Ecuador

Ecuador

In the mid-2010s, Ecuador started to turn to China for financing and construction of major public works. Since then, numerous Chinese firms have come to the country to build a wide array of projects in sectors such as energy, mining, oil rigs, telecommunications, and infrastructure. Today, the majority of Chinese hydroelectric undertakings in Latin America are in Ecuador.

Ecuador

Written by Diana Castro.

Historical Background

Relations between the People’s Republic of China (PRC) and Ecuador can be traced back to 1971. After the PRC was fully accepted into the United Nations, Ecuador formally broke relations with Taiwan and began negotiations for trade agreements with Beijing. In February 1973, Ecuador sold 20,000 tons of bananas to China for the first time. Two years later trade missions were formally established in both countries. Diplomatic relations began on 24 December 1979, when the representatives of Ecuador and the PRC signed a Joint Declaration, which entered into force on 2 January 1980 with the opening of the Chinese embassy in Quito and the subsequent opening of its Ecuadorian counterpart in Beijing in 1981. By the mid-1990s, Chinese oil companies began to enter Ecuador’s oil sector as subcontractors. The China National Petroleum Corporation (CNPC) was the first Chinese enterprise to operate in Ecuador. Between 1980 and the mid-2000s, ties between both countries were thin and consisted only of a few diplomatic cooperation agreements, trade promotion, scientific and technical cooperation, credit facilities for productive and social infrastructure, and investment agreements, particularly in the hydrocarbon sector.

After the election of President Rafael Correa in November 2006, his presidency determined that relations with China were strategic and pushed the relationship to its high point. Ecuador started to turn to China for financing and construction of major public works. The boom in commodity prices and the government’s interest in building a ‘sovereign’ economic policy, together with a surge in public spending, laid the foundations for the expansion and deepening of financial relations with China. Shortly after President Correa took office, he broke relations with the World Bank and, one year later, defaulted on the country’s foreign debt, losing access to traditional financial markets. Only a few months after assuming office in his first term, in November 2007, President Correa visited China and met with then Chinese President Hu Jintao in order to lay the groundwork for broader bilateral cooperation. On that occasion, 14 bilateral agreements were signed in such diverse areas as agriculture, railways, sports cooperation, cultural exchange, tourism, sanitary and phytosanitary measures, labour issues, employment and social security, although most of them were not made public. Correa’s second official presidential visit to Beijing in January 2015 was during the China–Community of Latin American and Caribbean States (CELAC) Forum. There, both countries signed a ‘strategic partnership’ agreement and, the next year, in November 2016, when Chinese President Xi Jinping visited Quito for the first time, this relationship was upgraded to a ‘comprehensive strategic partnership, one of the highest levels of China’s diplomatic recognition.

Over the past decade, Ecuador has become the fourth largest recipient of Chinese funding in Latin America. By 2019, China had become Ecuador’s second largest trading partner, as well as its main source of bilateral financing and main contractor for public infrastructure projects. Numerous Chinese firms have come to Ecuador to build a wide array of projects in sectors such as energy, mining, oil rigs, telecommunications, construction of roads, hospitals, schools, security facilities, and technological systems. Significantly, the majority of Chinese hydroelectric undertakings in Latin America are in Ecuador, which is remarkable considering that Ecuador is a relatively small country in the region.

BRI Status

On 11 December 2018, Ecuadorian President Lenin Moreno (in office since May 2017) arrived in Beijing for a three-day official visit, during which he met with Chinese President Xi Jinping. During this visit, representatives signed a Memorandum of Understanding (MoU) that marked Ecuador’s official joining of the Belt and Road Initiative (BRI), the 16th country in Latin America and the Caribbean to do so. Among the projects announced as part of the two countries’ cooperation under the BRI are the reconstruction of the ‘Eloy Alfaro’ airport in the port city of Manta, roads in the provinces of Esmeraldas and Imbabura in north Ecuador, and bridges in the province of Manabí. In addition, a dozen projects that were already underway were now placed under the BRI umbrella, including seven hydroelectric plants (the largest of them Coca Codo Sinclair) and the copper mines of Panantza-San Carlos and Mirador (which is marred by serious socio-environmental conflicts, as explained in the relevant project profile). In addition, on 1 November 2019, Ecuador became the first Latin American country to be a full-fledged member of the Asian Infrastructure Investment Bank (AIIB), and later became the first Latin American recipient of an AIIB loan.

