys to plasma TVs. Manufacturing is now moving back from China—almost as fast as it fled Mexico a dozen years ago—as Asian salaries and shipping costs continue to rise. “This has nothing to do with Mexico,” Ed Juline, head of Guadalajara-based Mexico Representation, a business consultancy, says of the trend. “It has everything to do with China.”

Ten years ago, wages in Mexico were six times higher than those paid in China, but the gap had narrowed to 40 per cent by 2011, according to an International Monetary Fund report. Geography also works in the country’s favour, as companies take advantage of its easy access to U.S. and Latin American markets, where economies are expanding, demanding Mexico’s autos, appliances and advanced electronics.

But manufacturing is just one part of the picture, as Mexico moves from mess to can’t-miss status, the hottest of the emerging markets. “This is Mexico’s moment,” said new President Enrique Peña Nieto, summing up the sentiment at his December inauguration. Indeed, the Mexican government is projecting growth of 3.5 per cent this year—better than Brazil, which investors are suddenly bearish on after a decade of adulation. In Brazil, a credit bubble appears set to burst and demand for its commodities is diminishing.

The scenario has created a collective giddiness among elites and investors unseen since the early 1990s, when Mexico prepared to enter NAFTA and appeared poised for First World status, only to suffer a calamitous peso crash. Last year, investors poured $80 billion into Mexican securities—five times more than went to Brazil, according to the Banco de México. But external factors also benefit Mexico, especially as the BRIC countries lose their lustre.“Brazil is a mess,” says Manuel Molano, adjunct-director of the Mexican Institute for Competitiveness, a Mexico City think tank, “China is decelerating, India’s growth has been stalled for three years, Russia is nothing special.”

Peña Nieto is pledging structural reforms to the energy, tax and social security systems—measures his party previously opposed. The reforms, he says, will generate six per cent economic growth, tripling the rate of the past dozen years. He’s formed a pact among the three main political parties to pursue his agenda and has already struck deals to overhaul labour laws and an education system that allowed teachers to sell their positions like personal property. “He’s a smart political negotiator,” says Molano. His administration is “resourceful in convincing people.”

The story doesn’t begin with Peña Nieto. For three decades, government policies have been geared to suppressing spending and controlling inflation that had climbed to triple digits. The central bank’s interest rate and inflation both now hover around four per cent, while central government debt is low, amounting to approximately 28 per cent of GDP. (It’s around 36 per cent in Canada.)

Remarkably, the raging drug war has done little to dampen enthusiasm for Mexico. “A pile of 49 headless human bodies on a roadside is apparently less scary than an interest rate cut,” says Ulysses de la Torre, a blogger who focuses on emerging markets.

How much the “boom” benefits average Mexicans remains to be seen. Almost half (46 per cent) say their economic condition actually deteriorated over the previous year, according to a recent poll, and many expect little improvement in the short term, says Federico Berrueto, director general of polling firm Gabinete de Comunicación Estratégica. Fully 59 per cent of Mexicans now work in the informal economy. “The average person sees unemployment, that ends don’t meet, that their salary is low,” says Berrueto. When compared to the perspective of international investors, “it’s two distinct worlds.”

NEXT week the leaders of North America’s two most populous countries are due to meet for a neighbourly chat in Washington, DC. The re-elected Barack Obama and Mexico’s president-elect, Enrique Peña Nieto, have plenty to talk about: Mexico is changing in ways that will profoundly affect its big northern neighbour, and unless America rethinks its outdated picture of life across the border, both countries risk forgoing the benefits promised by Mexico’s rise.

The White House does not spend much time looking south. During six hours of televised campaign debates this year, neither Mr Obama nor his vice-president mentioned Mexico directly. That is extraordinary. One in ten Mexican citizens lives in the United States. Include their American-born descendants and you have about 33m people (or around a tenth of America’s population). And Mexico itself is more than the bloody appendix of American imaginations. In terms of GDP it ranks just ahead of South Korea. In 2011 the Mexican economy grew faster than Brazil’s—and will do so again in 2012.

Yet Americans are gloomy about Mexico, and so is their government: three years ago Pentagon analysts warned that Mexico risked becoming a “failed state”. As our special report in this issue explains, that is wildly wrong. In fact, Mexico’s economy and society are doing pretty well. Even the violence, concentrated in a few areas, looks as if it is starting to abate.

