News

Guess Who’s Coming To Baja?

Chinese may bring televisions, cars and maybe a new city, port and railroad

When it comes to matters of international taxation, investment and business in Baja California, Mauricio Monroy, the managing partner of Deloitte Touche’s office in Tijuana, is without peer. And he is convinced the next wave of Baja development is on its way, sponsored by China.

Monroy shared his observations as a guest on The Baja Connection, airing at 6 p.m. weekdays on Kool 1040 AM. As a regular visitor to China over many years, he has witnessed the tremendous transformation of the country into a major player in the global economy.

The Chinese became experts at building cities and industries from scratch. Chinese automobile brands, which are not heard of in the United States, are huge sellers. China is now producing many of its own brands. It has become the world’s largest producer of televisions, among other products.

In years past, competing for off-shore manufacturing and assembly work (known as maquiladoras in Mexico), the Chinese handed Baja and other Mexican states their lunch. Labor and overhead costs in China were substantially lower. This resulted in the exodus of several hundred companies relocating in China, many of them from Baja.

While Baja California felt the effects, it did not panic. Instead, its economic development officials decided it was time for the state to discontinue pursuing low-wage maquiladoras for high-tech, better paying sectors.

Academic institutions are playing an important role in this move by designing courses of study recommended by high-tech industries. The efforts are beginning to pay off in Tijuana, Ensenada and Mexicali.

Monroy has visited China four times since 2007, and is scheduled for another visit next month.

He has found that Chinese television manufacturers are highly interested in locating in Baja with Tijuana as first choice. It seems the chemicals in flat screen plasma televisions are susceptible to ocean movement during shipment, creating unusable sets on arrival at the destination. And with plasma and HD television, the trend is for bigger sets requiring more space and thus reducing the number of sets per shipping container. Transportation costs per set are rapidly increasing.

It makes sense for China to invest in manufacturing facilities next door to the United States, its biggest market.

The next level of China’s investment in Baja is automobile manufacturing. Monroy says there are no fewer than four major Chinese car manufacturers putting out small, fuel-efficient, well-built cars.

After a Chinese car manufacturer decided earlier this year not to open a plant in Tijuana, some feared it was because of the Mexican drug wars. Not so, says Monroy. He believes the manufacturer pulled out because it was not satisfied with the company it was going to partner with in the venture.

Monroy says the Chinese have built new cities that have populations in excess of a million. The city building expertise is especially interesting in context with former Baja governor Ernesto Ruffo’s promotion of Punta Colonet in the Ensenada municipality but some distance south of the existing Ensenada Port. Ruffo’s project calls for the building of a major cargo seaport with rail service (up to four tracks) to Mexicali/San Luis Rio Colorado. From there goods can be shipped to the United States or interior of Mexico.

Is there a play there with China, I asked?

Monroy answered by noting the world’s largest port container operator, Hutchison, is based in Hong Kong. And Ruffo’s vision necessitates building an entire city where none now exists.

Where does San Diego fit into this future? Monroy says it best: Both sides must realize we are one region in two different countries. We need to join forces and act as one to attract the best companies as equal partners.

His recommendation reminds me that we do a lot of talking and some doing, but somehow we never seem to get it all together as one team. Maybe it’s the part about “equal partners” that holds us back.

Patrick Osio Jr. can be reached at patrick@transbordercommunications.com