By Barbara Kelemen | Ján Slobodník

This CEIAS paper aims to shed light on cooperation between Chinese businesses and Mexican criminal groups. It specifically analyzes cases related to drug trafficking and the exploitation of natural resources in three states in Mexico. The topic is particularly relevant for countries in Latin America that have been expanding their commercial ties with China. This research suggests that the lack of state supervision in some of these countries could allow alternative structures—such as criminal groups and Chinese organized networks—to thrive and fill the security and economic void if not regulated properly.

Summary

Mexico’s macroeconomic stability and abundant natural resources have made the country into an attractive destination for Chinese businesses.

The country still suffers from a lack of internal security, most of it stemming from the Mexican Drug War, an ongoing multilateral low-intensity conflict between the Mexican government and a large number of criminal organizations.

In some of Mexico’s states, pervasive violence and instability have resulted in a power vacuum. With the government being unable to guarantee security, non-state actors such as criminal organizations and/or civilian militias seize the opportunity to establish their own rule.

When foreign companies operate in such troubled areas, they inevitably run into problems caused by Mexico’s security issues.

Within this trend of foreign companies operating in Mexico, some level of tacit cooperation has been observed between Chinese businesses and non-state actors. This cooperation is often an outcome of localized security vacuums that are exploited by alternative security providers, such as criminal organizations, that can fill them and provide operational safety for local businesses.

A growing body of research has identified the existence of Chinese illicit networks and their involvement in the trafficking of people, narcotics, and contraband goods, as well as money laundering and illegal arms trade in Mexico.

Concealed under the guise of legal commercial activity, networks of Mexican criminal organizations and their Chinese business partners exploit the dire security situation in some areas of Mexico.

Despite attempts by the Chinese and the Mexican governments to regulate certain sectors that contribute to the existence of the illicit networks in Mexico, there are still substantial opportunities that are ripe for exploitation by the criminal group-legitimate business partnerships

By Paul M Bisca, Vu Chau, Paolo Dudine, Raphael A Espinoza, Jean-Marc Fournier, Pierre Guérin, Niels-Jakob H Hansen, and Jorge Salas

Violent crime and insecurity remain major barriers to prosperity in Latin America and the Caribbean (LAC). With just 8 percent of the global population, LAC accounts for a third of the world’s homicides. Building on the existing literature, this paper aims to support economic policymakers and development partners by exploring the interplay between insecurity and macroeconomic outcomes, with emphasis on the relationship between violent crime and growth, the business climate, and public finances. The analysis shows that national-level crime indicators mask huge internal disparities, and that municipalities with 10 percent higher homicide rates have lower economic activity by around 4 percent. The paper develops an innovative measure of insecurity—the share of crime-related news—and shows its association with lower industrial production. Using firm-level data, it also estimates that the direct costs of crime, for firms, are around 7 percent of annual sales, and these are much higher when gangs and drug-trafficking organizations are present. Violent crime rises with macroeconomic instability, inequality, and governance problems. Using a large cross-country panel, the analysis finds that homicides increase when a country is affected by negative growth, high inflation, or a worsening of inequality. Victimization surveys indicate that where populations are concerned with the rule of law—impunity and police corruption—only one in five victims file their case with the police. Lack of trust and crime can be mutually reinforcing. Finally, the paper documents the fiscal burden of security provision and finds that spending tends to be inelastic to crime and that spending efficiency could be improved. The paper concludes with policy lessons and areas for additional collaboration between national authorities, international partners, and key stakeholders. These focus on data collection and analysis, economic policies that may address the root causes and manifestations of crime, strengthening rule of law institutions, and intensifying regional exchanges on security and public finance issues.

Washington, DC: : International Monetary Fund. 2024. 60p.