On the China-Mexico Rail Deal

˙ China & Latin America

The Chinese public continues to criticize Mexico’s cancellation last week of a prestigious railway deal with a consortium of Chinese and Mexican firms. After (then unconfirmed) news surfaced last Thursday that Mexico would revoke its agreement, some Chinese took to Weibo, China’s Twitter/Facebook hybrid, to condemn Mexico’s perceived dishonesty and caution against future dealings with the Latin American nation. Some even urged China to impose economic sanctions on Mexico, or at the very least to avoid investment and cooperation deals with Mexico in the coming years. Still others suggested that the US played a role in Mexico’s decision to halt the agreement.

More recently, netizens have expressed concern about a possible lack of transparency in the bidding process, as indicated by Mexican lawmakers. Others are now warning against doing business in developing countries, where the investment environment is uncertain.

Approved just last week, the $3.75 billion project – a high-speed passenger train line linking Mexico City to Queretaro – was to be the first large infrastructure investment by a Chinese firm in Mexico. It was also an indication, arguably, of warming of relations between Mexico and China, beginning after Peña Nieto’s election and encouraged by Mexico’s ongoing energy sector reforms.

The deal can additionally be interpreted as evidence of growing attention among Chinese firms to sustainable and responsible business practices, as spelled out in recently published MOFCOM guidelines. This includes improving competitiveness in bidding processes through consortium-building and greater attention to overseas labor and environmental practices. According to a Chinese news source, the railway consortium, led by China Railway Construction Corporation Ltd (CRCC), will hire at least as many local laborers as Chinese laborers for railway construction. The China-Mexico railway deal has also been promoted as the first case in which China is both developing a railway and providing the trains that will operate on it.

Mexico’s annulment of the deal – only three days after its cancellation – reportedly shocked CRCC. The agreement was rescinded after an outcry from Mexican lawmakers and amidst speculation that public-works projects are benefiting allies of Peña Nieto and his Institutional Revolutionary Party.

For China, which is actively seeking to export increasingly high-tech products and services, Mexico’s about-face was an awkward development, especially considering that this deal was highly publicized in the Chinese media, perhaps contributing to the rather strong netizen reaction. Today Premier Li Keqiang said he regrets Mexico’s decision to revoke its offer to Chinese firms to build a high-speed railway and wants companies in China to be treated fairly.

The Mexican government has indicated that a new bidding period will be open for the next six months. Despite the outcome of the previous round, the CRCC-led consortium will yet again submit a bid. This round will presumably be closely watched by critics of the previous deal. But the outcome may very well be the same. Chinese Academy of Engineering expert Wang Mengshu thinks so at least, indicating that the consortium is superior to other bidders. And six months doesn’t allow much time for other firms to prepare competing bids.

Mexico remains a promising destination for China, but China keeps track of perceived snubs, especially during APEC proceedings and especially in advance of the expected announcement of a major infrastructure loan to PEMEX.  Premier Li’s comments today clearly indicated a degree of disappointment on the part of the Chinese government.