Current Economic Relations

Trade: From the turn of the century, China’s growing consumption of commodities boosted trade with primary-exporting countries around the world, and Ecuador was no exception. Trade between the two countries grew 50 times during the first two decades of the 21st century, though it was associated with an increasing trade deficit on the Ecuadorian side. Bilateral trade volumes grew from 133.8 million USD in 2000 to 6.7 billion USD in 2019. The year 2014 saw the highest trade deficit for Ecuador (4.1 billion USD), which then dropped to 940 million USD in 2019. In 2001, China was the 32nd largest export market for Ecuador (0.2% of Ecuador exports) and its tenthlargest import market (2.8% of Ecuador imports). By 2019, China was already the second largest export market for Ecuador (13% of Ecuador exports) and its second largest import market (18.9% of Ecuador imports).

The bilateral trade balance has entrenched Ecuador’s traditional role as an exporter of raw materials and importer of manufactured goods and technology. In 2019, Ecuadorian imports from China consisted of nuclear reactors, boilers, machinery (15.6%); electrical and electronic equipment (15.6%); vehicles (9%); iron and steel (8.4%), mineral fuels, oils, and distillation products (5.3%); articles of iron and steel (4.9%); plastics and articles thereof (4.7%); among others. On the other hand, Ecuador’s exports to China consisted of products such as fish, crustaceans, and mollusks (73.4%), which have become important since 2017, particularly due to exports of tuna and shrimp. In fact, 2019 was a record year for the shrimp industry in Ecuador in terms of sales to China. Other exports include mineral fuels, oils distillation products (9%); edible fruit, nuts, peel of citrus fruit, melons (7.6%); wood and articles of wood (4.6%); and ores, slag and ash (2.8%). It is worth noting that the growing export of wooden products is related to China’s great demand for balsa wood, a fast-growing species of tree used to manufacture blades for wind-power turbines. This is causing deforestation and uncontrolled logging. In the midst of the COVID crisis, the ‘balsa wood fever’ has also contributed to spreading the coronavirus to isolated communities across the Ecuadorian Amazon.

Investment: Investment and loans are closely related and represent the main driver of Chinese–Ecuadorian economic relations. As in the rest of the region, the presence of Chinese companies in Ecuador has occurred through two channels: foreign direct investment (FDI) and the construction of infrastructure projects. Although the latter category is often confused as FDI, the distinction matters when analysing specific projects, the performance of actors, and their impacts in the host country. According to the Central Bank of Ecuador, between 2006 and 2015, Chinese FDI in Ecuador grew dramatically from 11.9 million USD to 113.8 million USD. From 2017, FDI dropped significantly due to the falling oil prices and the completion of several infrastructure projects. Thus, in 2019 FDI reached only 28 million USD. Statistics from the Chinese Ministry of Commerce (see the chart below) show a corresponding trend. Put in context, China went from being an almost non-existent investor (in 136th position in 2005) to one of the top five origin countries of FDI in Ecuador between 2007 and 2017 (even the second position between 2011 and 2014). Its position then dropped to the eight and tenth in 2018 and 2019, respectively.

Source: Chinese Ministry of Commerce.

The expansion of Chinese FDI in Ecuador began in 2006 and has concentrated in extractive sectors such as oil and mining and hydroelectric infrastructures. Ecuador became the first South American country in which Chinese companies established a major presence in the oil sector. Several projects have been developed in the provinces of Sucumbios and Orellana (Tarapoa-blocks 62, 14, and 17) and recently Pastaza (blocks 79 and 83) by Chinese companies such as Andes Petroleum, a joint venture between CNPC and China Petrochemical Corporation (Sinopec) that at the time of writing is the largest oil company operating in Ecuador.

In the mining sector, three of the Ecuadorian government’s large mining projects are currently granted to Chinese companies: the Mirador project, Ecuador’s first large-scale open pit copper mine, is operated by Ecuacorriente (a consortium of China Railway Construction Corporation Limited and Tongling Nonferrous Metals Group Holdings Co. Ltd.); Rio Blanco is operated by Ecuagoldmining S.A. (owned by Junefield Mineral Resources Holdings); and Panantza-San Carlos operated by ExplorCobres S.A., a subsidiary of Ecuacorriente. In 2019, Mirador began exploitation and exported its first 22,000 tonnes of copper concentrate to China. Both Rio Blanco and Panantza-San Carlos are paralysed by serious social and environmental conflicts, as communities opposing Chinese mines claim their right to be consulted.