Mañana in Mexico

The first place where Americans will notice these changes is in their shopping malls. China (with more than 60 mentions in the presidential debates) is by far the biggest source of America’s imports. But wages in Chinese factories have quintupled in the past ten years and the oil price has trebled, inducing manufacturers focused on the American market to set up closer to home. Mexico is already the world’s biggest exporter of flat-screen televisions, BlackBerrys and fridge-freezers, and is climbing up the rankings in cars, aerospace and more. On present trends, by 2018 America will import more from Mexico than from any other country. “Made in China” is giving way to “Hecho en México”.

The doorway for those imports is a 2,000-mile border, the world’s busiest. Yet some American politicians are doing their best to block it, out of fear of being swamped by immigrants. They could hardly be more wrong. Fewer Mexicans now move to the United States than come back south. America’s fragile economy (with an unemployment rate nearly twice as high as Mexico’s) has dampened arrivals and hastened departures. Meanwhile, the make-up of Mexican migration is changing. North of the border, legal Mexican residents probably now outnumber undocumented ones. The human tide may turn along with the American economy, but the supply of potential border-hoppers has plunged: whereas in the 1960s the average Mexican woman had seven children, she now has two. Within a decade Mexico’s fertility rate will fall below America’s.

Undervaluing trade and overestimating immigration has led to bad policies. Since September 11th 2001, crossing the border has taken hours where it once took minutes, raising costs for Mexican manufacturers (and thus for American consumers). Daytrips have fallen by almost half. More crossing-points and fewer onerous checks would speed things up on the American side; pre-clearance of containers and passengers could be improved if Mexico were less touchy about having American officers on its soil (something which Canada does not mind). After an election in which 70% of Latinos voted for Mr Obama, even America’s “wetback”-bashing Republicans should now see the need for immigration-law reform.

No time for a siesta

The least certain part of Mexico’s brighter mañana concerns security. This year has seen a small drop in murders. Some hotspots, such as Ciudad Juárez, have improved dramatically. A third of Mexico has a lower murder rate than Louisiana, America’s most murderous state. Nevertheless, the “cartels” will remain strong while two conditions hold. The first is that America imports drugs—on which its citizens spend billions—which it insists must remain illegal, while continuing to allow the traffickers to buy assault weapons freely. American politicians should heed the words of Felipe Calderón, Mexico’s outgoing president, who after six years and 60,000 deaths says it is “impossible” to stop the drug trade.

The second black spot is that Mexican policing remains weak. If Mr Peña is to keep his promise to halve the murder rate, he must be more effective than his predecessor in expanding the federal police and improving their counterparts at state level. That is just one of several issues that will test Mr Peña. He cannot achieve his ambition to raise Mexico’s annual growth rate to 6% by relying solely on export manufacturing. Upping the tempo requires liberalising or scrapping state-run energy monopolies, which fail to exploit potentially vast oil and gas reserves. Boosting Mexico’s poor productivity means forcing competition on a cosy bunch of private near-monopolies—starting with telecoms, television, cement and food and drink. That means upsetting the tycoons who backed his campaign.

This newspaper gave Mr Peña a lukewarm endorsement before July’s election, praising his economic plans but warning that his Institutional Revolutionary Party (PRI), which ran Mexico in an authoritarian and sometimes corrupt manner for most of the 20th century, has not changed much. Facing down interests within his own party may be Mr Peña’s hardest task. The head of the oil workers’ union is a PRI senator. The teachers’ union, which is friendly with the party, is blocking progress in education. A new labour reform has been diluted by PRI congressmen with union links.

Mr Peña, a good performer on the stump, should appeal beyond the PRI to a broad consensus for change among Mexicans. Time will tell if he measures up to the task. But the changes in Mexico go beyond the new occupant of Los Pinos. The country is poised to become America’s new workshop. If the neighbours want to make the most of that, it is time for them to take another look over the border.

Here’s a bold prediction for 2022, the year of another World Cup: Mexico will beat Brazil.

