MCALLEN, RGV – McAllen Economic Development Corporation is taking a trade delegation back to China for the second time this year.
The group has never visited the world’s most populous country twice in one year before. McAllen EDC President Keith Patridge says this is an indication of just how much interest Chinese manufacturing firms have in opening plants on the U.S.-Mexico border.
“It is a combination of the tariffs, the provisions under USMCA, and the fact that China is no longer a low-cost operation,” Patridge told the Rio Grande Guardian, in an exclusive interview.
“Because of USMCA, because of the tariffs issue, because of the size of the market here, they (Chinese manufacturers) are saying, we need to be in North America. So, the question then is, where?”
The upcoming trip will take place Oct. 7-13. An MEDC delegation that included McAllen Mayor Jim Darling, visited Shanghai and Shenzhen July 13-22.
In his interview, Patridge said McAllen EDC’s connections to China have blossomed thanks to the work of a husband and wife team from that country. He did not wish to name the couple.
“A husband and wife team came to McAllen with a view to putting their plant here. As they found out about the uniqueness of the border community, and how we will be able to have greater flexibility under USMCA and even some flexibility under the 301 tariffs, they found what the border has to offer very intriguing.”
USMCA, which stands for United States-Mexico-Canada, is a new trade agreement that has been designed to replace the North American Free Trade Agreement. It is awaiting ratification by Congress.
“This husband and wife team went back to China and started talking to some of their friends and companies over there. They said, ‘you really need to look at the U.S.-Mexico border region’,” Patridge explained. “So, they called us and said, ‘can you come over and talk to a few of our friends.’ All of a sudden it went from talking to a few companies to talking to 150 companies.”
Patridge said he did not anticipate just how productive the July visit to China would become.
“We went over with the expectation that it be one of those pleasantries where you introduce one another, you say good things, you talk about who you are and things like that,” he said.
“The first company we met with, we went into the conference room and sat down and started with the pleasantries, the get-to-know-you type of thing. All of a sudden they said, this is not why we invited you. We want to know specifics on how we set up operations there.”
And so, Patridge and his team got to work.
“We were plotting out and laying out structures and things on their wall and they would bring all their staff in. They were videotaping it and recording it. Before we had got back to the hotel they were calling Jorge Torres, one of the members in our delegation, asking him to be a consultant for their project.”
McAllen-based Jorge Torres, of Interlink Trade Services, is an expert on import and export rules and tariffs.
Patridge said that with every company they met on the first China trip, the connections were made with very senior level managers. “They just opened the door for us and it was all very focused on doing something, not just listening and being pleasant.”
After this, the MEDC delegation visited the Shenzhen logistics and supply chain association. “They said we have this show every year and we really think it is important you talk about what you have to offer, the border with Mexico, to our membership. And so we will be talking to about 1,800 companies when we go over there.”
Looking ahead to the upcoming China visit, Patridge said he and his EDC team are excited about what lays in store.
“It is kind of like fishing. You have to bait the hook and throw it in and then you sit there and wait for the nibble to become something you can hook. It is a fishing expedition. It is expensive but all we need is one company and we have more than paid for that investment. It looks like we already have one (deal) that is very close. If they come it will be a groundbreaking thing, if it comes to the Rio Grande Valley.”
Going back to the Chinese husband and wife team, Patridge said their family has a company that is around 40 years old. “They wanted to set up a manufacturing operation in North America and they found us through word of mouth, people that had worked with us and said, you need go talk to them. They came down and as we started working with them on their project, they said, this is big, this is an opportunity for other companies as well.”
Celebrated McAllen businessman Joaquin Spamer will be on the China trip, Patridge confirmed.
“We will be presenting the whole concept of the Third Coast, using the Mexican ports on the west coast, which Joaquin Spamer has really taken hold of. He is going with us to present on the Third Coast. There are a lot of opportunities. If we can get USMCA ratified by Congress, then I think there are a lot of great things that are going to happen here.”
Asked to explain in more depth the new advantages under USMCA, Patridge said:
“The most important thing is the 25 percent tariff on most products and the threat of additional tariffs, the trade negotiations that are taking place. That is a big concern. With USMCA there are fundamental changes that have some very unique opportunities for us, particularly in the automotive sector. Regardless of whether the tariffs go away, there is a real reason (for Chinese firms) to be here.”
Patridge said one of the most surprising things he learned from the July visit to China was just how costly it is to manufacture there.
“Perhaps this was the most surprising thing for me: China is not low-cost anymore. The wages in China, unless you are in the far reaches of China… if you are in the developed area where you have the freight systems and the infrastructure supports, it is much more expensive than it is in Mexico,” Patridge said.
“As a result the Chinese companies are recognizing they have to start moving out of China. It was also surprising to learn there are so many companies that are moving out of China. Most of them have gone to Vietnam or other Southeast Asia low-cost countries but what they are finding is Vietnam cannot take any more companies.”
Cultural challenges
Patridge said one of the biggest challenges in setting up manufacturing operations along the U.S.-Mexico border will be cultural differences.
“As we bring Chinese companies in, they have very little experience, if any, of operating outside of China. So, we will have cultural issues to deal with, such as how to do business here. We are talking to Texas A&M and UTRGV to see if we can put programs in place to help,” Patridge said.
“To me, that is going to be our biggest challenge. It is not a money thing. It is not a skills thing. It is a cultural thing, so we are not talking past one another, we are talking to one another.”
Patridge confirmed that the Chinese firm that is currently looking closely at investing in the region would set up two manufacturing plants, one on the U.S. side and one on the Mexican side.
Editor’s Note: The main image accompanying the above news story shows the Chinese city of Shenzhen. Long known as a production center, the city is emerging as a global hub for innovation, according to Nikkei Asian Review. (Photo credit: AP).
