China-ecuador Co­op­er­a­tion Boosts the Mar­itime Silk Rood

China's Foreign Trade (English) - - Regional Trade & Investment - By Nikki Liu

As a strate­gic trad­ing part­ner of China, Ecuador is China’s sec­ond largest trad­ing na­tion in South Amer­ica. Un­der the cur­rent Belt and Road Ini­tia­tive, and the in­creas­ingly close re­la­tion­ship be­tween China and Latin Amer­ica, eco­nomic and trade co­op­er­a­tion be­tween the two coun­tries have be­come closer. In re­cent years, a group of Chi­nese com­pa­nies have par­tic­i­pated in Ecuador’s strate­gic de­vel­op­ment projects in the fields of power and en­ergy, crude oil and min­er­als, wa­ter con­ser­vancy con­struc­tion and telecom­mu­ni­ca­tions, with a to­tal project value amount­ing to tens of bil­lions of US dol­lars.

Sino-ecuado­rian Eco­nomic and Trade Re­la­tions Con­tinue to Deepen

The Repub­lic of Ecuador is lo­cated in the north­west­ern part of South Amer­ica, bor­dered by Colom­bia on the north, Peru on the east and south, and the Pa­cific Ocean to the west, with the equa­tor travers­ing the land. The na­tion boasts fa­vor­able nat­u­ral con­di­tions, var­i­ous prod­ucts and abun­dant tourism re­sources. Ecuador also en­joys a sub­stan­tial re­serve of oil, nat­u­ral gas, gold, sil­ver, cop­per and iron. The oil in­dus­try is the coun­try’s eco­nomic back­bone, and ba­nanas, seafood and flow­ers are main ex­port earn­ers. Ecuador is known as the “Equa­to­rial Coun­try”, “Banana Coun­try” and “the Land of Roses in An­des”.

Ac­cord­ing to the data re­leased by the Cen­tral Bank of Ecuador on March 30, 2018, the over­all eco­nomic growth of Ecuador in 2017 was 3%, not only higher than the 2.7% ex­pected by the In­ter­na­tional Mone­tary Fund, but also twice the orig­i­nal tar­get of the cen­tral bank’s eco­nomic re­cov­ery plan. Its eco­nomic growth mainly de­pends on the fol­low­ing three as­pects: house­hold con­sump­tion, gov­ern­ment fis­cal ex­pen­di­ture and ex­ports.

Ros­san, Com­mer­cial Coun­selor of the Em­bassy of the Repub­lic of Ecuador in China, said at the re­cent Ecuado­rian In­vest­ment En­vi­ron­ment Ex­pla­na­tion Ses­sion (here­inafter re­ferred to as the ex­pla­na­tion ses­sion) that de­spite the growth of the Ecuado­rian econ­omy, there are some prob­lems in its over­all eco­nomic de­vel­op­ment, which is still rel­a­tively back­ward in Latin Amer­ica.

“Al­though oil, gold, sil­ver, cop­per, iron and other nat­u­ral re­sources are abun­dant, the in­dus­trial foun­da­tion is weak. For­eign trade is mainly based on pri­mary prod­ucts, and oil, ba­nanas and prawns are its main prod­ucts.” Ros­san pointed out that es­pe­cially in re­cent two years, the oil and con­struc­tion in­dus­try de­clined, with the con­struc­tion in­dus­try down 5.9%. Ex­ces­sive pro­duc­tion costs and pow­er­less pol­icy im­ple­men­ta­tion re­duce ex­port prof­its, mak­ing Ecuador less com­pet­i­tive in for­eign trade.

Pro­mote co­op­er­a­tion in in­dus­trial parks and deepen co­op­er­a­tion be­tween China and Ecuador in pro­duc­tion ca­pac­ity

At present, China has been the third largest trad­ing part­ner of Ecuador af­ter the United States and the Euro­pean Union.

