Employment Effects of Chinese OFDI on the Manufacturing Sector in Mexico

4.2.   Employment  Effects  of  Chinese  OFDI  on  the  manufacturing  sector  in   Mexico   There  is  considerable  fear  in  Mexico  that  Chinese  firms  will  bring  Chinese  workers,   who  may  displace  Mexican  workers  by  working  for  lower  wages  and  poorer  rights   compared  to  local  workers,  thus  deepening  the  present  employment  scarcity  and   harming  labor  conditions.  However,  Chinese  firms  display  the  same  heterogeneity  in   this  aspect  as  in  the  environmental  behavior  described  above.  Social  aspects  of   Chinese  firms  in  Mexico  are  frequently  inherited  from  businesses  acquired  by   Chinese  capital  or  from  those  with  which  they  have  joint  ventures.  This  is  not  a  rule,   though,  because  there  has  been  at  least  one  case  of  joint  Chinese  and  US  capital  firm   where  irregularities  were  spotted:  the  apparel  firm  KBL  de  México,  S.  A.  de  C.  V.  in   Guanajuato,  where  the  Immigration  Office  made  a  verification  visit  in  2006  and   discovered  61  isolated  Chinese  workers,  with  14  hours  workdays  and  with  their   immigration  documents  held  by  the  enterprise.15   Purely  Chinese-­‐owned  firms  seems  to  have  a  comparatively  greater  proportion  of   Chinese  workers.  This  is  the  case  of  SINATEX  S.A.  de  C.V.,  in  which  almost  one  fifth  of   workers  are  Chinese.  In  another  common  scenario,  there  may  be  a  greater  presence   of  Chinese  workers  in  the  initial  stage  of  the  firm’s  operation,  after  which  most  of   them  return  to  China  and  a  much  smaller  group  remains  (as  in  GDA,  for  example).   Finally,  sometimes  Mexican  workers  may  not  have  access  to  all  their  potential   rights,  such  as  belonging  to  a  trade  union  (as  is  the  case  of  SINATEX),  but  this  is  not   true  in  other  enterprises  (see  case  study,  section  5).     From  a  number  of  personal  interviews  with  public  sector  officials,  private  sector   and  Chinese  representatives,  it  seems  that  the  need  for  Chinese  employees  in   manufacturing  Chinese  enterprises  in  Mexico  stems  not  so  much  from  the   possibility  of  paying  them  lower  wages  but  because  they  can  understand  each  other   better,  they  are  used  to  the  organization  of  the  Chinese  firms,  and  culturally  and   linguistically  they  have  greater  synergies  than  with  the  Mexican  personnel.  As  was   15  El  Sol  de  Salmanca,  Se  deterioran  las  instalaciones  de  la  KBL  de  México,   http://www.oem.com.mx/elsoldesalamanca/notas/n2131938.htm,  04/07/2011.   mentioned  above,  one  of  the  big  obstacles  for  Chinese  firms  to  successfully  carry  out   manufacturing  investments  comes  from  the  cultural  complications.  Also,  a  massive   immigration  of  Chinese  workers  into  this  sector  seems  impossible,  because  of  the   rule  that  only  10%  of  workers  in  any  enterprise  can  be  foreign,  as  well  as  the   lengthy  procedures  necessary  for  Chinese  citizens  to  obtain  the  Mexican  work   permits  (although  the  new  migration  law  has  eased  the  process  somewhat).   Information  on  social  and  labor  standards  in  the  Chinese  manufacturing  enterprises   in  Mexico  is  difficult  to  access.  However,  it  is  very  telling  that  the  CCPIT  (2013)   survey  of  more  than  1000  Chinese  enterprises  shows  that  the  greatest  threats  that   they  face  in  the  European  Union  and  in  the  US  were  labor  disputes.  As  with   environmental  performance,  these  firms  must  comply  with  host  country  standards   as  long  as  workers  have  ways  of  expressing  their  complaints  and  there  also  are   enforcement  mechanisms.  On  the  other  hand,  if  such  standards  are  poor,  firms  may   not  aim  at  higher  ones  solely  from  their  own  convictions.  