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Presented by China Advanced Research Center San Antonio, Texas, USA

Investment & Trade Opportunities for Chinese Enterprises under NAFTA. Presented by China Advanced Research Center San Antonio, Texas, USA. What is NAFTA?. NAFTA:. “ North America Free Trade Agreement ” A trade agreement between the US, Canada and Mexico

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Presented by China Advanced Research Center San Antonio, Texas, USA

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  1. Investment & Trade Opportunities for Chinese Enterprises under NAFTA Presented by China Advanced Research Center San Antonio, Texas, USA

  2. What is NAFTA?

  3. NAFTA: • “North America Free Trade Agreement” • A trade agreement between the US, Canada and Mexico • Designed to reduce restrictions on trade and investment between the US, Canada and Mexico • Built on the Canada US Trade Agreement signed in 1989 • Took effect on January 1, 1994 • Scope of NAFTA: • All of North America • 400 million population • US $8 trillion in goods and services Preparietary Information Omega International Group, Inc.

  4. NAFTA Impact:

  5. NAFTA:1994 – 1996: The First two years • A trade increase of $127 billion between the U.S., Canada and Mexico -- a 43 percent gain • U.S. exports to Mexico hit a record $57 billion -- an increase of 37 percent • In the fourth quarter of 1996 alone, the Department of Commerce reports U.S. exports to Mexico increased at an annual rate of $64billion. • U.S. market share in Mexico increased from 69 percent to 76 percent of total Mexican imports. Preparietary Information Omega International Group, Inc.

  6. TRADE AMONG NAFTA COUNTRIESLonger term: 1985 – 2000(Millions of 1996 USD) Preparietary Information Omega International Group, Inc.

  7. Global View:

  8. Tri-lateral Collaboration for 21st Century • Global economics is the wave of the 21st Century. • With its entry to WTO, China is ready for global expansion. • Three driving forces: Culture, Management and Technology should be closely examined for this global collaboration. • Tri-lateral Collaboration among China / US / Mexico business can generate significant impact in Pan Pacific trade practices. • Chinese investments in the US can provide direct access to the North American investment and consumer markets via NAFTA Preparietary Information Omega International Group, Inc.

  9. Global Trends:

  10. SHARE OF WORLD INCOME Source: IMF Preparietary Information Omega International Group, Inc.

  11. Redistribution of Income brings Opportunity • China’s share of World Income is increasing dramatically • Cash available = Opportunity for Global Investments • US share of World Income has slowed down • Welcomes Global Investments and Trade for growth • Mexico’s share of World Income remains flat • Needs Trade and Investments for growth Preparietary Information Omega International Group, Inc.

  12. MEXICO: SHARE OF GDP(Share of Mexico’s Total) • On a per-capita basis, the North contributesthreetimes as much to Mexico’s GDP; • Regional GDP is growing more than twiceasfast in the North. Source: INEGI; CONAPO Preparietary Information Omega International Group, Inc.

  13. Cross Boarder Trends Preparietary Information Omega International Group, Inc.

  14. Opportunities in NAFTA:

  15. Investment Opportunities/Benefits: Opportunities Benefits • Direct Facilities ownership in US Foreign Trade Zone • Business alliances with US owned companies for import/export under NAFTA • Business partnerships with US owned companies for import/export under NAFTA • Light Manufacturing in US Foreign Trade Zone for import/export under NAFTA • Product distribution from US Foreign Trade Zone under NAFTA • Direct access to the Maquiladora Program • Local and federal tax advantages • Access to technology and markets • Joint development of products and services • Import/Export tax advantages • Import/Export tariff advantages • Teaming with Mexican cross boarder manufacturing Preparietary Information Omega International Group, Inc.

  16. NAFTA Connection:Why Texas?NAFTA Center,Business Environment

  17. TEXAS- NAFTA Center • By 2002, largest exporter among U.S. states • Its exports to Mexico and Canada doubled from 1993 to 2003, from $20 to $43 bn. • Channeled 46% of all U.S. exports to Mexico(2000) Preparietary Information Omega International Group, Inc.

