Ecuador's Trade and Investment Relationship with China Under The

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Ecuador's Trade and Investment Relationship with China Under The Ecuador’s Trade and Investment Relationship with China Under the Correa Administration A thesis presented to the faculty of the Center for International Studies of Ohio University In partial fulfillment of the requirements for the degree Master of Arts Christian S. Rodas Saá August 2018 © 2018 Christian S. Rodas Saá. All Rights Reserved. 2 This thesis titled Ecuador’s Trade and Investment Relationship with China Under the Correa Administration by CHRISTIAN S. RODAS SAÁ has been approved for the Center for International Studies by Yeong-Hyun Kim Associate Professor of Geography Arthur Hughes Director, Latin American Studies Lorna Jean Edmonds Vice Provost for Global Affairs 3 ABSTRACT RODAS SAÁ, CHRISTIAN S., M.A., August 2018, Latin American Studies Ecuador’s Trade and Investment Relationship with China Under the Correa Administration Director of Thesis: Yeong-Hyun Kim Globalization increases the integration of economies around the world. Historically, this interdependence has been dominated by Western economies, but emerging economies such as Brazil, Russia, India, China, and South Africa (BRICS) now compete with the United States and Western European countries for the dominance of the global economy. This thesis analyzes the rising bilateral relationship between Ecuador and China under the Correa administration, in terms of international trade, foreign direct investment (FDI), and financial loans. The research was conducted using both quantitative and qualitative methods. Official documentary records, bilateral agreements, national and international newspapers, and government speeches were analyzed. In addition, statistics about trade and investment patterns were calculated from data provided by international trade and investment databases. Further, personal interviews with government officials and businessmen were conducted in Quito to identify the major concerns raised about China’s growing presence in Ecuador’s economy. The findings show that Ecuador’s asymmetric trade relation with China, based on Ecuadorian imports from China, is disadvantageous for Ecuador. Also, Chinese funding is provided on the condition that the project funded contributes to satisfying China’s needs and Chinese workers are employed. Similarly, Chinese financing to Ecuador is linked to vague oil pre- 4 sale contracts, which trigger opportunities for irregularities. The major finding of this work is that China has taken from Ecuador but does not reciprocate; this is an unsustainable relationship that will ultimately end badly for Ecuador. 5 TABLE OF CONTENTS Page Abstract ............................................................................................................................... 3 List of Tables ...................................................................................................................... 7 List of Figures ..................................................................................................................... 8 Chapter 1: Introduction ....................................................................................................... 9 Research Methods ....................................................................................................... 14 Public Archives: Official Documents and Newspapers ........................................ 14 Statistics: Trade, Investment, and Financial Loans .............................................. 16 Personal Interviews: Quito, Ecuador 2017 ........................................................... 17 Limitations ............................................................................................................ 21 Chapter 2: Ecuador in the Global Economy ..................................................................... 23 Historical Background ................................................................................................ 23 Importance of Oil in the Ecuadorian Economy .......................................................... 27 Main Trading Partners ................................................................................................ 30 Foreign Direct Investment in Ecuador ........................................................................ 33 Ecuador’s Public External Debt .................................................................................. 37 Chapter 3: China’s Trade with and Investment in Developing Countries ........................ 43 Historical Background ................................................................................................ 43 China’s Role in South-South Cooperation .................................................................. 44 China in Africa ............................................................................................................ 46 China in Latin America and the Caribbean (LAC) ..................................................... 49 China’s Trade with LAC ....................................................................................... 51 China’s Foreign Direct Investment in LAC .......................................................... 54 China’s Financial Loans to LAC .......................................................................... 56 Chapter 4: Ecuador’s Strengthening Trade and Investment Ties to China ....................... 60 Political and Economic Background ........................................................................... 60 Ecuador’s Growing Relationship with China ............................................................. 62 Ecuador’s Bilateral Agreements with China......................................................... 62 Ecuador’s Trade with China ................................................................................. 72 Chinese Foreign Direct Investment in Ecuador .................................................... 75 Chapter 5: China’s Oil-for-Loan Investments in Ecuador ................................................ 80 6 Ecuador’s Growing Indebtedness to China................................................................. 80 Ecuador’s Oil-for-Loan Deals with China .................................................................. 83 Chinese Financial Loans for the Construction of Hydroelectric Dams ...................... 86 Other Infrastructure Projects Funded by Chinese Loans ............................................ 91 Perspectives on China’s Role as the Largest Creditor of Ecuador ............................. 92 Financial Loans ..................................................................................................... 93 Oil-for-Loan Contracts.......................................................................................... 95 Infrastructure Projects ........................................................................................... 96 A New Course in Ecuador’s Bilateral Relations with China? .................................. 100 Chapter 6: Conclusions ................................................................................................... 102 References ....................................................................................................................... 107 7 LIST OF TABLES Page Table 1. Organizations Interviewed ................................................................................. 18 Table 2. List of Interview Questions................................................................................ 20 Table 3. Share of Oil Exports in Total Exports of Ecuador. ............................................ 29 Table 4. Inflows of Foreign Direct Investment in Ecuador, by sector (2002-2016) ........ 36 Table 5. Ecuador’s Public Debt (2007-2016) .................................................................. 40 Table 6. Principal Bilateral Agreements between Ecuador and China (2007-2015) ....... 64 Table 7. Ecuador's Imports from China. Principal Items (2009-2016) ............................ 74 Table 8. Ecuador's Exports to China. Principal Items (2009-2016) ................................ 74 Table 9. Chinese FDI in Ecuador, by sector (2002-2016) ............................................... 77 Table 10. China’s financial loans to Ecuador (2010-2016) ............................................. 82 Table 11. Ecuador’s Oil-for-Loan Deals with China ....................................................... 84 8 LIST OF FIGURES Page Figure 1. GNI per capita vs oil prices. .............................................................................. 28 Figure 2. Ecuador’s main trading partners for exports. .................................................... 31 Figure 3. Ecuador’s main trading partners for imports. .................................................... 32 Figure 4. Major source countries of FDI in Ecuador (2002-2016). .................................. 35 Figure 5. Ecuador's public external debt as percentage of GNI (2016). ........................... 38 Figure 6. Financial loans - bilateral debt, countries. ......................................................... 42 Figure 7. China’s exports to and imports from LAC (1992-2016) ................................... 51 Figure 8. China's exports to and imports from LAC by country (2016). .......................... 53 Figure 9. China’s foreign direct investment in LAC, by country (2012) ......................... 55 Figure 10. China's financial loans to LAC, by sector (2007-2016) .................................. 57 Figure 11. China’s financial loans to Latin American countries (2007-2016) ................. 58 Figure 12.
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