Unlike  environmental   legislation,  however,  firms  in  many  sectors  have  much  stronger  capacity  to   implement  Mexican  labor  regulations  than  environmental  ones.  This  capacity,   though,  is  uneven  in  the  textile-­‐apparel  industry,  as  the  textile  industry  has  stronger   legislation  and  trade  unions  than  the  apparel  industry.     5. Case  Study  on  Golden  Dragon  Affiliates  S.,  de  R.L.  de  C.V.  (GDA),  Monclova, Coahuila 5.1 The  Golden  Dragon  Group   5.1.1.  General  Characteristics  and  Background   GDA  belongs  to  Golden  Dragon  Precise  Copper  Tube  Group  Inc.  (GDG)  –  which  is   among  the  largest  enterprises  of  precise  copper  tubes  in  the  world.  It  was  set  up  in   1988  in  China  as  a  State  Owned  Enterprise  (SOE)  and  in  1994  it  was  privatized.  It   has  six  plants  in  different  provinces  in  China;  the  most  important  is  the  Xinxiang   Facility,  with  1,700  employees  and  a  capacity  to  produce  100,000  metric  tons  (MT)   of  copper  tubes  a  year.  It  has  one  plant  outside  China  -­‐  in  Monclova,  Coahuila,   Mexico  -­‐  and  is  building  a  second  one  in  Alabama,  US.     GDG  was  attracted  to  invest  in  Mexico  by  its  closeness  to  the  US  market  and  also  the   benefits  offered  by  this  country:  they  were  exempted  from  paying  payroll  taxes  for   one  year;  they  offered  one  year  scholarships  for  the  first  workers  hired  to  study;  and   the  government  provided  the  land  for  them  to  construct  and  also  helped  in  the   construction  process  itself.     This  firm  produces  several  kinds  of  tubes:  smooth  tubes,  IGT  (inner  grooved  tubes),   pancake  coils,  fin  tubes,16  solar  tubes,  and  RF  (radio  frequency)  tubes.  These  tubes   have  a  very  wide  range  of  applications:  air  conditioning  and  refrigeration   equipment,  water  supply  for  buildings,  ship  building,  medical  facilities,  solar  energy,   mobile  communication,  and  electromagnetic  microwave  technology.  Three  kinds  of   tubes  are  manufactured  in  Mexico:  smooth  tubes,  IGT,  and  pancake  coils.17  18   5.1.2.  GDG  Technology   GDG  produces  seamless  refined  copper  (SRC)  tubes.  The  technology  used  in  the   production  of  SRC  pipes  and  tubes  in  the  US,  China,  and  Mexico  has  improved  over   the  last  two  decades.  GDG  uses  the  most  recent  technology  available,  which  consists   of  a  continuous  horizontal  cast  and  roll  process.  It  is  an  improvement  over  the   extrusion  method,  since  it  is  quicker  and  does  not  require  the  billet  reheating  and   extrusion  steps  of  the  former.  Hence,  it  has  lower  production  costs,  reduces  defects   in  the  final  products,  and  requires  less  energy  and  water  for  its  manufacture.  The   process  used  also  has  better  control  of  wall  thickness  along  the  length  of  the  mother   16  In   comparison   to   plain   tubes,   these   increases   the   surface   area   of   the   tube   and   improves   the   heat   transfer  efficiency.     17  http://www.gdcopper.com/en/ABOUT/Copindu/   18  Mexican  producer  IUSA  and  Luvata,  a  subsidiary  of  a  multinational  enterprise,  also  use  this  technology.   tube  compared  to  the  extrusion  process,  making  it  possible  to  manufacture  smaller   diameter  products  that  require  less  copper  per  meter.     The  cast  and  roll  process  was  developed  by  Outukumpu  (now  Luvata)  in  Finland,  at   the  end  of  the  1980s  and  its  patent  expired  in  2008.  It  was  introduced  in  China  in   1991  through  China  National  Technical  Import  and  Export  Corporation  (GDG  at   present),  which  bought  licenses  from  the  Finish  company.19  GDG  has  improved  its   technology  considerably:  originally,  each  line  of  production  yielded  7,000  MT   annually,  but  through  re-­‐engineering  and  machine  improvement  they  are  able  to   produce  25,000  MT  at  present.20   GDG  has  a  strong  R&D  and  innovation  position  for  precise  copper  tube  material   research  and  has  obtained  around  100  new  patents.  