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Wednesday, November 8, 2023

Canadian auto parts industry sounds alarm over Chinese investments in Mexico

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A worker crosses the Magna plant in Puebla, Mexico, in 2015. The Mexican Association of Automotive Distributors said in September the country’s Chinese car imports had increased by 62.6 per cent during the first eight months of 2023.Brett Gundlock/ Boreal Collectiv/The Globe and Mail

Canada’s auto parts industry is expressing concern about a string of investments by Chinese firms in Mexico’s auto industry, moves it argues are designed to skirt rules in the United States-Mexico-Canada Agreement that give favourable tariff treatment to cars made mostly with North American parts.

Flavio Volpe, president of the Auto Parts Manufacturers Association, which represents the Canadian industry, said his organization’s worry is that the investments are being made by entities that are owned by the Chinese government ↗, or that benefit greatly from support from the Chinese state.

He said he is concerned that this state-sponsored competition will end up costing Canadian auto parts makers both profits and jobs. More than 65 Canadian auto-sector companies operate about 120 factories in Mexico, where they employ more than 44,000 people. In Canada, the auto parts industry ↗ employs about 100,000 people, including those who make the tools necessary for part-making.

Canadian auto parts companies will increasingly be competing with Chinese companies that “have a different relationship with return on investment” and do not face the same investor pressure for profit, Mr. Volpe said.

“All these Chinese companies have access to cheap capital, benefit from a central plan and are part of a wider geopolitical objective to weaken the North American base,” he added. “Canadian suppliers are only just trying to be profitable and solvent in a free market.”

Mr. Volpe said Chinese companies likely realize they would face regulatory hurdles if they tried to buy Canadian or American auto parts companies, and have instead chosen to make Mexico ↗ – far more friendly to Beijing – their entry point into the North American market.

Under the United States-Mexico-Canada Agreement ↗, automakers can import cars into the U.S. duty free, as long as 75 per cent of each vehicle’s parts were built in North America.

At least six Chinese car brands have arrived in Mexico in recent years, among them MG Motors, whose parent company is the Shanghai-based, Chinese-state-owned automaker SAIC Motor. Other recent arrivals include Chang’an Automobile Co., which is owned by a Chinese state-owned automaker headquartered in the city of Chongqing; and Beijing Automotive Group Co., a state-owned manufacturer headquartered in Beijing.

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Mexican imports of Chinese-made cars are supplanting imports from North America. The Mexican Association of Automotive Distributors announced in September that the country’s Chinese car imports had increased by 62.6 per cent during the first eight months of 2023, compared to the same period in 2022. China’s share of Mexico’s domestic market was nearly 20 per cent, up from 5.7 per cent previously.

“These strategic investments and the rapid market-share growth are indicative of a broader displacement strategy by Chinese manufacturers, leveraging state ownership and control to gain significant leverage within North America over regional investors,” Mr. Volpe said.

He predicted that the rapid rise in China’s share of Mexico’s auto sector will lead to more Chinese auto plants there.

China has already made efforts to give its auto sector a competitive edge in the emerging electric vehicle market.

In late October, Beijing announced tighter export restrictions on graphite ↗, a crucial input for electric vehicles, each of which requires more than 80 kilograms of the mineral for its battery. Last year China was the source of 65 per cent of graphite mined.

Mr. Volpe said elected officials and governments, both in Canada and the U.S., must “wake up to the speed at which the Chinese are altering their competitive strategy.”

“The export controls on graphite and the influx of displacing Chinese automotive investments are a clear signal that we must collaborate more closely to safeguard our industry,” he said.

Electric vehicle imports from China into Canada have also boomed. Shipments of Chinese EVs to Canada jumped to $1.1-billion in the first eight months of 2023, up from $34-million during the same period the previous year, according to Statistics Canada.

Unlike in the U.S., Canada’s existing consumer incentive programs for purchasing EVs do not take into account where the vehicles’ batteries were made.

“Chinese-branded automakers … are watching the progress companies like Tesla and Buick are making in importing Chinese-made products into Canada,” Mr. Volpe said. “They will enter the market with the electric vehicles governments are mandating and incentivizing here before the domestic transition has borne fruit.”

Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, said Canada should better align its policies with those of the U.S.

“Skyrocketing EV imports from China illustrate the growing disconnect between the federal government’s environmental and economic policies,” Mr. Kingston said. “Canada benefits when we keep our automotive industry aligned with the U.S., our biggest customer and most important automotive trade partner.”

Toronto lawyer Mark Warner, who previously worked for the Ontario government, said Canada should be pushing for tighter enforcement criteria on how much production must occur in North America for parts or vehicles to be considered to have originated here.

Michael Maren
Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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