China-ecuador Cooperation Boosts the Maritime Silk Rood
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.