The  company  has  an  advanced   quality  control  system  with  several  certifications:  OHSAS18001,  ISO9001,  ISO14001   and  ISO/TS16949.21   GDG  has  incorporated  several  important  environmental  innovations  in  their   products:  it  uses  core  technology  of  high-­‐quality  refrigeration  copper  tube;  it   produces  an  efficient  heat-­‐transfer  threaded  pipe  that  the  company  developed   independently;  and  has  reduced  the  volume  of  air  conditioners,  increased  the   energy  efficiency  and  reduced  the  use  of  the  copper  pipe  since  2000.   19  Interviews  at  GDA.   20  Interviews  at  GDA.   21 http://www.made-­‐in-­‐china.com/showroom/gdlvguan/companyinfo/Golden-­‐Dragon-­‐Precise-­‐Copper-­‐ Tube-­‐Group-­‐Inc-­‐.html    5.2.  Golden  Dragon  Affiliates  S.,  de  R.L.  de  C.V.  (GDA),  Coahuila,  Mexico   5.2.1.  Background  and  General  Performance   The  subsidiary  of  GDG,  GDA  in  Mexico  made  an  initial  investment  of  around  100   million  dollars  and  started  operating  in  2009.  The  company  fabricates  three  kinds  of   tubes  using  the  same  technology  as  GDG  in  China,  and  has  become  a  very  important   enterprise  in  this  sector,  with  a  capacity  of  50,000  MT,  though  it  has  reached  40,000   MT  in  its  three  production  lines.  At  present  (2014),  it  has  420  employees  (400  are   Mexican  and  20  are  Chinese).     GDG  set  up  GDA  in  Mexico  with  the  purpose  of  exporting  copper  tubes  to  the  US.   However,  in  2009  the  US  imposed  a  60.6%  anti-­‐dumping  duty  on  the  seamless   refined  copper  pipe  and  tubes  imported  from  Mexico  and  China.22  In  2013,  USTR   overruled  the  antidumping  duty  it  had  imposed  on  GDA23  but  according  to  GDA   executives  in  Monclova,  exporting  to  the  US  is  still  difficult.   As  a  result  of  this  situation,  GDA  diversified  its  markets  to  Colombia,  Japan,  and   occasionally  Europe,  but  it  also  made  a  special  effort  to  expand  its  market  in   Mexico24,  hence  strengthening  its  forward  linkages,  managing  to  cover  58%  of  the   Mexican  local  market  in  2012  (up  from  27%  in  2010).25  During  this  period,  the   enterprise  was  able  to  gain  some  market  share  from  its  competitors  in  Mexico   (particularly  IUSA  and  NACOBRE,  but  not  Luvata,  which  is  very  competitive).  As  to   the  GDA  backward  linkages,  they  frequently  buy  copper  domestically.  Local  inputs   also  include  nitrogen  (GDA  has  its  own  plant),  energy  (it  has  a  plant  but  is  not  self-­‐ 22  US   International   Trade   Commission,   “Seamless   Refined   Copper   Pipe   and   Tube   from   China   and   Mexico”,   Investigation  Nos.  731-­‐TA-­‐1174-­‐1175;  Publication  4193,  November,  Washington,  D.C.     23  “Golden  Dragon  Won  the  ‘Anti-­‐dumping  War’  in  the  U.S.”;  State  Intellectual  Property  Office  of  the  PRC   (SIPO),  http://english.sipo.gov.cn/news/iprspecial/201309/t20130909_817185.html   24  Some  of  their  national  and  international  customers  are:  MABE,  MESA,  Panasonic,  IMBERA,  Whirlpool,   Carrier,  Hitachi,  Samsung,  Bohn,  Lennox,  and  Rheem,  among  others.   25  31,100  MT,  up  from  27,300  MT  (according  to  GDA).   sufficient),  and  plastic  and  other  packaging  materials  (though  some  are  also   imported  from  China).     The  complications  faced  in  entering  the  US  market,  together  with  security  problems   (GDA  suffered  repeated  robbery  of  its  products  –  twelve  full  containers  in  2012),   among  others,  have  caused  certain  financial  problems  for  the  company,  which  is   striving  to  overcome.     5.2.2.  Environmental  Policy  of  the  Firm   Technology  used  by  GDA  is  advanced  and  brought  from  GDG,  China,  since  it  has  no   R&D  department  in  Mexico,  while  its  modern  nitrogen  plant  has  French  technology.   