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### Viewing cable 10QUITO37, China cautiously seeks to expand commercial interests in

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
10QUITO37 | 2010-01-26 22:10 | 2011-04-16 20:08 | CONFIDENTIAL | Embassy Quito
Appears in these articles: http://www.eluniverso.com/2011/04/16/1/1355/cable-245644.html

`

    VZCZCXYZ0100
    RR RUEHWEB

    DE RUEHQT #0037/01 0262221
    ZNY CCCCC ZZH
    R 262221Z JAN 10
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC 0689
    INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
    RUEAIIA/CIA WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RUEHBJ/AMEMBASSY BEIJING 0008
    RUEHBO/AMEMBASSY BOGOTA
    RUEHBR/AMEMBASSY BRASILIA
    RUEHCV/AMEMBASSY CARACAS
    RUEHGL/AMCONSUL GUAYAQUIL
    RUEHLP/AMEMBASSY LA PAZ
    RUEHMO/AMEMBASSY MOSCOW 0005
    RUEHPE/AMEMBASSY LIMA
    RUEHQT/AMEMBASSY QUITO

` `

    C O N F I D E N T I A L QUITO 000037

    SENSITIVE
    SIPDIS

    E.O. 12958: DECL: 2035/01/26
    TAGS: ECON EFIN SENV ENRG EC CH
    SUBJECT: China cautiously seeks to expand commercial interests in
    Ecuador

    REF: 09 QUITO 1059; QUITO 5; 09 QUITO 934 ...

    id: 245644
    date: 1/26/2010 22:21
    refid: 10QUITO37
    origin: Embassy Quito
    classification: CONFIDENTIAL
    destination: 09QUITO1059|09QUITO934|10QUITO5
    header:
    VZCZCXYZ0100
    RR RUEHWEB

    DE RUEHQT #0037/01 0262221
    ZNY CCCCC ZZH
    R 262221Z JAN 10
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC 0689
    INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
    RUEAIIA/CIA WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RUEHBJ/AMEMBASSY BEIJING 0008
    RUEHBO/AMEMBASSY BOGOTA
    RUEHBR/AMEMBASSY BRASILIA
    RUEHCV/AMEMBASSY CARACAS
    RUEHGL/AMCONSUL GUAYAQUIL
    RUEHLP/AMEMBASSY LA PAZ
    RUEHMO/AMEMBASSY MOSCOW 0005
    RUEHPE/AMEMBASSY LIMA
    RUEHQT/AMEMBASSY QUITO

    ----------------- header ends ----------------

    C O N F I D E N T I A L QUITO 000037

    SENSITIVE
    SIPDIS

    E.O. 12958: DECL: 2035/01/26
    TAGS: ECON EFIN SENV ENRG EC CH
    SUBJECT: China cautiously seeks to expand commercial interests in
    Ecuador

    REF: 09 QUITO 1059; QUITO 5; 09 QUITO 934

    CLASSIFIED BY: Heather M Hodges, Ambassador, Department of State,
    EXEC; REASON: 1.4(B), (D)

    Summary

    ------------

    ¶1. (C) China's Ambassador to Ecuador, Cai Runguo,  told Ambassador
    January 15 that the PRC is moving forward with negotiations with
    the GoE on financing various commercial projects, but that
    Ecuadorian President Correa's criticisms of China's tough
    negotiating position had caused some concern in Beijing.  It
    appears the GPRC-GoE negotiations over the $1.7 billion Coca Codo
    hydro project are progressing, although it is still unclear whether
    Correa will accept China's standard commercial loan conditions
    (particularly access to international arbitration).  Cai noted he
    was confused by the GoE's efforts to strengthen ties with Iran,
    asked whether Correa's frequent criticism of the U.S. was
    ideological, and mentioned that China is maintaining good and
    economically beneficial relations with Venezuela.  Clear from Cai's
    remarks and those of other Chinese officials, China believes it has
    significant economic interests in Ecuador, but is moving cautiously
    in talks with a GoE government that it does not seem to fully
    trust.  End Summary.

    Correa's Comments Disconcerting

    ---------------------------------------------

    ¶2. (C) Chinese Ambassador Cai Runguo called on the Ambassador in
    her office on January 15, at Ambassador Cai's request.  Ambassador
    Cai was accompanied by his political officer, Tiefei Xu.  Embassy
    DCM also sat in.  Ambassador Cai expressed interest in a range of
    U.S.-Ecuadorian bilateral issues, as well as Obama administration
    policy towards Latin America, but was open to discussing Chinese
    issues in Ecuador and Venezuela.

