Mexico versus China.

A recent article, "The China Challenge," researched and written by Diane Lindquist and Dean Calbreath of the San Diego Union-Tribune (San Diego, CA, www.signonsandiego.com), focuses on China's surging global manufacturing growth, but reports largely on Tijuana's maquiladora, or assembly factory, industry. The writers interviewed electronics industry experts and open the article with a quote from Alejandro Bustamente, manager of Plantronics' (Santa Cruz, CA, www.plantronics.com) three maquiladoras in Tijuana, Mexico. Bustamete's facility must compete with the company's operations in China and comments that, "[China is] always lower on the cost of labor ... half to one-third lower."

The cost comparison is the same throughout Mexico, and, six busy years after NAFTA, Mexican factories are now moving to China. Mexican workers have lost jobs to lower-paid Chinese workers. The article states that, of the 277 Baja California maquiladoras that closed in the last three years, as many as three-quarters moved to Mexico. Renaldo Gonzales, president of Mexico's national maquiladora association, relates that as many as 50,000 Baja Californian jobs have been eliminated in the last several months. He said, "We're in a terrible crisis."

Chinese assembly workers are paid an average of $0.60 per hour, while Plantronics' workers, for example, are paid $2.20 per hour, including benefits. Richard Loretta, a business consultant, told the Union-Tribune that Mexican officials abetted the trans-Pacific exodus by raising taxes and reducing the economic incentives that once lured multinationals to Mexico.

Maquiladora owners contend that the one area in which Mexico can compete is quality. Bustamente argues that his operations' flexibility, consistency and quality level the playing field with China, and noted that his company's China unit averaged 11,680-ppm defects versus 1,129-ppm defects in the Tijuana plants. China has been shifting into high-tech manufacturing, with foreign companies footing the bill. In 1999 alone, U.S. firms spent $305 million on research and development activities in China. Sources in Tijuana hint that the Chinese are also engaging in industrial espionage and that entrance guards have stepped up security.

The article continues by saying that China is becoming the world's premier manufacturing base because of efforts to capture low-wage factory business. The country's recent World Trade Organization (WTO) entry will lead continued growth at the expense of Mexico, as well as Southeast Asian countries, where foreign investment fell $6 billion last year. Seeking relief, Mexico plans to formally complain to the WTO about China stealing factories and dumping products in Mexico. As Chinese competition erodes the world's production communities, global trade balances in Europe, Asia and the Americas suffer. Comparing the first half of this year to last year, Chinese exports to the U.S. rose 12 percent, while Mexican exports to the U.S. fell 10 percent.

Jesse Knight, president of San Diego's Chamber or Commerce, summed up the situation by commenting that "China seems irresistible to U.S. investors. Tijuana is never going to win on auto parts or television sets or electronics. Mexico can't throw the kind of resources at manufacturing that China can."