The  GDA  plant  has  one  person  in  charge  of  health,  security,  and  the  environment.   The  firm  was  certificated  by  ISO  9000,  in  2010,  but  does  not  yet  have  ISO  14000  or   other  environmental  certifications  in  Mexico.     The  production  process  of  GDA  is  energy  and  water  intensive  (a  scarce  resource  in   northern  Mexico).  It  has  no  direct  atmospheric  emissions,  since  it  uses  electricity  for   its  smelting  and  its  annealing  processes,  (instead  of  using  natural  gas,  which  would   generate  CO2  emissions  from  the  plant).  However,  the  CO2  generated  from  the   electricity  use  must  be  considerable.   The  production  process  uses  abundant  water  (of  various  types)  to  cool  down  its  the   tubes  at  different  stages.  First,  when  the  mother  seamless  tube  is  formed;  second,  at   different  stretching  phases;  and  finally,  after  the  annealing  processes.     Water  is  treated  before  entering  the  facility,  because  it  is  too  rich  in  minerals  to  be   used,  especially  in  the  first  stage  of  production.  All  of  the  water  used  in  the   production  process  and  in  the  sanitary  facilities  is  recycled  in  the  water  treatment   plants  and  reused.  Water  remnants  are  tested  in  laboratories  certified  by  the  official   Mexican  Certification  Entity  (EMA)  before  they  are  returned  to  the  collection  system   of  the  city.     The  most  important  component  that  needs  to  be  recovered  from  the  used  water  is   oil,  which  is  abundantly  used  to  clean  the  copper  tubes.  GDA  has  a  system  to   separate  water  from  oil  and  once  the  latter  is  recovered,  it  is  disposed  of  as  a   hazardous  waste.   Hazardous  wastes  produced  by  GDA  include:  oil,  lubricants,  coolants,  and  wastes   that  have  been  contaminated  by  chemicals.  All  of  these  are  recovered  and  kept  in   special  areas  for  hazardous  wastes,  approved  by  SEMARNAT,  until  they  are  taken   care  of  by  private  enterprises  (authorized  by  SEMARNAT)  that  handle  them.  Other   non-­‐hazardous  wastes,  such  as  plastics,  discarded  wood  board,  and  other  leftovers   from  packaging  materials  are  sold  to  Mexican  firms  for  their  recycling.  In  short,  all   wastes  are  either  recycled  or  destroyed.   GDA,  Monclova,  has  to  meet  several  environmental  standards  and  has  to  report  its   performance  periodically  on  several  fields.  It  has  to  file  an  annual  report  for   SEMARNAT  (Cédula  de  Operación  Anual,  COA)  on  its  emissions  to  the  atmosphere,   its  discharges  into  the  water  system,  and  its  hazardous  wastes  and  their  disposal.   This  enterprise  complies  with  this  requirement;  and  it  has  been  making  an  effort  to   improve  its  reports,  as  a  way  to  keep  a  better  record  of  its  own  environmental   performance.  GDA  does  quite  well  in  this,  considering  that  the  environmental   authority  in  Coahuila  has  a  very  limited  capacity  to  keep  track  of  the  3,000   companies  they  need  to  monitor.  Very  few  of  them  prepare  a  COA,  they  pledge  their   accuracy  under  oath  and  only  very  seldom  are  they  inspected.26   Each  year  the  enterprise  checks  sound  emissions,  lights,  vibration,  oil  mist,  and   water  quality,  to  make  sure  they  are  complying  with  the  standards  set  for  each  one   of  these  indicators.     26  Vanguardia,  Incumplen  empresas  con  norma  ambiental;  la  SEMA  no  verifica  a  todas.  03/02/2013   http://www.vanguardia.com.mx/incumplen_empresas_con_norma_ambiental%3B_la_sema_no_verifica_ a_todas-­‐1494962.html   As  for  environmental  improvement  programs,  the  firm  has  one  to  reduce  hazardous   waste  and  to  lower  energy  consumption  by  using  LED  light  bulbs;  and  to  reduce  oil   mist,  which  may  threaten  workers’  health.   