Chinese Trade & Investment in Colombia & Ecuador

˙ China & Latin America

Colombia and Ecuador have strikingly different relationships with China, explained Paulina Durango and Ricardo Duarte during a recent event at the Inter-American Dialogue.

China’s engagement with Colombia, though growing rapidly, is still a fairly new phenomenon, according to Duarte, a Colombian trade specialist and president of the Board of Directors of the Colombia-China Chamber of Commerce. China’s entrepreneurial presence in Colombia is just now taking shape, with only 40 Chinese companies currently based in Colombia (including state-owned enterprises Sinopec, Sinochem, and Huawei) and only six thousand Chinese visitors in 2011.

Although Colombia boasts a high investment grade, macroeconomic stability, private property protection mechanisms, and strong institutions, Duarte noted, China has invested strikingly little in the Colombian economy – only $32 million over the past ten years. To encourage additional investment on the part of Chinese entities, Colombia initiated a bilateral investment treaty (BIT) with China in 2008, which took effect in July of 2012.

Ecuador has a much deeper economic relationship with China, according to Durango, lead negotiator for Ecuador’s China-funded Coca-Codo Sinclair dam project. Durango described her country as a gateway for Chinese engagement in the region. Like Colombia, Ecuador also receives relatively little in FDI from China. The China-Ecuador economic relationship is based instead on $6 billion in Chinese loans distributed to the Andean country since 2007. Chinese businesses in Ecuador are focused overwhelmingly on hydropower projects, but they are looking to become more active in the country’s mining sector, Durango mentioned. Ecuador recently signed its first mining exploration agreement with a Chinese entity.

While both Durango and Duarte recognized that China is not a panacea for Colombia’s and Ecuador’s economic development — trade with China remains unbalanced and overwhelmingly focused on commodities — both countries have prioritized China in an effort to promote additional Chinese engagement. According to Duarte, China’s approach thus far has been to first establish trust between Chinese and Colombians by means of cooperation in the political arena. In addition to establishing pre-conditions for a free trade agreement (FTA) with China, President Santos’ recent visit to Beijing established additional cooperation in terms of agriculture and infrastructure, an agreement to work on a pipeline that will carry Venezuelan crude across Colombia to the Pacific, additional cooperation between Chinese and Colombian state oil companies, and more in the way of people-to-people exchanges.

In Ecuador, China has preferred to negotiate directly with President Correa, according to Durango, but has spent considerable time negotiating the details of agreements with teams of Ecuadorian and foreign experts.

Both Ecuador and Colombia are now looking to further diversify their international relationships. China is a major focus, of course, but so are other Asian nations. Colombia in particular is looking to access Pacific markets, having signed a free trade agreement with South Korea, which should come into force around 2014. It has also initiated an FTA feasibility study with Japan. Colombians view membership in the Pacific Alliance as a means of attracting Asian trade and investment to like-minded, Pacific-oriented nations in the region.

Ecuador’s relationship with China has meant great things for the country in terms of trade and infrastructure development. Like Colombia, Ecuador will continue to look east. Durango added that Ecuador must work to avoid economic isolation in Latin America.