“Ecuador is one of China’s ma­jor in­vest­ment and fi­nanc­ing coun­tries, en­gi­neer­ing con­tract­ing mar­ket and en­ergy part­ner in Latin Amer­ica,” Ros­san in­tro­duced. Cur­rently, there are nearly 100 Chi­nese-funded en­ter­prises con­duct­ing busi­ness in Ecuador,

who are mainly en­gaged in in­fra­struc­ture con­struc­tion, oil, min­er­als, com­mu­ni­ca­tions, elec­tron­ics and other in­dus­tries.

As one of the coun­tries in South Amer­ica close to China, it can serve as a gate­way and trans­fer sta­tion for China to en­ter South Amer­ica. Wang Yulin, Chi­nese am­bas­sador to Ecuador, be­lieves that China-ecuador co­op­er­a­tion can boost the Mar­itime Silk Road. “The cur­rent eco­nomic re­ces­sion in Ecuador ur­gently re­quires for­eign aid. China should seize this op­por­tu­nity to give play to the spirit of char­ity, and fur­ther deepen eco­nomic co­op­er­a­tion with Ecuador,” Wang said frankly.

Be­sides, China-ecuado­rian ca­pac­ity co­op­er­a­tion is fac­ing broad prospects. Wang an­a­lyzed that al­though nat­u­ral re­sources in Ecuador are abun­dant, its in­dus­trial struc­ture is sin­gle and its in­dus­trial base is weak. Mainly driven by oil, agri­cul­ture, an­i­mal hus­bandry and fish­ery, Ecuador’s eco­nomic de­vel­op­ment is highly de­pen­dent on for­eign coun­tries.

Re­gard­ing how to pro­mote bi­lat­eral prac­ti­cal co­op­er­a­tion be­tween China and Ecuador, Wang said, “In re­cent years, Ecuador has ac­tively pro­moted the YACHAY Knowl­edge City project, which is the first com­pre­hen­sive in­dus­trial park based on sci­en­tific re­search and tech­no­log­i­cal in­no­va­tion in Ecuador.” Wang said that China has ac­cu­mu­lated rich ex­pe­ri­ence in in­dus­trial parks. The Chi­nese-funded en­ter­prise IZP and YACHAY Knowl­edge City signed a strate­gic co­op­er­a­tion agree­ment, which plans to carry out an in-depth, com­pre­hen­sive and friendly co­op­er­a­tion in many fields such as big data ser­vices, cross-bor­der e-com­merce, cross-bor­der set­tle­ment, bonded parks and free trade in­dus­trial parks, so as to build the num­ber one free trade in­dus­trial park in Latin Amer­ica.

At the same time, ca­pac­ity co­op­er­a­tion will be fur­ther strength­ened in con­sol­i­dat­ing the foun­da­tion of project con­tract­ing projects. Wang said that in ad­di­tion to in­fra­struc­ture con­struc­tion projects, many other Ecuador’s in­dus­tries also de­mand for­eign in­vest­ment. China can use this as an op­por­tu­nity to deepen ca­pac­ity co­op­er­a­tion.

“These in­dus­tries in­clude petro- chem­i­cals, food pro­cess­ing, forestry value chains and their pro­cessed prod­ucts, biotech­nol­ogy and ap­pli­ca­tion soft­ware, in­ter­na­tional trade lo­gis­tics ser­vices, metal prod­ucts, re­new­able en­ergy, tourism, health care and so on,” said Wang.

More­over, co­op­er­a­tion in rail­way con­struc­tion should be ini­ti­ated timely. “The Ecuado­rian rail­way is nearly 1,000 kilo­me­ters long, but its oper­a­tion has al­most been stag­nant for nearly two decades, and the fa­cil­i­ties are se­ri­ously dam­aged.” Wang em­pha­sized that the Ecuado­rian gov­ern­ment has signed a Mem­o­ran­dum of Un­der­stand­ing on Rail­way Co­op­er­a­tion with China, plan­ning to re­pair the rail­way and fur­ther ex­pand­ing the rail­way net­work at the same time. What’s more, they will also build a large-scale joint pas­sage of rail­way, wa­ter­way and air trans­porta­tion through­out South Amer­ica to­gether with neigh­bor­ing coun­tries. In this re­gard, Wang sug­gested that China should ex­ert its tech­ni­cal ad­van­tage, pay­ing close at­ten­tion and pro­mot­ing the co­op­er­a­tion in this sec­tor.