While soccer-mad Mexicans dream of defeating their regional rivals for the ultimate trophy, some analysts say 2022 may actually be the year when Mexico dribbles past Brazil to become Latin America’s biggest economy.

And Brazil is not the only global powerhouse that Mexico is challenging. China’s rising wages are making Mexico an increasingly attractive location for manufacturers, who are flocking here despite a relentless drug war.

The country’s rising fortune has inspired a series of optimistic notes by analysts from some of the world’s biggest financial firms.

“We forecast that Mexico may overtake Brazil as the No.1 economy in Latin America as early as 2022, on the back of strong growth in human capital and total factor productivity,” Nomura Group analysts wrote last month.

“Embarking on a trajectory of high growth will mark the birth of the first, not tiger, but ‘jaguar’ country in Latam.”

Mexico posted growth of 3.9 percent in 2011 and the central bank is forecasting growth of as much as 4.25 percent this year. Brazil’s growth slowed to 2.7 percent last year, while a mere 1.6 percent is forecast for this year.

Brazil’s slowdown came after it enjoyed a “golden decade” fueled by China’s appetite for commodities following the Asian giant’s entry into the World Trade Organization in 2001, Nomura stated in a previous note in May.

Mexico, meanwhile, is at “the dawn of a new era” as more and more manufacturers set up shop here due to China’s growing labor costs, the Asia-based financial firm added.

The Boston Consulting Group, a global management consulting firm, says it could already be cheaper to produce in Mexico than in China.

“We believe that this year … the costs of producing in Mexico are the same or lower than the costs of producing in China,” Hal Sirkin, a senior partner at the Boston Consulting Group, told AFP.

Average manufacturing wages, when adjusted to productivity, were $3.06 an hour in Mexico in 2010 compared to $2.72 in China, he said. By 2015, They will rise to $5.30 in China and just $3.55 in Mexico.

Sharing a border with the United States, the world’s biggest importer, has helped too. But reliance on the United States has its risks.

“The substantive role that external conditions have played in Mexico’s economic recovery makes their eventual weakening a fundamental risk,” said Mexican central bank deputy governor Manuel Sanchez.

“In particular, if US industrial production slows, Mexican manufacturing exports may decelerate notably,” he said in New York on Friday, according to a copy of his speech.

Barclay’s bank analyst Marco Oviedo wrote on September 6 that, after lagging Chinese manufacturing exports for a decade, Mexico took the lead after 2008-2009.

“We believe this change is likely to be structural and persistent,” Oviedo wrote.

Mexico became the world’s fourth biggest car exporter this year, jumping from fifth place, and other industries are increasingly moving production here, from aerospace to electronics and telecommunications.

This year alone, Nissan, Ford, and BMW announced plans to open new factories or increase production in Mexico.

Audi became this month the latest auto maker to decide to set up shop in Mexico. The plant in San Jose Chiapa, central Mexico, will create 3,000 to 4,000 jobs and produce 150,000 cars a year when it opens in 2016.

“This will allow us to ship our cars duty free to the USA, Latin America and Europe,” Uwe Hans Werner, an Audi spokesman, told AFP. “This decision will lower our costs and increase our profit margins and will give us a definite competitive advantage with customers.”

Manufacturers keep coming even though Mexico has endured a wave of drug-related violence that has killed some 60,000 people in the last six years.

“Some are saying ‘we will take the risk’ and others say ‘we don’t want to take the risk if violence goes out of control,’“ Sirkin said. “This is one of the issues companies think about.”

The violence has weighed on Mexico’s economic output. The national statistics institute said Thursday that crime cost the economy 211.9 billion pesos ($16.5 billion) in 2011, or 1.38 percent of gross domestic product. – Sapa-AFP

Plugged in: Mexican workers, such as these working on a Bombardier jet at a factory in Querétaro, are now leading suppliers to the US Bloomberg

At Siemens’ high-voltage equipment plant about two hours’ drive from Mexico City, workers move about the polished floor, assembling and testing parts of circuit breakers for use in electrical substations.

Until a few months ago, the 160 parts for these enormous devices, with protruding poles that give them the appearance of stage props from a set of Frankenstein’s workshop, were assembled in India or China.