As for infrastructure projects, the most relevant are large-scale hydroelectric dams. Between 2007 and 2017, eight hydro projects were built with Chinese participation (five are now operating): Coca Codo Sinclair-CCS; Sopladora; Minas-San Francisco; Toachi-Pilaton; Delsintanisagua; Quijos; and Mazar-Dudas; as well as one wind power project, Villonaco. Other important projects include the Integrated Security Service System (ECU911), a national emergency response and video surveillance system built by Chinese companies and financed by Chinese state loans; roads throughout the country in urban and rural areas; hundreds of schools and the Yachay and Ikiam universities; hospitals; and state buildings such as the Government Financial Platform, a mega-building constructed to accommodate 2,800 civil servants working in economic ministries, built by the state-owned company China CAMC Engineering Co., Ltd.

Aid: Official data on Chinese aid in Ecuador varies greatly. According to the Ecuadorian Ministry of Foreign Affairs, Chinese aid to Ecuador totalled 53 million USD between 2007 and 2019 and concentrated in security, promotion of production, human resources, natural resources, social sectors, and others. However, this figure differs from that offered by an independent study that found the amount to be higher, that is 62.74 million USD just between 2007 and 2016. The amount of Chinese aid is likely to have been even higher in the period after 2016, due to the increase in grant aid cooperation agreements for the reconstruction after the 2016 earthquake in Manabí. For instance, just in 2017 several agreements were signed for the construction of two hospitals, donation of 10,000 computers for schools, and humanitarian aid projects, among others. For the year 2020, the exact figures of Chinese aid during the COVID-19 pandemic are still unknown. However, the Ecuadorian Ministry of Foreign Relations has produced a detailed report of around 100 aid transactions carried out by the Chinese government agencies, private companies, and banks operating in Ecuador.

Other finance: China has been Ecuador’s main creditor since 2010 (with amounts considerably larger to those from any other country or multilateral institution), only surpassed by sovereign bonds since 2017. Under Rafael Correa’s administration (2007–17), the share of debt from China in Ecuador’s total External Public Debt (EPD) went from 0.1% in 2009 to 36% in 2013. From there, during Correa’s second term, the share of Chinese debt decreased to levels slightly above 20%, but in 2016 it still reached an amount close to all multilateral debts combined. From 2010 to 2019, China and Ecuador signed 26 credit agreements for a total of 13.6 billion USD, an amount surpassed only by Venezuela, Brazil, and Argentina. All the loans are tied to the construction of infrastructures with Chinese firms or to oil payments. The main Chinese banking institutions present in Ecuador are the China Development Bank (CDB), which contributes to 60% of all Chinese loans, most of them negotiated as oil backed loans under the conditions of a Four Party Agreement scheme which ties the payment of the credits to the sale of oil to Chinese companies. This arrangement involves three types of agreements: the contract loan signed between the CDB and the Ministry of Finance; the sale of crude between PetroEcuador and PetroChina International Company Limited (a subsidiary of CNPC); and, lastly, an agreement for managing bank accounts. The Export–Import Bank of China (China Eximbank) lends 26% of the loans, all of which were tied to the construction of infrastructure projects, for example the Coca Codo Sinclair Dam. The Industrial and Commercial Bank of China (ICBC) and the Bank of China are each responsible for 8% and 6% of the loans, respectively.

Facing a serious debt crisis in the wake of the COVID-19 pandemic, Ecuador has been able to renegotiate its debt with China. In August, Ecuador agreed with the CDB on a 12-month moratorium for the 417-million-USD debt repayment scheduled for this period; in September, Ecuador reached another agreement with China Eximbank for the rescheduling of 474 million USD of debt repayment. Soon after that, Ecuador found itself situated in a tug of war between China and the United States. In late September 2020, a few weeks after Ecuador and the Chinese banks reached agreements on debt rescheduling, Ecuador obtained a new Extended Fund Facility from the IMF for 6.5 billion USD, with an immediate disbursement of 2 billion. In November, in the middle of the US-China tech race, the country joined the ‘Clean Network’ initiative promoted by the United States as a strategy to curb the influence of the Chinese communications networks. These events paved the way for what happened in early 2021.

