This article is the last in a series examining parallels between BRIC (Brazil, Russia, India, China) countries and the "emerging markets" of the MINT (Mexico, Indonesia, Nigeria, Turkey) community. This article looks at the final pairing, China and Mexico, and why they have the best chance of becoming strong economic powers in the long term.
There's one success story in every group. With China consistently declared the next world economic leader, the BRIC crown is easily claimed. What may be surprising is that Mexico is representing the MINT community. In a system that has been marred by corruption allegations and exists under the shadow of political instability, economic conditions indicate that the country is poised to continue its market successes and continue to grow despite these challenges.
Why China will be strong in the long term
Despite what negative press may say, the Chinese economy will long be dominant. While some claim recent economic slowdowns are indicative of a failing market model, China's recent commitment to market reform (see my article on Likonomics) shows a focus on a long-term growth strategy that has not been seen in any of the other BRIC nations. How is this possible with a economy known for its relative rigidity?
It could be because China has seen the proverbial writing on the wall and is attempting to liberalize its markets. The recent Likonomic reforms, taking a more "hands-off" approach to the economy, mean a more fluid system that is able to easily adapt to conditions. However, this fluidity is useless when one considers how cheap the renminbi is comparative to other currencies. (Cheaper currency means prices set far too low and high exports.)
This is not always a good thing, especially considering the eventual trade imbalance that will occur from a consistent trade surplus against other economies. A surplus now may result in the importing country decreasing imports in the long term (due to decreased purchasing capital over time.)
To combat this potential scenario, China has been easing banking and trade restrictions. In places like Shanghai, China has been exploring options that will slowly raise the market value of the renminbi and increase prices of Chinese goods.
Coupling market decisions like this with an ongoing effort to combat corruption, China's continued and future success is strengthened by the country proactively responding to market conditions.
Copying an effective strategy
Mexico seems to be moving along the same path. Recent reforms in energy policy have been moving to secure cheap energy for planned productivity surges in the near future. Mexican goods have been getting cheaper comparative to its greatest competitor, China. In part due to China's efforts, Mexico has been enjoying a few new waves of revenue lost to China a decade ago.
All is not being handed to Mexico on a plate, however. Crime and instability are very real issues in the country. In the case of the former, over 60,000 have been killed in drug-related violence alone. Accompanying claims of state corruption does present a unique set of challenges, as most of Mexican industrial production is in the north of the country, which is in the heart of drug cartel territory.
Still, Mexico seems to be following China's lead. While not specifically following a state-directed economy, the government is taking a hands-off approach with the market, at least in regards to the macro-economic vision of the state.
Corruption is also being attacked by the government as well. By taking on alleged embezzlers such as controversial education union leader Elba Esther Gordillo, the government shows a willingness to both adapt to current conditions as well as attack the underlying causes for previous economic retarding.
While the Mexican peso has long been a punchline when compared to most world currencies, there are indications that the peso is poised to rise as long as there is positive economic growth. That growth does not seem to be slowing anytime soon.
Birds of a feather
There are a laundry list of reasons that both countries have the potential to be strong for a long time to come, but there are common characteristics that link the two. Despite historically central governments, both administrations are showing that they can react proactively to address potential future economic concerns. This level of responsiveness, while debatable, is one that has not been conclusively evidenced in any other BRIC or MINT country.
Both countries share commonality in the choice of trading partners as well. While more true for Mexico than for China, both states are major trading partners with the United States. This is not to suggest that only major trade partners of the U.S. can succeed economically in the long term, of course. However, the countries are two of the top three exporters to the U.S. Attaching an economy to the current world leader certainly cannot hurt the bottom line.
At the end of the fiscal year, Mexico and China face significant challenges that are varied. Regardless, current circumstances cannot hide the fact that these two countries have the staying power to remain economically strong well into the future.
Birds of a feather flock together. So do economies.
The other parts in the series: