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The Dragon Mart Fiasco Still Haunts China-Mexico Relations

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China Power

The Dragon Mart Fiasco Still Haunts China-Mexico Relations

The death of the $180 million shopping complex highlights stumbling blocks to closer economic cooperation.

The Dragon Mart Fiasco Still Haunts China-Mexico Relations
Credit: Wikimedia Commons/ Angélica Rivera de Peña

During the U.S. presidential election, China and Mexico were Donald Trump’s favorite international punching bags, blamed for undercutting American business and drawing American jobs abroad.

Now, as Trump takes office, early signs have emerged that hostility from the U.S. administration may bring the two countries closer together. In early December, state-owned China National Offshore Oil Company acquired two coveted deep water oil blocks as part of a major privatization push for the Mexican oil sector. A week later, Chinese State Councillor Yang Jiechi met with Mexican President Enrique Peña Nieto and discussed boosting trade and investment ties with Foreign Minister Claudia Ruiz Massieu.

Yet Trump’s inauguration also came almost two years to the day of a low point in China-Mexico relations during the Peña Nieto administration: the cancellation of Dragon Mart Cancún. When it was announced in March 2011, the $180 million shopping complex looked set to be a centerpiece of Chinese exports to Latin America. Today, it sits defunct, snuffed out by Mexico’s environmental protection authorities in the early stages of construction. Yet its demise followed not just from flouted environmental regulations, but from the ways that environmental controversy linked up with a broader cocktail of social and economic objections. If Trump’s victory perhaps creates conditions for greater China-Mexico cooperation, the Dragon Mart saga highlights the obstacles that may slow even renewed efforts at intensifying bilateral economic ties.

Dragon Mart

The March 2011 initial proposal for Dragon Mart Cancún described a shopping complex displaying goods from 2,500 Chinese companies on 1,400 acres just outside Cancún, bringing 5,000+ jobs for Mexican workers. At first, the Chinese-Mexican joint venture behind the project did not announce its ownership structure. Under public pressure, it finally broke its silence in June 2012, reporting that Mexican investors held a 60 percent stake, and that the remaining 40 percent was in the hands of Chinamex, a private company established in 1999 by the Chinese Ministry of Commerce.

Mexican green groups had been strongly criticizing the Dragon Mart project since shortly after its announcement in 2011. The project site was located amidst coastal wetlands two miles from Puerto Morelos Reef National Park, at the northern tip of the Mesoamerican Reef. The Mesoamerican Reef is the Western Hemisphere’s largest barrier reef system and hosts more than 500 fish species among over 60 types of hard coral. Meanwhile, the wetlands themselves had been designated as a bird conservation area by the government.

According to activists, construction and waste discharge from the project could disturb these fragile ecosystems and also pollute a key source of groundwater for the Yucatan Peninsula. But they said that the company had not conducted environmental impact assessments per Mexican law and lacked the required authorizations from Mexican environmental authorities.

In fall 2012, state and federal authorities gave the project required approvals for beginning construction. Local authorities held out and denied the project a building permit in April 2013, but state and federal players reversed that decision some months later. In August and September 2014, Profepa, Mexico’s environmental regulatory agency, fined Dragon Mart $555,000 for environmental damage resulting from roads constructed without a prior impact study. In January 2015, Profepa canceled the project and added a further $1.5 million in fines. “As far as we’re concerned, there’s no possibility for a project to be undertaken on this site,” said Profepa Director Guillermo Haro. Later that year, the Mexican government initiated an investigation into “administrative irregularities” by ex-officials involved in the fall 2012 approvals process. Dragon Mart has appealed the January 2015 ruling, with a decision expected this spring.

Legally speaking, Dragon Mart is dead because of Profepa’s ruling, and the significance of these environmental concerns to the project’s failure should not be underestimated. (Some backers of Dragon Mart certainly weren’t underestimating them; Alejandra Serrano Pavón, a leading campaigner against the project as Southeast Regional Director at the Mexican Center for Environmental Law, was personally intimidated during the case.) But that ruling represented the culmination of a public debate where environmental concerns intersected with a broader range of objections, picked up enthusiastically by Mexico’s opposition parties.

Dragon Mart faced fierce opposition from the Mexican business community. Leading chambers of commerce and business-sector research institutes argued the project would act as a conduit for undercutting Mexican producers with cheap Chinese goods. Pavón said the business sector’s opposition was crucial for the project’s cancellation. “We have seen so many cases where we have the law on our side and it doesn’t happen that way,” she told chinadialogue.

Pavón also said negative perceptions of the economic and environmental impacts of China investments elsewhere had heightened public concerns about the project.

Enrique Dussel Peters, coordinator of the Center for China-Mexico Studies at the National Autonomous University of Mexico (UNAM), cites broader anti-China sentiments as catalyzing public opposition. “If Dragon Mart had been a Swiss or German or Japanese or American project,” he told chinadialogue, “it would have very probably gone through without any problems.”

He does not expect a reversal of Profepa’s ruling. “The case is over,” he said. “If some kind of judge at the national level would dare to pass the project, you will have everybody against the project.”

Lessons From DMC

During 2012 and 2013, Dragon Mart responded to the negative publicity with a number of concessions. It allowed businesses from Mexico and 10 other countries to establish showrooms alongside Chinese vendors and set up a special display zone for Mexican goods. It cut the housing provision for Chinese businessmen from 4,000 units to 720. Chinamex reduced its stake to 10 percent and transferred the rest to Mexican investors.

These steps evidently weren’t enough to change public perceptions of what had become an intensely politicized project. Renmin University professor Jin Xiaowen, an expert on China-Latin America relations, has written that Dragon Mart shows the importance of Chinese companies in Mexico working aggressively to communicate and engage with civil society on the non-economic aspects of their projects. The company, he said, “did not consider [environmental and social benefits] fully enough, and, to a greater extent, neglected public relations work on these aspects.”

These issues will be no less relevant if Trump’s election prompts a strengthening of China-Mexico relations. Jin argues that Dragon Mart was itself a demonstration of this point, coming after the election of Peña Nieto in 2012, who prioritized China-Mexico relations as his predecessor Felipe Calderón had not. After Trump, “even if China-Mexico relations improve,” he told chinadialogue, “protests from non-governmental organizations and other such challenges can still present themselves.”

Meanwhile, since Trump’s election, elements of the Mexican business community have continued to express concerns about Chinese products swamping Mexican markets. The Confederation of Industrial Chambers of Mexico (CONCAMIN) was among the most vocal opponents of the Dragon Mart project, and a Noreste article from November 11 quotes Jose Manuel Urreta Ortega, director of the Eastern Zone region for CONCAMIN, saying that poor customs enforcement was allowing in an influx of Chinese goods and hurting the Mexican economy. Because of the hostility of the Trump administration, he said, Mexico should look to develop a domestic industrial policy and build stronger ties with Europe.

For Jin, the events of the Dragon Mart case are part of a process happening around the world as China expands abroad. International media pays more attention to Chinese failures than Chinese successes, he says, but Chinese companies in Latin America have taken steps forward in engaging with local social and environmental issues. But however one evaluates the results of that process, its importance does not decline with a Trump election. Stronger economic ties will require hard work on the Chinese and Mexican side to build public trust in the benefits of Chinese investment for Mexico.

Edmund Downie is a Marshall Scholar at the University of Oxford and an MPhil student in International Relations.