On 14 January 2021, the US International Development Finance Corporation (DFC)—a US development finance institution focussing mainly on financing private development projects in lower- and middle-income countries— announced that it had signed a framework agreement with the government of Ecuador to provide up to 3.5 billion USD of loans to refinance external debt and to fund development projects with private investment. Prior to approving this loan, the then head of the DFC, Adam Boehler, had said that the bank should confront Chinese ‘neo-colonialism’. Once the agreement was signed, he stated that it ‘allows DFC to streamline support for projects that refinance predatory Chinese debt and help Ecuador improve the value of its strategic assets.’ The deal pushes Ecuador to privatise oil and infrastructure assets and to ban Chinese technology imports into the country. In response, China’s ambassador to Ecuador, Chen Guoyou, said he was unconcerned by the DFC deal and reiterated that ‘China respects the sovereign and independent decision of the Ecuadorian government to develop pragmatic, balanced and diverse partnerships with other countries.’

Key Controversies

Transparency and accountability: China’s relationship with Ecuador through financing and investment has been plagued by special agreements, secrecy, and lack of stakeholder participation, especially in projects in the extractive and infrastructure sectors (electricity, mining, hydrocarbons, telecommunications). Many of these projects were governed by exceptional legal frameworks, through special presidential decrees to overcome financing difficulties, accelerate the bidding and construction processes, or justify delays in the development of feasibility and impact assessment studies and issuance of environmental licenses. The lack of transparency is also related to exorbitant levels of cost overruns, corruption, embezzlement, and bribery. In addition, Chinese stakeholders keep the Ecuadorian civil society largely at bay. It is extremely difficult to obtain information from official agencies, Chinese banks and companies. Confidentiality and secrecy surrounding Chinese agreements hinder public participation and oversight, making a large part of these projects untraceable. The controversy surrounding the Chinese state-owned firm Sinopharm International Corporation is worth mentioning in this regard. Based in Ecuador since 2012, the company has been a major investor and medical supplier in the country. In the midst of the COVID-19 pandemic, cases of embezzlement and corruption in the sale of Sinopharm’s diagnostic supplies and rapid tests came to light and the company has come under investigation.

Environmental and social conflicts: Most of the extractive (oil and mining) and hydroelectric projects operated by Chinese companies are located in highly diverse, ecologically and socially fragile areas. For instance, the Mirador and Panantza-San Carlos open-pit copper mines are located in the Cordillera del Cóndor region and within the Shuar indigenous territory. Several conflicts have arisen on matters such as the displacement of 116 indigenous people, discrimination, intimidation, threats, and worsening environmental degradation. Oil extraction has led to a vast array of problems, including serious deforestation, droughts and floods, soil erosion, mass carbon store release, as well as social conflicts due to displacement, land dispossession, increase in violence and crime, militarisation, and violations of human rights. The rainforest where much of the exploitation occurs is also home to several indigenous communities, including the Sápara, whose territory is within the Yasuní National Park. This has led to what some call a cultural genocide of this UNESCO Heritage of Humanity group that is already near extinction having only 560 people left. The lack of channels for participation, consultations, and institutional arrangements for conflict management aggravate existing conflicts in the territories granted to Chinese firms. In addition, hydroelectric infrastructures such as Coca Codo Sinclair have also caused irreversible environmental effects on the water basin, ecological water flow, river sedimentation, and regressive erosion processes. Most of these projects fail to achieve sustainable development in the territories where they operate.

Fishing: In August 2020, in the midst of the COVID-19 pandemic crisis, the discovery by the Ecuadorian navy of a vast fishing fleet of 340 Chinese vessels operating in international waters of the Galapagos Islands stirred alarm over ‘indiscriminate’ fishing practices. It is not the first time this has happened. Chinese fishing practices already caught the attention of the Ecuadorian public in 2017, when the Chinese-flagged ship ‘Fu Yuan Yu Leng 999’ was intercepted by the Ecuadorian navy within the Galapagos Marine Reserve. 300 tons of threatened and vulnerable fish were found on board. It was considered the biggest shark-smuggling bust in Galapagos history.

Poor material quality and technology. The quality of the projects executed by some Chinese companies has been questioned because of poor material quality and technical failures of equipment and technology. The best-known case is Coca Codo Sinclair, where the Comptroller General of the State found 171 defects, including wall water leaks, accumulation of sediments, turbine damage, poor quality welds, and 7,648 cracks and micro-fissures in water distributors located in the machinery room. Other known cases include the hundreds of defective security shackles supplied by China National Electronics Import & Export Corporation (CEIEC), construction rods of poor quality manufactured by the Chinese company Xinlong, structural failures in the schools built by China Gezhouba Group, the roads built by Sinohydro, and the governmental buildings constructed by China CAMC Engineering.

Key Sources

Media Outlets:

China Dialogue, Reuters, Mongabay, and The New York Times all have correspondents who report from Ecuador.

Local media that often report on China-related issues include Plan V (English edition), Periodismo de Investigación, Primicias, and El Telégrafo (government-owned press, English edition).

NGO Sources:

Systematic research work about China-Ecuador relations has been carried out by the Colectivo sobre Financiamiento e Inversiones Chinas, Derechos Humanos y Ambiente (CICDHA); Acción Ecológica; the Environmental Justice Atlas; and China-Latin America Sustainable Investments Initiative / Iniciativa para las Inversiones Sustentables China-América Latina (IISCAL).

Books, Reports, and Scholarly Articles:

  • Acción Ecológica. 2016. ‘Serie: Xi Jinping en Ecuador.’ Link.
  • Castro, Diana. 2019. ‘Unpacking Chinese Financing In Ecuador.’ In China’s Financing in Latin America and the Caribbean, edited by Enrique Dussel Peters, 295–320. Red Académica de América Latina y el Caribe sobre China, UNAM. Link.
  • Colectivo sobre Financiamiento e Inversiones Chinas, Derechos Humanos y Ambiente (CICDHA). 2018. ‘Incumplimiento de obligaciones extraterritoriales de China en Ecuador.’ CICDHA website, 28 September. Link.
  • Garzón, Paulina and Diana Castro. 2018. ‘China-Ecuador Relations and the Development of the Hydro Sector.’ In Building Development for a New Era: China’s Infrastructure Projects in Latin America and the Caribbean, edited by Enrique Dussel Peters, Ariel C. Armony, and Shoujun Cui, 24–57. Mexico: Asian Studies Center, Center for International Sudies, Universidad de Pitsburg, y Red Académica de América Latina y el Caribe sobre China.
  • Herrera-Vinelli, Lorena and Mateo Bonilla. 2018. ‘Ecuador-China Relations: the Growing Effect of Chinese Investment on Ecuadorian Domestic Politics, 2007–2016.’ Journal of Chinese Political Science 24: 623–41.
  • Luzuriaga, Miguel. 2017. ‘Inversiones Chinas en Ecuador. Andes Petroleum y los Bloques 73 y 83.’ Red Académica de América Latina y el Caribe sobre China website. Link.
  • Ray, Rebecca and Adam Chimienti. 2017. ‘A Line in the Equatorial Forests: Chinese Investment and the Environmental and Social Impacts of Extractive Industries in Ecuador.’ In China and Sustainable Development in Latin America: The Social and Environmental Dimension, edited by Rebecca, Kevin Gallagher, Andres López, y Cynthia Sanborn, 107–45. London: Anthem Press.
  • Ray, Rebecca, Kevin Gallagher, and Cynthia Sanborn. 2018. ‘Standardizing Sustainable Development: Development Banks in the Andean Amazon.’ Global Development Policy Center, University of Boston. Link.
  • Reyes, Milton and Po Chun Lee. 2017. ‘La relación China-Ecuador en el siglo XXI: elementos relevantes para la discusión.’ Instituto de Altos Estudios Nacionales, Quito. Link.
  • Vallejo, María Cristina, Betty Espinosa, Francisco Venes, Víctor López, and Susana Anda. 2018b. ‘Evading Sustainable Development Standards: Case Studies on Hydroelectric Projects in Ecuador.’ Global Development Policy Center, University of Boston, Working Paper 19. Link.Viola, Carolina. 2016. ‘Territorios y cambio estructural en hábitats periurbanos: Coca Codo Sinclair, inversión china y el cambio de la matriz energética en el Ecuador.’ Revista Ciencias Sociales 38.

Cover Photo: Quito, Ecuador. Credit (CC): Frank Plamann.

Updated on 31 March 2021.


Diana CASTRO is a doctoral research fellow in the Latin American Studies Programme at the Universidad Andina Simón Bolívar (UASB-Ecuador). Her current research focuses on Latin America–China relations, in particular the effects of Chinese financing and construction practices on governance and institutional capacities. Diana is a member of The Latin America and the Caribbean Network on China (Red ALC-China) and La Red China y América Latina (REDCAEM).