  18. TEXAS- Business Environment: Highly ranked among all US states Competitive Tax Structure Competitive Labor Force Innovative Business Environment Active Foreign Trade Zone Sixth in the US “e-Government” index score Second in US for new job growth Texas’ largest export market is NAFTA Preparietary Information Omega International Group, Inc.

  19. NAFTA Connection:San Antonio is UniqueLocation, Infrastructure

  20. San Antonio- Location: Gateway to Mexico’s fastest growing regions Preparietary Information Omega International Group, Inc.

  21. San Antonio-Infrastructure: In place and ready to serve growing markets Air Travel Highway and Rail Preparietary Information Omega International Group, Inc.

  22. China vs Mexico in trading with US

  23. Table 1 U.S. imports from leading suppliers, 2000-2005 Supplier 2000 2001 2002 2003 2004 2005 Change 2000/05 Share in 2005 Billion U.S. dollars Percent EU 15 218 219 224 242 270 297 36 18 Canada 229 217 211 224 256 288 26 17 China 100 102 125 152 196 243 143 15 Mexico 135 131 134 137 155 169 25 10 Japan 146 126 121 118 130 138 -5 8 All other 377 338 340 377 453 527 40 32 Total 1,205 1,133 1,155 1,250 1,460 1,662 38 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  24. Table 2 U.S. producers’ shipments of manufactured goods, total U.S. imports from China, 2000-2005 Category 2000 2001 2002 2003 2004 2005 Change 2000/05 (percent) U.S. producers’ shipments of manufactured goods (billion U.S. dollars) 4,209 3,970 3,892 3,999 4,374 4,681 11 Total imports from China (billions dollars) 100 102 125 152 196 243 143 Ratio of total U.S. imports from China to U.S. producers shipments of manufactured goods (percent) 2.4 2.6 3.2 3.8 4.5 5.2 n.a. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  25. Preparietary Information Omega International Group, Inc.

  26. Table Apparel: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent China 8.5 8.9 9.6 11.4 13.6 20.0 135 26 Mexico 8.7 8.1 7.7 7.2 6.9 6.3 -28 8 Canada 1.9 1.8 1.8 1.7 1.7 1.5 -21 2 Japan 0.1 0.2 0.2 0.3 0.3 0.1 0 * All other 45.1 45.0 44.6 47.7 49.9 48.7 8 64 Total 64.4 64.0 63.9 68.3 72.4 76.5 19 100 * Less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  27. Table Computer hardware: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent China 10.7 10.5 14.9 22.1 33.9 40.3 277 43 Mexico 9.0 10.4 8.9 7.6 7.8 7.2 -20 8 Japan 14.5 10.2 8.7 7.0 6.8 6.5 -55 7 Canada 3.7 2.8 1.7 1.5 1.7 1.8 -51 2 All other 52.4 40.6 41.5 38.6 39.1 38.2 -27 41 Total 90.4 74.5 75.8 76.9 89.3 94.0 4 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  28. Table Telephone equipment: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent China 2.9 3.2 4.7 5.9 9.6 14.4 397 29 Mexico 4.6 4.4 4.2 4.7 5.9 5.6 22 11 Canada 9.2 3.9 3.0 2.5 2.7 3.3 -64 7 Japan 3.9 2.5 1.8 1.5 1.6 1.9 -51 4 All other 11.5 13.2 14.3 16.4 19.5 24.0 109 49 Total 32.1 27.2 27.9 31.0 39.3 49.2 53 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  29. Table 7 Household appliances: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent China 2.4 2.8 3.4 4.1 4.9 5.7 138 39 Mexico 1.5 1.8 2.0 2.1 2.3 2.7 80 19 Canada 0.9 0.8 0.9 1.0 1.0 1.0 11 7 Japan 0.2 0.2 0.2 0.2 0.2 0.3 50 2 All other 2.7 2.6 3.1 4.0 4.1 4.8 78 33 Total 7.7 8.4 9.6 11.6 12.5 14.5 88 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  30. Table 8 Consumer electronics (except televisions): U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent China 6.3 6.3 8.2 8.8 11.6 13.6 116 53 Japan 5.8 4.2 4.5 4.5 4.5 4.3 -26 17 Mexico 3.0 2.8 2.5 2.3 2.3 2.2 -27 8 Canada 0.1 0.1 0.1 0.1 0.1 0.2 100 1 All other 6.7 6.2 6.2 6.2 5.9 5.6 -16 22 Total 22.0 19.5 21.5 21.5 24.4 25.9 18 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  31. Table 9 Furniture: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent China 4.1 4.6 6.4 8.0 9.8 11.7 185 48 Canada 4.2 3.9 38 3.8 4.0 4.1 -2 17 Mexico 1.0 0.9 1.0 1.0 1.2 1.2 20 5 Japan 0.1 * * * 0.1 0.1 0 * All other 5.8 5.4 5.8 6.1 6.7 7.2 24 30 Total 15.2 14.8 17.0 19.0 21.8 24.3 60 100 * Denotes less than $50 million or less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  32. Table 10 Motor vehicles: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent Canada 45.7 41.2 41.6 41.0 46.7 48.5 6 33 Japan 34.5 33.0 35.2 33.1 33.2 35.9 4 25 Mexico 21.0 21.3 20.8 19.3 19.1 18.5 -12 13 China * * * * * 0 * * All other 28.4 31,8 35.7 41.0 43.8 43.3 52 30 Total 129.6 127.3 133.3 134.4 142.8 146.2 13 100 * Denotes less than $50 million or less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  33. Table 11 Auto parts: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent Mexico 14.6 14.0 16.0 17.3 19.4 21.0 44 27 Canada 14.5 12.9 14.2 15.5 16.9 18.1 25 24 Japan 11.9 11.1 12.5 13.3 15.0 16.1 35 21 China 0.8 0.9 1.3 1.7 2.4 3.2 300 4 All other 11.0 10.5 12.2 14.0 15.8 18.4 67 24 Total 52.8 49.4 56.2 61.8 69.5 76.8 45 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  34. Table 12 Television receivers and video monitors: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent Mexico 4.9 5.1 5.2 5.5 7.7 10.0 104 44 China 0.2 0.3 0.8 1.5 2.4 5.1 2,250 22 Japan 0.7 1.3 1.7 2.2 3.0 2.6 271 11 Canada * * * * * * * * All other 1.9 2.0 2.9 3.4 4.4 5.0 163 22 Total 7.7 8.6 10.6 12.7 17.5 22.7 195 100 * Denotes less than $50 million or less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  35. Table 13 Measuring, testing, and controlling instruments: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent Mexico 2.6 2.6 2.8 3.1 2.9 2.9 12 19 Japan 2.3 2.1 1.9 2.0 2.4 2.4 4 16 Canada 1.1 1.1 1.1 1.0 1.2 1.3 18 8 China 0.4 0.6 0.6 0.8 1.2 1.3 225 8 All other 5.4 5.5 5.1 5.6 6.7 7.5 39 49 Total 11.7 11.8 11.6 12.6 14.4 15.4 32 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  36. Table 14 Electric motors, generators, and related equipment: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent Mexico 2.0 1.9 2.1 2.2 2.2 2.4 20 28 Japan 1.2 1.6 1.4 1.0 1.1 1.3 8 15 China 0.4 0.4 0.6 0.7 0.9 1.1 175 13 Canada 0.5 0.6 0.5 0.5 0.5 0.6 20 7 All other 2.4 3.1 2.6 2.4 2.3 3.1 29 36 Total 6.5 7.6 7.2 6.8 7.0 8.5 31 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  37. Table 15 Medical goods: U.S. imports from selected trading partners, 2000-2005 Country 2000 2001 2002 2003 2004 2005 Change, 2000/05 Share of total in 2005 Billion U.S. dollars Percent Mexico 1.3 1.5 2.0 2.3 2.6 3.0 131 15 Japan 1.3 1.3 1.3 1.3 1.5 1.7 31 8 China 0.4 0.5 0.5 0.6 0.7 0.9 125 4 Canada 0.3 0.3 0.4 0.5 0.5 0.6 100 3 All other 5.9 7.3 9.0 11.4 13.7 14.3 142 69 Total 9.2 10.9 13.2 16.1 19.0 20.5 123 100 Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  38. Table 16 U.S. import categories for which China supplied over one half of total U.S. imports in 2005 Category U.S. imports in 2005 China’s share of total Mexico’s share of total China Mexico Total Millions of U.S. dollars Percent Dolls 963 0 1,038 93 0 Umbrellas 331 1 371 89 * Toys 8,092 291 9,287 87 3 Luggage and handbags 4,573 55 6,151 74 1 Games 4,855 56 6,745 72 1 Footwear 12,654 247 17,834 71 1 Lamps & lighting fittings 3,784 957 5,831 65 16 Sporting goods 3,248 178 4,978 65 4 Bicycles 791 2 1,434 55 * Brooms and brushes 656 150 1,236 53 12 Consumer electronics (except televisions) 13,634 2,184 25,866 53 8 Portable electric hand tools 1,219 713 2,424 50 29 Subtotal 54,800 4,834 83,195 66 6 All other 187,838 164,382 1,639,656 11 10 Total 242,638 169,216 1,722,851 14 10 * Denotes less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce. Preparietary Information Omega International Group, Inc.

  39. Products for which Mexico is an important supplier to the U.S. market, but China is not: 1. See tables 10, 11, 13, 14, and 15: Motor vehicles Auto parts Measuring, testing, and controlling instruments Electric motors, generators, and related equipment Medical goods 2. For these categories, Mexico supplied 18 percent of U.S. imports in 2005 and China supplied 2 percent. 3. Mexico is most competitive relative to China in products with the following characteristics a. High ratio of weight to value (1) Motor vehicles (2) Large screen televisions (3) Major household appliances b. Quality (rather than price) intensive (1) Medical goods (2) Process control instruments c. Are inputs for industries that require just-in-time delivery, customized production, or require frequent design changes (1) Auto parts d. Protection in intellectual property is important Preparietary Information Omega International Group, Inc.

  40. Products for which China supplied over one half of U.S. imports in 2005 1 Table 16 Toys, dolls, games, sporting goods, and bicycles Leather goods, including footwear, luggage, & handbags Lamps and lighting fittings Umbrellas, brooms, & brushes Consumer electronics & portable electric hand tools 2. For these categories, Mexico supplied 6 percent of U.S. imports in 2005 and China supplied 66 percent. 3. These products are: (1) Labor intensive (many require sewing) (2) Have long production runs (3) Require few style changes Preparietary Information Omega International Group, Inc.

  41. Products where competition between Mexico and China is most intense: 1. See tables 4-9, & 12 Computer hardware Product life cycle: Mexico at the start up phase and end (customization) China during mature phase with long production runs Apparel China—light weight & labor intensive Mexico—heavier items, quick turn around, less sewing Telephone and telegraph equipment China—hand sets & cell phones Mexico—switch gear & other equip. for phone companies Consumer electronics (except televisions)—all China Furniture China—wood household furniture (lathe work) Mexico—furniture for the Southern California market Household appliances China—counter top appliance Mexico—major appliances (washers, dryers, refrigerators) Televisions & computer monitors: Mexico—larger screen televisions China—computer monitors and smaller televisions Motors and generators: Mexico leads China in all categories, especially medium/larger sizes China—competitive only in the smaller-sized motors Preparietary Information Omega International Group, Inc.

  42. Opportunities for cooperation between China and Mexico A. Follow the Japanese and Korean models for investment in manufacturing facilities in Mexico to supply to U.S. market, using North America suppliers for materials and components, as well as suppliers in Asia 1. Household Appliance 2. Fabricated Metals 3. Auto Parts B. Invest in textile knitting and weaving mills to supply fabrics for the North American production of apparel and textile goods rather than shipping final goods from China. Preparietary Information Omega International Group, Inc.

  43. Thank You China Advanced Research Center

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