The  GDA  case  study  has  several  characteristics  in  common  with  a  group  of  298   automobile  and  electronics  assembly  plants  in  three  Northern  cities  in  Mexico   interviewed  for  a  survey  on  technical  and  environmental  behavior  carried  out  in   2002  (Carrillo  and  Schatan,  2005).  GDA,  like  two-­‐thirds  of  those  plants,  has  an   environmental  policy  and  has  personnel  dedicated  to  this  matter.  It  also  resembles   30%  of  the  surveyed  enterprises  in  that  it  has  obtained  an  ISO  9001  certification,   but  GDA  still  lacks  ISO  14001,  which  18%  of  the  firms  in  the  survey  had.  The   motives  driving  most  of  the  enterprises  to  undertake  an  environmental  policy  in  the   survey  (i.e.,  to  comply  with  Mexican  environmental  standards),  is  similar  to  the  GDA   incentives  to  do  so.  However  many  years  have  passed  since  such  survey  and  the   measures  taken  by  GDA  must  certainly  be  much  more  advanced  in  emissions   measurement,  disposal  of  hazardous  wastes,  and  recycling.   5.2.3.  Labor  Conditions  in  GDA   Labor  conditions  in  GDA  comply  with  Mexican  requirements  overall27,  but  have   some  specific  problems.  All  Mexican  workers  are  part  of  the  Confederación  de   Trabajadores  de  México  (CTM)  trade  union  and  earn  a  wage  that  is  quite  standard   for  such  activities.  Most  workers  are  skilled,  since  the  production  process  uses   sophisticated  technology  and  their  job  consists  mostly  of  controlling  machines  and   processes,  rather  than  transforming  inputs  directly.     However,  there  seems  to  be  a  variety  of  difficulties  that  have  to  do  mostly  with   differences  between  Mexican  and  Chinese  working  culture  and  an  inadequate   handling  of  overtime  payments  by  the  firm.     27  Various  interviews  with  GDA  staff.   First,  the  incentives  provided  by  Chinese  and  Mexican  enterprises  differ   considerably.  Chinese  incentives  are  linked  with  productivity  and  the  number  of   hours  worked.  So,  while  minimum  wages  are  low  in  China,  workers  are  capable  of   having  relatively  high  salaries,  by  working  very  hard  for  long  hours.  Mexican   workers  are  often  not  willing  to  sacrifice  holidays  and  weekends  and  they  are   protected  by  the  law  in  this  sense.  However,  at  GDA  laborers  have  often  been   required  to  do  their  job  on  non-­‐working  days  and,  though  these  should  be  paid   accordingly,  complaints  have  been  raised  because  the  firm  has  not  honored  this   obligation.  Also,  there  are  some  workers  that  claim  to  have  been  fired  because  they   have  refused  to  work  on  officially  non-­‐working  days  and  maintain  that  they  have  not   been  compensated  according  to  the  law.28  Since  the  CTM  trade  union  in  of  Coahuila   also  has  internal  disputes,  they  seem  not  be  able  to  act  effectively  in  these  cases.29   Second,  there  is  a  communication  problem  between  Chinese  and  Mexican  personnel.   There  are  strong  linguistic  barriers:  none  of  the  Mexican  employees  speak  or   understand  Chinese,  and  none  of  the  Chinese  workers  speak  Spanish.  English  is  not   an  alternative,  because  only  few  staff  members  understand  that  language.  This  is   why  the  knowledge  transmission  process  is  relatively  difficult  and  imperfect  and   mostly  done  through  interpreters,  who  are  not  technicians.  Though  several  Mexican   staff  and  workers  have  spent  some  time  in  China  learning  the  technical  aspects  of   the  production  process,  this  seems  to  have  been  insufficient.  If  we  add  a   considerable  labor  turnover  to  this  situation,  then  the  capacity  of  human  capital  to   respond  to  the  enterprise’s  needs  falls  short.   Third,  there  is  a  very  different  social  situation  for  Mexican  and  Chinese  employees.   