Where the Andean foothills dip into the Amazon jungle, nearly 1,000 Chinese engineers and workers have been pouring concrete for a dam and a 24km underground tunnel. The US$2.2 billion project is to feed river water to eight giant Chinese turbines designed to produce enough electricity to light more than one-third of Ecuador.
Near the port of Manta, in the Pacific Ocean, Chinese banks are in talks to lend US$7 billion for the construction of an oil refinery, which could make Ecuador a global player in gasoline, diesel and other petroleum products.
Across the nation in villages and towns, Chinese money is going to build roads, highways, bridges, hospitals, even a network of surveillance cameras stretching to the Galapagos Islands. State-owned Chinese banks have already put nearly US$11 billion into the nation, and the Ecuadoran government is asking for more.
Illustration: Mountain People
With just 16 million people, Ecuador has little presence on the global stage. However, China’s rapidly expanding footprint there speaks volumes about the changing world order, as Beijing surges forward and Washington gradually loses ground.
While China has been important to the world economy for decades, it is now wielding its financial heft with the confidence and purpose of a global superpower. With the center of financial gravity shifting, Beijing is aggressively asserting its economic clout to win diplomatic allies, invest its vast wealth, promote its currency and secure much-needed natural resources.
It represents a new phase in China’s evolution. As the nation’s wealth has swelled and its needs have evolved, Chinese President Xi Jinping’s (習近平) administration has pushed to extend China’s reach on a global scale.
China’s currency, the yuan, is expected to be anointed soon as a global reserve currency, putting it in an elite category with the US dollar, the euro, the pound and the yen.
China’s state-owned development bank has surpassed the World Bank in international lending, and its effort to create an internationally funded institution to finance transportation and other infrastructure has drawn the support of 57 nations, including several of the US’ closest allies, despite opposition from US President Barack Obama’s administration.
China represents “a civilization and history that awakens admiration to those who know it,” Ecuadoran President Rafael Correa said on Twitter, as his jet landed in Beijing for a meeting with officials in January.
China’s leaders portray the overseas investments as symbiotic.
“The current industrial cooperation between China and Latin America arrives at the right moment,” Chinese Premier Li Keqiang (李克強) said in a visit to Chile in late May. “China has equipment manufacturing capacity and integrated technology with competitive prices, while Latin America has the demand for infrastructure expansion and industrial upgrading.”
However, the show of financial strength also makes China — and the world — more vulnerable. Long an engine of global growth, China is taking on new risks by exposing itself to shaky political regimes, volatile emerging markets and other economic forces beyond its control.
With its elevated status, China is forcing nations to play by its financial rules, which can be onerous. Many developing nations, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on nearly 90 percent of Ecuador’s oil exports, which mostly goes to paying off its loans.
“The problem is we are trying to replace American imperialism with Chinese imperialism,” said Alberto Acosta, who served as Correa’s energy minister during his first term. “The Chinese are shopping across the world, transforming their financial resources into mineral resources and investments. They come with financing, technology and technicians, but also high interest rates.”
Ecuadoran Minister of Foreign Affairs Ricardo Patino called the shift to China a “diversification of its foreign relations,” rather than a substitute for the US or Europe.
“We have decided that the most convenient and healthy thing for us [is] to have friendly, mutually beneficial relations of respect with all countries,” Patino said.
“What Ecuador wants are sources of capital with fewer political strings attached,” said R. Evan Ellis, professor of Latin American studies at the US Army War College Strategic Studies Institute. “But there is also a desire to get away from the dependence on the fiscal and political conditions of the IMF, World Bank and the West.”
The Chinese money, though, comes with its own conditions. Along with steep interest payments, Ecuador is largely required to use Chinese companies and technologies on the projects.
International rules limit how the US and other industrialized nations can tie their loans to such agreements. However, China, which is still considered a developing nation, despite being the world’s largest manufacturer, does not have to follow those standards.
In Ecuador, a consortium of Chinese companies is overseeing a flood control and irrigation project in the southern Canar Province. A Chinese engineering company built a US$100 million, four-lane bridge to span the Babahoyo River near the coast.
Such deals typically favor the Chinese.
PetroChina and Sinopec, another state-controlled Chinese company, together pump about 25 percent of the 560,000 barrels a day produced in Ecuador. Along with taking the bulk of oil exports, the Chinese companies also collect US$25 to US$50 in fees from Ecuador for each barrel they pump.
China’s terms are putting nations in precarious positions.
In Ecuador, oil represents about 40 percent of the government’s revenue, according to the US Department of Energy, and those earnings are suddenly plunging along with the price of oil. With crude at about US$50 a barrel, Ecuador does not have much left to repay its loans.
“Of course we have concerns over their ability to repay the debts — China is not silly,” said Lin Boqiang (林伯強), director of the Energy Economics Research Center at Xiamen University in China’s Fujian Province and a government policy planner. “But the gist is resources will ultimately become valuable assets.”
If Ecuador or other nations cannot cover their debts, their obligations to China might rise. A senior Chinese banker, who spoke only on the condition of anonymity for diplomatic reasons, said Beijing would most likely restructure some loans in places like Ecuador.
To do so, Chinese authorities want to extend the length of the loans instead of writing off part of the principal. That means nations would have to hand over their natural resources for additional years, limiting their governments’ abilities to borrow money, and pursue other development opportunities.
China has significant leverage to make sure borrowers pay. As the dominant manufacturer for a long list of goods, Beijing can credibly threaten to cut off shipments to nations that do not repay their loans, the senior Chinese banker said.
With its economy stumbling, Ecuador asked China at the start of the year for an additional US$7.5 billion in financing to fill the growing government budget deficit and buy Chinese goods. Since then, the situation has only deteriorated. In recent weeks, thousands of protesters have poured into the streets of Quito and Guayaquil to challenge various government policies and proposals, some of which Correa has recently withdrawn.
“China is becoming the new company store for developing oil, gas and mineral-producing countries,” said David Goldwyn, who was the US Department of State’s special envoy for international energy affairs during Obama’s first term.
“They are entitled to secure reliable sources of oil, but what we need to worry about is the way they are encouraging oil-producing countries to mortgage their long-term future through oil-backed loans,” Goldwyn said.
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing
A group of Chinese Nationalist Party (KMT) lawmakers led by the party’s legislative caucus whip Fu Kun-chi (?) are to visit Beijing for four days this week, but some have questioned the timing and purpose of the visit, which demonstrates the KMT caucus’ increasing arrogance. Fu on Wednesday last week confirmed that following an invitation by Beijing, he would lead a group of lawmakers to China from Thursday to Sunday to discuss tourism and agricultural exports, but he refused to say whether they would meet with Chinese officials. That the visit is taking place during the legislative session and in the aftermath