Main areas of international cooperation between Ecuador and China

Acknowledgements for support to the Secretariat of Higher Education, Science, Technology, and Innovation (in Spanish SENESCYT), Postal Code: 1701518, Quito-Ecuador.
Disclosure statement. No potential conflict of interest was reported by the author.

Introduction

Early contacts between Ecuador and China consisted of the influx of Chinese migrants into the country in the late 19th century. Many of these migrants fled the political and economic conflicts that destabilized China at the time [1, p. 105]. For Chinese migrants, Ecuador was not their main destination, but a place of transition [2, p. 64]. They especially wanted to go to Peru where there were more opportunities. Chinese communities began to appear in the province of Guayas in Ecuador around 1880 [2, p. 64] and Chinese migrants started to work in agriculture, fishing, or mining.

In 2007, about 50,000 people from China live in Ecuador [3] and in 2019, 2,882 immigrants from China [4] arrived. Although the Chinese community in Ecuador is not as large as other communities in Brazil or in Peru [5], it has a strong economic and social weight in the country. The Chinese community in Ecuador is concentrated in the city of Guayaquil, but an important Chinese community is in the city of Quevedo [6, p. 104], which historically was an agricultural center. The community is also located in the city of Machala, which is important in the fishing industry [6, p. 105]. The Chinese community in Ecuador is now prominent in the national economy. The Wong Group and its Rey van Pac brand is one of the largest companies in the Ecuadorian banana sector. The Ecuadorian Chinese company Sol de Oriente is a major exporter of noodles to all corners of Latin America.

Ecuadorians of Chinese origin in the provinces of Guayas and Los Rios play an important role in the agricultural sector, while the people of Machala play a defining role in fish and shrimp production. In the service sector, there are also hundreds of Chinese restaurants, commonly referred to as Chinese cuisine. But from the beginning, the Chinese community has remained with a low profile in social and political issues, making efforts to integrate into Ecuadorian society. Many times, efforts to contain this profile have included changing surnames and refusing to use their mother tongue so as not to emphasize their Chinese origin. This behavior has had two important consequences. First, unlike the history of the Chinese community in other Latin American countries, the behavior of the Chinese community in the context of a relatively tolerant Ecuadorian society allowed for an atmosphere with little ethnic tension between the community and other sectors of Ecuadorian society [6, p. 106]. On the other hand, by avoiding the use of their mother tongue a significant percentage of the next generation of Ecuadorian Chinese lost the ability to read and write Northern Chinese. As an undesirable result, this loss of Chinese culture and language has limited the role of Sino-Ecuadorian society, unable to stimulate secondary industries in the growing trade between China and Ecuador today. Diplomatic relations between Ecuador and the PRC officially began in 1979 as part of Deng Xiaoping's modernization process. In the 1980s and 1990s, ties between the two countries consisted of several agreements on scientific and technological cooperation and trade promotion. A few months after being elected president of Ecuador, Rafael Correa visited Hu Jintao to lay the groundwork for broader bilateral cooperation.

Earlier in 1971, Ecuador had already favored giving the PRC legitimate representation of the Chinese people in the UN General Assembly [7]. During the seventies, Ecuador was in a situation of democratic instability. Three de facto regimes, one civilian and two military, left the country highly fragmented. But after the so-called ‘return to democracy’ in 1979, Ecuador tried to approach new potential economic partners. While the PRC sought greater international recognition as well as the Chinese economy was slowly prospering and was already looking for new markets to stabilize its economy. Since the establishment of relations, several Ecuadorian heads of state have visited China in the late 20th century. The first trip was made by President Osvaldo Hurtado in 1984, followed by a 10-year hiatus, which was interrupted by President Sixto Duran Ballen in 1994 and then again by Jamil Mahuad in 1999 [8, p. 12-15]. Since Ecuador returned to democracy, 7 presidents have visited China: Oswaldo Hurtado, Sixto Duran-Ballen, Jamil Mahuad, Gustavo Noboa, Lucio Gutierrez, Rafael Correa, and Lenin Moreno [9]. Although many Ecuadorian leaders have visited China, no Chinese leader has visited Ecuador. The state reciprocated until President Xi Jinping visited Ecuador on 18 November 2016. This visit was a milestone in the international relations of both countries, given that the PRC had already established itself as a world power.

The status and economic importance of this community is reflected in the city of Guayaquil, where Chinese entrepreneurs are seeking to create a Chinatown commercial district south of the international airport that will serve as a center of business and culture for the city's Chinese community. On the other hand, recently arrived Chinese immigrants come without proper immigration status from poorer parts of China, such as Fusion. In many cases, the challenge facing the Chinese community is how to bring the two parts of the community together. Despite the poverty of newly arrived immigrants, their ability to speak Chinese represents a useful but little-known resource in Ecuador for doing business with the PRC. Chinese is not widely spoken compared to other languages such as English or French.

Economic cooperation between Ecuador and the PRC

Given the PRC's economic expansion and its globalization strategy, the country has strengthened trade ties with Latin American countries. For some of these countries, the importance of trade relations with the PRC is particularly high because of the growing financing that the PRC has provided to Latin America. It is estimated that the region receives more money from the PRC than from the Inter-American Development Bank and the World Bank. The main lenders are Ecuador, Venezuela, Brazil, and Argentina, and more than 60 percent of these loans are made in exchange for oil. Chinese loans are particularly attractive because China does not control the performance of investments, unlike financial institutions such as the World Bank.

Ecuador's economy is based on the export of oil (more than half of the country's income), agricultural products (bananas, shrimp, etc.) and other natural resources (gold). The volume of exports in 2015 is estimated at $18.36 billion. Main export partners: USA, Chile, Peru, Colombia, Panama. The volume of imports is 20.9 billion USD, imported industrial products, fuels, consumer goods. Import partners: USA, China, Colombia, Peru.

Ecuador and the PRC have developed good trade relations since the beginning of Rafael Correa's presidency. This relationship came into effect after Ecuador's foreign debt under Correa was declared illegal. This led to lending organizations from the West, to stop financing the country.

Trade relations between Ecuador and the PRC have grown from 2007 to the present. The PRC sells more to Ecuador than Ecuador sells to the PRC. But compared to the rest of Latin American countries, Ecuador plays a small role in trade with the PRC. For China, Ecuador's role is insignificant, accounting for only 0.036 percent of its total imports and 0.19 percent of its exports in 2014.

Table 1

Exports, imports, and trade balance between Ecuador and PRC in millions of dollars. USD (Central Bank of Ecuador (2014) [9])

A poorly diversified market, mainly centered on oil, is creating price volatility, with Ecuador the most affected. Some of the main export commodities are timber, fish meal, bananas, shrimp, and other products. However, the main export product is petroleum, which accounts for about 77 percent of total sales to China.

The following tables show the main import and export products between Ecuador and China besides oil and its derivatives in 2017.

Main products of imports and exports between Ecuador and the PRC in millions of USD [10, p. 5]

Table 2

Main export products (BCE, CGEPMI [11])

Table 2 shows the quantity exported from Ecuador to the PRC and how much was imported from the PRC to Ecuador. Even though both countries are strategic partners, Ecuadorian exports to the PRC represent only 2% of total exports to the world. It is also clear that the trade balance is unfavorable for Ecuador. This means that there are many products of Chinese origin in Ecuador that are detrimental to Ecuadorian industry. Ecuadorian producers are disadvantaged by the competitive price of Chinese goods compared to those of Ecuadorian origin.

The main destination of Ecuadorian exports is the United States. It was followed by Peru, Chile, and Colombia in 2012, and by Peru, China, Chile, Panama, and Vietnam in 2018. The number of goods exported to the PRC is so small that producers prefer to send their products to other markets (the United States, Europe, or neighboring countries) rather than sending them to the Asian country. This is disadvantageous for Ecuador, and it is important that export markets are diversified, this means improving the supply to China to balance the bilateral trade balance.

Table 3

Main import products (BCE, CGEPMI [11])

Ecuador has had limited success in selling its traditional agricultural products to the PRC. As in other parts of the region, the cost of transporting perishable agricultural products over long distances increases the price in ways that undermine the competitiveness of Ecuadorian products compared to alternatives closer to China in countries such as the Philippines. Ecuador has not been able to create a strong identity for its brands so that Chinese consumers will want to pay an extra price for its products, as Chileans have done when selling their cherries, grapes, and other fruits and wine to the PRC.

Ecuador's most important agricultural exports are bananas and shrimp. 26% of China's banana imports come from Ecuador, which competes with closer suppliers such as the Philippines. In 2014, shipments of Ecuadorian bananas to China increased as demand and prices in China rose sharply on the back of stable supplies from the Philippines, whose own ability to increase sales to China was limited by relatively inflexible long-term contracts. Another exception was a sharp increase in Ecuadorian shrimp exports to the PRC and other Asian markets worth US$362 million in 2016 when shrimp populations in Asian waters were decimated by disease in 2016 [12, p. 6]. Over the past few years, Chinese private investors have explored small projects in the country, including investments in shrimp production in Manabi province and in African palm plantations in Santo Domingo province to produce palm oil [13].

Major joint projects between Ecuador and PRC

Ever since the Republic of Ecuador set itself the goal of diversifying its energy matrix towards renewable energy, China has been the main financier of the energy sector's budget deficit, as well as the main builder of large hydroelectric plants, which have been labelled landmark and priority projects for the State. The period 2009–2013 was the phase in which major feasibility studies and financing contracts were carried out, and the period 2013-2016 was the construction phase of these projects.

The most significant projects in terms of both scale, financing and power capacity are Coca Codo Sinclair Dam and Minas San Francisco. The first two hydroelectric plants are in the Ecuadorian Amazon. These mega-infrastructure projects have controversy since they have been contracted in special areas of the Amazon Forest. This has created environmental problems in two phases. The construction phase has led to impacts on air quality, noise levels, alteration of the natural landscape, population displacement, pollution of water sources and others. The operation phase resulted in negative impacts including accumulation of solids and pollutants, reduced environmental flow, population displacement and illegal settlements, among others.

From the perspective of environmentalists, Chinese megaprojects have become a danger to the indigenous peoples and the Amazon of Ecuador. Their concerns arise from the way Chinese companies are dealing with the environmental and human rights concerns of the peoples of the region. To date, the Ecuadorian government has not spoken out on the issue.

Despite the discontent of some groups, this has not been a problem, so much so that in recent years Ecuador has had landmark projects aimed at producing renewable energy by utilizing a water power source. This implies great production and energy progress at the national level. The medium and long-term goal is to obtain energy autonomy, reduce CO2 emissions, replace energy imports, and create jobs. Coca Codo Sinclair Dam Hydroelectric Power Plant The project was inaugurated on 18 November 2016. The ‘Coca Codo Sinclair’ hydroelectric power plant is in the provinces of Napo and Sucumbíos. Its construction is a fundamental part of the change of the energy matrix in Ecuador. This hydroelectric plant has benefited more than 20 thousand inhabitants through the creation of programs such as improved sanitation, drinking water, new infrastructure in educational institutions, expansion of electricity supply, etc.

It is the largest structure built in the country - over 6,000 direct and 15,000 indirect jobs. This represents an investment of about $2 billion, with 70% ($1,682,745,000) financed by China's Exim bank and the remainder by the Ecuadorian government [14]. With this project, Ecuador has gained energy sovereignty by stopping importing electricity. Ecuador will not buy fossil fuels. It is an environmentally responsible project in its conception and development, using water as fuel, and most of its operations are underground, which does not have a major impact on the environment and its energy is clean. Sopladora Hydroelectric Power Plant The project was inaugurated in 2016 and is located on the provincial border of Azuay and Morona Santiago. During construction, 15,000 residents in the project's zone of influence benefited from the implementation of new methods of compensation through integrated and sustainable development programs that help preserve the environment and promote adaptation measures to climate change. Construction and adaptation of educational infrastructure; infrastructure and road projects, modernization and equipping of health facilities, construction and modernization of drinking water and sanitation systems, agricultural capacity building and tourism training.

The Minas San Francisco Hydroelectric Power Plant the Minas San Francisco Hydroelectric Power Plant was inaugurated on 15 January 2019, but its construction began in March 2012. It is in the provinces of Azuay and El Oro and in the project's area of influence, projects of electrification, infrastructure, implementation of security works, road improvements, construction and maintenance of basic service systems and improvement of agricultural productivity have been realized. The net capacity is about 1,290 GW [15]. During the construction phase, 2,798 sources of direct employment have been created, which will additionally benefit more than 136 thousand residents. In the project's area of influence, electrification projects have been implemented through the introduction of new compensation methods as part of integrated and sustainable development programs, which include improved electricity and street lighting services.