Click to enlarge

But today, the assembly is carried out in Mexico. By March next year, most of those 160 parts, which currently come from Germany and Asia, will be produced there too. The company has also chosen Mexico as the location for a new surge-arrester project instead of investing to expand production in China.

“We are moving towards local hubs,” explains Claude Steffen Raab, general manager of the German company’s high-voltage division in Mexico. “The idea is to respond more quickly to each of our markets.”

The shift in production at Siemens is part of a little publicised manufacturing revolution in Mexico taking place across a range of industries from cars and aircraft to refrigerators and computers. For the first time in a decade, Latin America’s second-largest economy has become a credible competitor to China.

During the first half of this year, Mexico accounted for 14.2 per cent of manufactured imports into the US, the world’s largest importer. In 2005, Mexico’s share was just 11 per cent. Surprisingly, China, which gained huge chunks of the US import market for many years, has started to lose ground. From a high of 29.3 per cent of the total at the end of 2009, it has now shrunk to 26.4 per cent.

While winning a bigger slice of the US market, Mexico has diversified its customers. A decade ago, about 90 per cent of the country’s exports went to the US. Last year, that figure fell to less than 80 per cent. Suddenly, it seems, Mexico has become the preferred centre of manufacturing for multinational companies looking to supply the Americas and, increasingly, beyond. Today, Mexico exports more manufactured products than the rest of Latin America put together.

The result of this turnround can often seem counter-intuitive. Chrysler, for example, is using Mexico as a base to supply some of its Fiat 500s to the Chinese market. During last year’s inauguration of the US company’s $500m investment in Mexico, Felipe Calderón, the country’s president, told the nation: “I think it is the first time that a Mexican vehicle, at least in recent times, is to be exported to China … we always thought it was going to be the other way around.”

But the US car manufacturer is not alone. Audi, the German carmaker, is deciding whether to use a factory in Mexico to manufacture the kits for Q5 cars that are assembled in China to supply the domestic market.

Mexico’s new-found competitiveness has become so clear that Marco Oviedo of Barclays concludes: “After lagging Chinese manufacturing exports for a decade, Mexico has taken the lead post-2008-09. We believe this change is likely to be structural and persistent.”

Go back to the beginning of the century and none of this seemed possible. Back then, as China burst on to the global stage following its accession to the World Trade Organisation in 2001, Mexico seemed to be in serious trouble.

For much of the rest of Latin America, China was a voracious customer of agricultural and mineral commodities. By contrast, Mexico saw China as an unstoppable competitor that produced exactly the same sorts of cheap manufactured goods at a tiny fraction of the cost.

Against that backdrop, it is hardly surprising that Mexico was the last WTO member to vote for China’s accession – a vote that it gave only after a long and bitter negotiation.

But several important shifts have taken place since then that have improved Mexico’s comparative advantages, giving it a new and dynamic role as a global manufacturer. The first is that Mexico has embraced trade and openness like few other countries in the world.

Its free trade agreements with 44 countries – more than twice as many as China and four times more than Brazil – have given companies based in Mexico the ability to source parts and inputs from a wide range of nations, often without paying duty.

Partly as a result, the sum of Mexico’s imports and exports as a percentage of its gross domestic product, a strong indicator of openness, rose to 58.6 per cent in 2010. In the case of China, it was 47.9 per cent, and just 18.5 per cent in the case of Brazil. HSBC in Mexico City estimated recently that the figure for Mexico could increase to as much as 69 per cent this year.

There is also an increased confidence inspired by agreements, particularly the 1994 North American Free Trade Agreement, which binds Mexico with the US and Canada. “Nafta creates a rule of law, which is not perceived to be a particularly Mexican concept … it forces you to do what is right, and to do it for ever, ” says Luis de la Calle, an economist and trade expert who helped negotiate Nafta for Mexico.

As if to prove the point, Mr de la Calle devised an unorthodox index based on how many alphabetical letters appear about a given country in the US Trade Representative’s annual report on barriers to US exports and investment, divided by US exports to that same country. Last year, from a list of 22 countries, Mexico beat Canada to the top place of best-behaved countries. Pakistan was the worst offender and China was 10th worst.

. . .

Of course, Mexico is not without its problems. While the country is making strides in its attempts to diversify, it is still heavily beholden to the ups and downs in the US.