With a per­fect for­eign in­vest­ment frame­work, Ecuador ur­gently looks for­ward to the en­try of Chi­nese en­ter­prises

Cur­rently, the Ecuado­rian gov­ern­ment en­cour­ages pro­duc­tive pri­vate in­vest­ment to pro­mote tech­no­log­i­cal in­no­va­tion, the cre­ation of qual­ity jobs and the pro­duc­tion of se­lec­tive im­port al­ter­na­tives.

Ecuador’s am­bas­sador to China, José M. Borja L. said that Ecuador pro­vides the fol­low­ing sup­port­ive mea­sures for en­trepreneur­ship and pro­duc­tive in­vest­ment: in­cen­tives con­tained in the Or­ganic Code of Pro­duc­tion, Trade and In­vest­ment, pub­lic banks’ sup­port, sim­pli­fied cus­toms process and hu­man cap­i­tal de­vel­op­ment.

“In terms of in­cen­tives, in­vest­ing in Ecuador can be more ben­e­fi­cial,” Borja specif­i­cally in­tro­duced that in­cen­tives in­clude a de­cline in cor­po­rate tax­a­tion, from 25% to 22%. If the com­pany rein­vests its an­nual in­come for in­vest­ment, its cor­po­rate tax will be re­duced by 10%. If new cap­i­tal and new busi­ness are de­vel­oped, the share­holder’s in­come dis­tri­bu­tion and bank loans are ex­empt from the re­mit­tance tax of 5%.

More­over, there are also spe­cific in­cen­tives that can be en­joyed. For ex­am­ple, said Borja, five years of busi­ness tax (25% of in­come) can be ex­empted since the com­pany’s cash flow gen­er­ates in­come.

In the Zone for Em­ploy­ment and Eco­nomic De­vel­op­ment (ZEDE), Borja re­vealed that ZEDE ad­min­is­tra­tors and op­er­a­tors can enjoy an­other cor­po­rate in­come tax re­duc­tion by 5%; If the com­pany be­longs to the pri­or­ity in­dus­try or new in­vest­ment pref­er­ences, then five-year cor­po­rate in­come tax can be waived; Im­ported goods are not sub­ject to value added tax (VAT); As long as the for­eign pro­duc­tion ma­te­ri­als stay within the scope of ZEDE, no tar­iffs are im­posed; Ad­min­is­tra­tors and op­er­a­tors can re­ceive the VAT tax credit when they pur­chase the ser­vices, ma­te­ri­als and raw ma­te­ri­als re­quired for their pro­duc­tion pro­cesses lo­cally; 5% of the re­mit­tance tax is waived when pur­chas­ing im­ported goods, pay­ing for­eign debt and share­holder in­come dis­tri­bu­tion.

In terms of in­vest­ment con­tracts, Borja said that the com­pany can sign con­tracts with the Ecuado­rian gov­ern­ment. More­over, the tax sta­bil­ity pe­riod is 15 years, and an ad­di­tional 15 years can be re­quired. In ad­di­tion, the min­i­mum con­tract amount for sign­ing the con­tract is USD 250,000.

“The only goal of the Ecuado­rian gov­ern­ment is to trans­form the coun­try’s out­put struc­ture. The gov­ern­ment has al­ready pri­or­i­tized the fol­low­ing sec­tors: tourism, fresh and pro­cessed foods, re­new­able en­ergy, phar­ma­ceu­ti­cals, chem­i­cals, biotech­nol­ogy, en­vi­ron­men­tal ser­vices, metal man­u­fac­tur­ing, crafts, plas­tics, syn­thetic rub­ber, cloth­ing and footwear, ve­hi­cles, mo­tor ve­hi­cles, bod­ies and ac­ces­sories, trans­porta­tion and lo­gis­tics, con­struc­tion and sus­tain­able agro­forestry, as well as pro­cessed prod­ucts,” said Borja.

In terms of in­cen­tives, in­vest­ing in Ecuador can enjoy more ben­e­fits.

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