The  first  live  in  their  country,  have  social  and  family  relations,  and  mingle  in  society   without  any  problem.  However,  most  of  the  Chinese  staff  come  to  Mexico  without   their  families  and  are  isolated  from  society,  because  of  the  language  barrier.  This   also  deepens  the  differences  already  mentioned.   28   Periodico  El  Tiempo,  Actúa  Golden  Dragon  en  Represalia,  02/12/2012;  Zocalo  Saltillo,  Cumplen  las   empresas  con  pago  de  utilidades,  05/05/2012,     29  Periodico  El  Tiempo,  Truena  Osvaldo  Mata  contra  Tereso  Medina,  05/04/2012.   In  short,  GDA’s  characteristics  are  quite  similar  to  other  manufacturing  Chinese   enterprises  abroad,  which  are  technologically  at  the  forefront  in  their  sector.   However,  it  faces  challenges  to  reach  the  targets  set  by  their  own  group,  due  to   market  access  and  insecurity  problems  and  productivity  shortcomings.  Broadly   speaking,  GDA’s  environmental  policies  are  in  line  with  Mexican  legislation,  but   there  is  room  for  improvement.  Regarding  labor  policies  there  is  room  for  GDA  to   make  a  greater  effort  to  surmount  cultural  and  linguistic  obstacles,  and  comply   appropriately  with  Mexican  domestic  labor  laws.   6. CONCLUSIONS This  paper  has  looked  into  the  question  of  whether  trade  between  Mexico  and  China   has  had  an  adverse  incidence  on  environmental  indicators  (through  exports  to   China)  and  labor  issues  (through  imports  from  China)  in  the  first  nation  and   whether  Chinese  OFDI  has  had  a  recognizable  pattern  of  behavior  regarding  these   same  issues.  The  analysis  mostly  concentrated  in  the  manufacturing  sector.     Mexico  has  only  had  a  significant  trade  relationship  with  China  through  imports   coming  from  that  country  and  those  that  compete  with  Mexico  in  the  US  market.   Exports  from  Mexico  to  China  have  been  much  more  limited,  but  they  have  had  an   upward  trend.  The  amount  of  OFDI  coming  from  China  is  quite  modest  still,   especially  compared  with  other  LACs.     The  issue  of  employment  has  been  studied  extensively,  and  most  experts  agree  that   displacement  by  Chinese  imports  contributed  to  important  job  losses  in  the  first  half   of  the  2000s,  especially  in  the  textile-­‐apparel  industry.  However,  there  is  no   consensus  on  the  strength  of  that  phenomenon,  or  the  extent  to  which  the  overall   Mexican  economy  was  harmed  by  Chinese  imports,  because  of  the  pervasiveness  of   illegal  imports  from  China  (which  are  harder  to  trace)  and  simultaneous   technological  innovations  that  made  the  sector  less  labor-­‐intensive  (which  make   causation  harder  to  attribute).  Nonetheless,  for  this  sector  to  strengthen,  Mexico   requires  much  more  legal  enforcement  on  rules  of  origin  and  illegal  smuggling  of   products,  especially  apparel.  The  negotiations  for  China  to  be  recognized  as  a   market  economy  by  Mexico  before  2016  is  also  a  critical  issue  because  this  new   status  could  reduce  the  margins  within  which  Mexico  could  claim  unfair  trade   practices  from  China.   Regarding  the  environmental  characteristics  of  Mexican  exports,  specifically  GHG   emissions  arising  from  their  production,  a  worrying  sign  is  that  their  composition  is   changing  towards  more  polluting  sectors,  particularly  mining.  This  tendency  is   much  more  pronounced  for  Mexican  exports  to  China  than  for  those  going  to  the   world.  Focusing  specifically  within  the  manufacturing  sector,  exports  to  China  favor   less  polluting  sectors,  more  so  than  it  does  for  manufacturing  exports  from  Mexico   to  the  world.  However,  in  all  cases,  it  has  been  the  rapid  expansion  of  exports  (scale   effect)  that  has  been,  by  far,  the  factor  responsible  for  greater  GHG  emissions  from   exported  goods.  