In Guano, a rural area in the province of Chimborazo, 144 extremely poor Ecuadorians with some form of disability received housing financed by Chinese institutions and built by companies with Chinese capital. The Chinese company Sumec Complete Equipment & Engineering Co. Ltd. built 48 units of social housing. The beneficiaries formed a community of 100% subsidized housing with all basic amenities in a project initiated by the Government of Ecuador with the support of a Chinese loan. China contributed to the development of Ecuador by repairing and widening the freeway running through the city of Monte Sinai, a densely populated outskirt of the city [16].

Another major project was the reconstruction of the Eloy Alfaro International Airport in the city of Manta, one of the cities most affected by the earthquake that struck Ecuador in 2016. The reconstruction was carried out by Chinese companies thanks to a loan provided by the Export-Import Bank of China (China EximBank), an important achievement of Chinese assistance to Ecuador's post-earthquake reconstruction and a symbol of deepening cooperation.

Such projects always provoke opposing views. From the Ecuadorian sector, they say that the projects of Chinese companies affect the environment, and this will lead to environmental disasters in the future. On the other hand, the Ecuadorian government favored the construction of hydroelectric plants in protected areas, claiming that nearby towns and communities benefited because it also built a sewerage project, road construction and improved basic services. Despite all the controversy, it is important to emphasize the role that the PRC has played in infrastructure development and road viability in many regions of Ecuador.

The April 2016 earthquake in Ecuador was a decisive moment for strengthening relations and co-operation between Ecuador and China. China was one of the leading countries that aided Ecuador after the earthquake. Even Ecuador's Ministry of Foreign Affairs recognized the valuable cooperation of the Chinese government in its commitment to provide over $150 million in grant resources [17].

In addition, China provided high-resolution satellite photos of the earthquake-affected areas, which are key tools for detailed analyses of the damage. Chinese companies also helped mobilize equipment to lay roads and telecommunications. The Chinese government not only provided economic assistance, but also supplied 10,000 computers to stimulate Ecuador's technological and educational development. Ecuador's immediate and most visible interest is access to finance and investment, which corresponds to China's need to find strategic resources that enhance the sustainability of its own production and economic growth (oil, minerals, and other commodities). The economic model during Rafael Correa's administration involved the creation of new strategic alliances that could maximize benefits for Ecuador, as well as the possibility of sustainable economic growth.

Conclusion

The study of cooperation between Ecuador and China begins by analyzing the framework of action that both countries have been developing during the three decades when they established diplomatic relations. The economic model during the reign involved the creation of new strategic alliances that could maximize benefits for Ecuador as well as the possibility of sustainable economic growth. For Ecuador, economic ties with China were of particular importance. The Ecuadorian government believed so, encouraging the expansion and diversification of export markets by prioritizing China, as set out in the National Foreign Policy Plan 2006–2020.

China generally sells much more to Ecuador than Ecuador sells to China. Although historically, Ecuador has had a net surplus with China; in recent years its exports to China have declined while Chinese imports have increased, resulting in a very large Ecuadorian trade deficit. Ecuador's exports have diversified but can continue to increase as Ecuador has many exportable resources. Ecuador focuses on exporting flowers, coffee, cocoa products, and seafood such as frozen fish, fish meal and fish oil, tropical fruits, and their derivatives such as juices and concentrates. On the contrary, China has shown great interest in exporting to Ecuador agricultural machinery, steel, rolled steel, electric motors, advanced telecommunications equipment, etc., that is, many manufactured products and with a high share of technology.

The relationship between Ecuador and China has been one of the fastest growing of any country in Latin America. The amount of Chinese capital in Ecuador was almost negligible, but in 2007 Ecuador was the main recipient of Chinese capital and investment in Latin America, and this increased in the following years. Chinese investment has been mainly in hydroelectric, petrochemical and road construction projects. China's interest in Ecuadorian oil is part of a global and regional search for raw materials to meet the needs of an economy based on the production and export of manufactured goods and other capital goods. Although the Ecuadorian market is relatively small, China's interest in selling its products to Ecuadorians can be understood in the context of China's search for new markets against the backdrop of increasingly slow demand growth in Ecuador's traditional markets such as the United States, the European Union and Japan.

The conclusion is that ensuring the success of long-term cooperation between Ecuador and China will depend on building new capacity in the Ecuadorian government and private sector to create a more diversified trade, economic and foreign policy engagement and on a more level playing field with China.