But perhaps the most alarming concern of foreign investors and the general population alike is the deterioration in security.

The murder rate has almost tripled to about 22 per 100,000 inhabitants from just over eight when Mr Calderón declared an all-out offensive against the country’s drug cartels at the end of 2006. The war, which has claimed at least 55,000 lives over the past six years, has dominated headlines about Mexico as the press reports on a seemingly endless flow of horror stories involving beheadings, kidnappings and massacres.

This year, it also prompted the US state department to issue a travel advisory telling US citizens to put off “non-essential travel” to many areas of Mexico, and warning that nearly half of the country’s 31 states are so dangerous that travellers should avoid them if possible.

So far, the violence has had little impact on multinationals, which generally operate in safe industrial parks around the country. But there are no guarantees that organised crime will not start to try to extort large foreign companies in the future – and in the same way it has been doing with smaller, domestic companies.

Until that happens, foreign companies continue to eye Mexico – in part because China has not turned out to be quite the manufacturing nirvana that it once appeared. While executives long complained of Chinese red tape and the threat to intellectual property there, they were willing to balance those risks against cheap labour and transport.

But rising wages and higher fuel prices have made it increasingly expensive to export from China to the US market. This is all to Mexico’s advantage. In 2009, Mexico overtook South Korea and China to became the world’s leading producer of flatscreen television sets. The bulkier the item, the more Mexico makes sense. According to Global Trade Atlas, the country is also the leading manufacturer of two-door refrigerators.

Thanks to a 2,000-mile border with the US, and extensive rail and road links, it is not only cheap but fast and easy to ship goods north. Shipments from China to the US typically take between 20 days and two months. From Mexico, they take a week at most and usually just two days.

For many industries operating in today’s cost-conscious environment, “Made in Mexico” is becoming a serious consideration in their attempts to shorten supply chains, which potentially allows them to cut costs because quicker delivery times mean that they can minimise the amount of money invested in inventories. As Bruno Ferrari, Mexico’s economy minister, told the Financial Times recently: “The proximity that Mexico offers industry allows companies to reduce their financing costs.”

Rising labour costs in China have presented Mexico with an additional opportunity. According to HSBC, Mexican wages were 391 per cent higher than those of China a decade ago. Today, they are just 29 per cent more. Experts predict that Chinese wages will even overtake those of Mexico within five years.

Mr de la Calle argues that demographics are behind this. While China is experiencing a squeeze in its working-age population.

By contrast, more than half Mexico’s 112m population is under 29, so there will be an abundance of cheap labour until at least 2028. “Right now, you have to look at Mexico and conclude that it has the best demographics in the world,” says Mr de la Calle.

At the same time, Mexico’s plentiful working population is becoming more skilled. According to Unesco, the number of engineers, architects and others in disciplines related to manufacturing graduating from Mexican universities has risen from almost 0.4 per 1,000 people in 1999 to more than 0.8 today. To set that in a regional context, the number for the US over the same period has remained roughly flat at 0.6 per 1,000.

Skilled workers are providing an increasingly attractive environment for high-tech companies – Mexico has in recent years become a world leader in the production of computers and mobile telephones – as well as for car companies, almost all of which are now using Mexican engineers to design parts.

. . .

None of this means that Mexico is going to replace China as the world’s first choice for manufacturing. With more than a quarter of the share of US imports, the Asian colossus outpunches Mexico in terms of volume.

It also has deeper supply chains than Mexico. From the manufacturing hub of Ciudad Juárez on the Texan border to Querétaro in central Mexico, international companies say that they have trouble finding local suppliers for parts and packaging.

Siemens, for one, says that it has been trying to source its pressure-tight aluminium castings from Mexico but is still using companies based mainly in Europe because of the difficulty in finding local partners.

But from what appeared a dark future just over a decade ago, Mexico has moved into a position that, for now, has made the next few years look potentially very bright.

As Mr de la Calle says: “Things are good and they are going to get even better.”

McClatchy Washington Bureau

Posted on Mon, Sep. 10, 2012

By Tim Johnson | McClatchy Newspapers

last updated: September 10, 2012 03:56:06 PM

MEXICO CITY — ]

Email: tjohnson@mcclatchydc.com; Twitter: @timjohnson4