Improvements  in  technique  had  an  offsetting  influence,  but  much   less  for  exports  to  China  than  for  exports  overall.     Chinese  OFDI  in  Mexico  has  been  very  limited,  most  of  it  favoring  the  primary  goods   sector  in  recent  years.  This  study  focused  on  OFDI  in  the  manufacturing  sector  in   Mexico  and  identified  a  group  of  36  Chinese  manufacturing  companies.  Our  results   indicate  that  the  firms  are  quite  heterogeneous  in  their  structure  as  well  as  their   environmental  and  social  behavior.     Above  all,  it  is  quite  clear  that  there  is  no  unique  environmental  policy  followed  by   these  firms  in  Mexico  since  their  origin  is  varied.  Few  are  wholly  Chinese-­‐owned;   instead,  many  are  either  joint  ventures,  or  have  other  forms  of  relationships,  with   firms  from  developed  countries.  They  also  vary  considerably  in  size  and  sector,   though  the  most  important  belong  to  sectors  where  China  has  traditionally  had   technological  dominance.  Of  the  group  of  enterprises  identified,  some  are  known  to   have  adequate  environmental  standards,  but  for  others  it  is  not  clear  what  their   standards  are  since  access  to  information  is  very  difficult.  The  case  study  –  Golden   Dragon  Affiliates  –  shows,  in  general,  a  compliance  with  Mexican  environmental   standards  in  water  treatment  and  hazardous  waste  handling  as  well  as  GHG   emissions,  though  there  is  room  for  improvement.     Chinese  OFDI  projects  receive  guidelines  from  China  on  fulfilling  local  requirements,   especially  EIA,  but  following  these  guidelines  is  still  mostly  voluntary  for   subsidiaries  abroad.  Chinese  banks  that  back  enterprises  abroad  can  apply  greater   pressure  to  comply  with  local  standards,  because  they  have  inferred  that  a  negative   image  of  such  firms  abroad  may  end  in  a  failure  of  the  investment  they  are  backing.   The  Mexican  environmental  legal  and  regulatory  framework  has  greatly  improved   and  now  includes  keeping  records  from  the  most  polluting  firms,  but  enforcement  is   still  rather  weak  and  needs  to  be  improved.  As  is  the  case  with  FDI,  in  general,   unless  there  is  an  explicit  company  policy  regarding  environmental  and  labor   standards,  or  rules  set  by  the  country  of  origin  of  the  investor,  it  is  usually  the  local   legal  framework  and  its  implementation  that  sets  the  limits  of  what  these  firms  may   or  may  not  do.  Chinese  OFDI  in  Mexico  is  no  exception.   The  labor  record  of  Chinese  OFDI  in  the  Mexican  manufacturing  sector,  as  in  the   case  of  the  environment,  is  not  homogeneous.  Unfortunately,  the  area  that  was  hit   the  hardest  by  Chinese  competition  after  that  country  joined  the  WTO  (2001)  and   MIA  ended  (2005),  the  apparel  sector,  is  also  one  of  the  most  vulnerable  in  terms  of   its  labor  conditions  in  Mexico,  with  informal  work  arrangements,  low  wages,  fewer   benefits  and  weak  trade  unions.  Feeble  regulations  in  this  area  and  the  still-­‐ important  flow  of  illegal  imports  continue  to  affect  this  sector’s  employment  and   working  conditions.     The  common  preconception  that  Chinese  firms  bring  important  numbers  of  workers   from  China  primarily  in  order  to  pay  them  lower  wages,  make  them  work  longer  and   avoid  social  security  expenses,  seems  to  be  an  exception.  When  firms  are  fully   owned  by  Chinese  capital  we  saw  examples  where  the  proportion  of  Chinese   workers  can  be  relatively  high,  but  the  reasons  for  this  seems  to  lie  more  in  the   challenge  of  technical  knowledge  transfer  and  communication  between  Chinese  and   Mexican  employees,  rather  than  firms  trying  to  profit  from  low  compensation.  