In recent years, Mexico has lost millions of dollars in foreign investment and low-cost manufacturing to China, particularly in sectors such as electronics. However, business leaders and Mexican government officials have begun viewing their rival as a land of opportunity.

“We have come to the conclusion that we cannot compete with China in labor costs,” says the director general of Multilateral and Regional Trade Negotiations in Mexico. “The lesson, I believe, is very clear-to move to the upper end of the value chain.”

Not only that, Mexican companies see China’s huge consumer market as a gold mine. One Mexican auto parts manufacturer has set up operations in China to produce engine heads for cars sold to the Chinese market.

“The Chinese market has the greatest potential for growth, given its current underdevelopment and the possibility to manufacture cars for the export market, particularly with Asia,” notes one Mexican automotive executive.

That fact is not lost on global auto manufacturers. In February, DaimlerChrysler AG, the world’s fifth-largest carmaker, announced it had started selling its PT Cruiser model in China as part of its strategy to expand into the world’s fastest-growing auto market.

The 2.4-liter compact (which is actually made in Mexico), is priced at 235,800 yuan ($30,432).