As  to   the  conditions  of  Mexican  workers  in  purely  Chinese  firms,  there  does  not  seem  to   be  an  overall  trend  of  labor  law  violations,  but  there  are  specific  problems  related  to   differences  in  Chinese  and  Mexican  labor  law  regimes.  The  GDA  case  study  shows   these  characteristics.     Wages  in  China  have  been  rising  very  quickly  (with  average  real  wages  of  the  700   million  workers  in  China  have  multiplying  by  five  over  the  last  two  decades)  and   working  conditions  have  improved.  Meanwhile,  the  legal  framework  has   transformed  accordingly,  with  greater  legal  entitlements  given  to  Chinese  workers   (Brown,  2013).  This  may  create  greater  incentives  for  Chinese  firms  to  invest  in   Mexico  but  this  country  should  aim  at  competing  with  increasingly  more   sophisticated  goods  with  China,  and  attracting  higher  technology  OFDI  with  greater   value-­‐added  and  better  wages.  Mexico  needs  to  leap-­‐frog  in  these  kinds  of  goods  as   it  has  been  doing  in  the  automobile  and  aerospace  industries,  with  a  greater   integration  of  value  chains  at  home  to  face  the  challenge  posed  by  China.     One  aspect  that  must  draw  attention  and  that  needs  to  be  studied  in  greater  depth  is   that  Chinese  OFDI,  although  favoring  the  primary  sector,  is  also  diversifying.  In  fact,   investments  going  to  sectors  other  than  manufacturing  (such  as  construction,   agriculture  and  mining),  while  volatile,  accounted  for  an  average  of  about  40%  of   total  Chinese  OFDI  between  2000  and  2012.  Within  this  category  there  are  very   diverse  activities  that  range  from  the  construction  of  a  very  large  new  wholesale   facility  being  built  in  the  state  of  Quintana  Roo  (Dragon  Mart),  which  is  very   controversial  in  terms  of  environmental  impact,  to  high  technological  enterprises   like  Huawei,  which  provide  telecommunication  services  and  a  training  facility  which   are  highly  needed  in  Mexico.  New  investments  also  include  Chinese  Development   Bank,  which  should  help  expanding  that  country’s  involvement  in  several  activities   in  Mexico.     Technical  Appendix:  Scale,  Composition,  and  Technique  Analysis  Methodology   This  analysis  is  based  on  methodology  used  by  Schatan  (2000).  For  this  analysis,  we   used  the  3-­‐digit  SITC  database  for  exports  and  the  GTAP  database  for  GHG  emissions   for  2004  and  2007  (Andrew  and  Peters,  2013;  and  COMTRADE).  From  a  list  of  262   sectors,  we  focused  on  164  sectors  with  over  10,000  dollars  in  exports.       We  analyze  trends  from  2000  to  2012  by  comparing  an  average  of  2000  to  2002  and   an  average  of  2010  to  2012.  By  taking  average,  we  compensate  for  volatility  in   emission  data.  We  also  compare  production  for  Mexican  exports  to  China  to   production  for  Mexican  exports  to  the  world.  We  decomposed  the  increase  in  GHG   emissions  into  the  three  different  components  mentioned  above:   D  P  =  {[  xi1  *  (X2  /X1)]  *  ti1  –  (xi1  *  ti1)}  +  {[(  xi2  *  ti1)  –  (  xi1  *  ti1)]  –   [(xi1  *  (X2  /X1))  *  ti1  –  (xi1  *  ti1)]}  –  [(xi2  *  ti1)  –  (xi2  *  ti2)]   Scale  effect  =  {[xi1  *  (X2  /X1)]  *  ti1  –  (xi1  *  ti1)}   Composition  effect  =  {[(xi2  *  ti1)  –  (xi1  *  ti1)]  –  [(xi1  *  (X2  /X1))  *  ti1  –  (xi1  *  ti1)]}   Technique  effect  =  [(xi2  *  ti1)  –  (xi2  *  ti2)]   Where:   D  P:  is  the  pollution  change  between  period  1  and  period  2.   ti1  :  pollution  index  for  sector  i  in  period  1   ti2  :  pollution  index  for  sector  i  in  period  2   xi1:  exports  of  sector  i  in  period  1.     xi2:  exports  of  sector  i  in  period  2.   X1  =  S  xi1   X2  =  S  xi2   i  =  1,2,……,  164.