    ¶3. (C) Ambassador Cai indicated that China was disconcerted by
    Correa's verbal attack in December 2009 over China's negotiating
    position for loans to Ecuador, in which Correa alleged that even
    the IMF had not treated Ecuador as poorly as did China (Ref A).
    According to local press reports, Ecuadorian Finance Minister
    Viteri traveled to China in mid-January 2010 to negotiate various
    credits with the PRC government.  Cai confirmed that
    Chinese-Ecuadorian loan/investment agreements were proceeding, but
    argued that China was "substantially" maintaining insistence on the
    guarantees that Correa found objectionable and had complained about
    publicly during his December remarks.  Later in the conversation
    Cai also expressed China's unhappiness with Ecuador's continued
    maintenance of safeguard tariffs, and concern over when they would
    be lowered.

    ¶4. (C) The focus at the moment is a 1.7 billion dollar loan from
    China's export-import bank to construct the Coca-Codo Sinclair
    hydroelectric project.  If terms can be agreed on that loan, Cai
    said there is another one billion dollar loan from China's
    development bank, for projects yet to be defined.  As part of the
    arrangement, the GoE has designated the Chinese firm Sinohydro as
    the chief contractor on the Coca-Codo project.  China's agreements
    stipulate bilateral negotiations first in the event of disputes,
    but then provide recourse to international arbitration. China is
    "still negotiating" this clause with Ecuador.  (Ecuador's new
    constitution bars the GoE from entering into contracts that include
    international arbitration, and the GoE has publicly announced its
    intention to terminate most of its Bilateral Investment Treaties,
    including with the U.S., mainly because they allow dispute
    settlement via international arbitration mechanisms.)

    ¶5. (C) Ambassador Cai said that Correa does not seem to understand
    that China is negotiating "commercial deals" with Ecuador, similar
    to deals with other countries, and that China would not want to set
    a concessionary precedent for other countries.  In general, Cai
    said Correa wants Chinese investment in Ecuador, in petroleum,
    mining, telecommunications and infrastructure. China is "studying
    the investment situation."  Ecuadorian Press quoted Finance
    Minister Viteri on January 13, from China, stating that the GoE had
    signed a memorandum of understanding on a loan from China's
    Export-Import Bank to finance Coca-Codo.  Although she acknowledged
    that talks were still ongoing, GoE sources commented that the MOU
    represented the end of the difficult phase of the talks.

    Interest in Exploiting Yasuni ITT oil reserves

    --------------------------------------------- -------------

    ¶6. (C) Prompted by the Ambassador's query, Cai stated that "all"
    petroleum companies were interested in developing the Yasuni-ITT
    petroleum field if conservation initiatives fell through.  (See
    Refs B and C for background on Yasuni ITT and the recent political
    crisis it caused in Ecuador, including the resignation of Foreign
    Minister Falconi.)  Cai mentioned that Russia was interested in
    Block 31 in Ecuador, which is in the Yasuni National Park and next
    to the ITT block.  (PetroBras previously held the Block 31
    concession but returned it to the GoE.)  According to local press
    reports, PetroEcuador consulted with foreign oil companies,
    including Chinese oil company SINOPEC, on the possible exploitation
    of Yasuni ITT as recently as 2008.

    ¶7. (C) The Ecuadorian government had also solicited Chinese
    involvement in building the Refinery of the Pacific, a joint
    initiative of Venezuelan President Chavez and Correa.  However,
    Ambassador Cai pointed out that if Chavez goes from power, would a
    subsequent government continue with crude deliveries?  If
    Yasuni-ITT were developed, Cai seemed to believe that could change
    the calculus for the Pacific Refinery.  (Ecuadorian press report
    that the South Korean company SK Group is slated to build the $12.5
    billion refinery, and that Deutsche Bank and China's Export-Import
    Bank are considering providing up to $5 billion in financing
    between them.)

    Skepticism over GoE Interest in Developing Manta as Aviation Hub

    --------------------------------------------- ----------------------
    ---------------------

    ¶8. (C) Ambassador Cai said that Correa had twice asked China to
    look at investing in Manta (site of the former-U.S. Forward
    Operating Location) as a transportation node, but Cai said that
    Chinese companies were neither interested nor experienced in such
    an overseas project.  Cai evinced skepticism over Correa's concept
    of a Manta-to-Manaus transportation link.  When Cai suggested
    Russia might be interested in Manta after Correa's Russia trip, the
    Ambassador noted that Russian ambassador Yan Burliay had told her
    that Russia's interest in Manta at this point was merely as an
    aviation stop for airplanes picking up flowers at Latacunga in the
    mountains, then proceeding to Manta on the coast to load shrimp and
    bananas.

    Ecuador's Relationship with Iran and the U.S.; China's Growing
    Relationship with Venezuela

    --------------------------------------------- ----------------------
    --------------------------------------------- ---------

    ¶9. (C) Ambassador Cai asked what the U.S. thought of Ecuadorian

    relations with Iran; what was the benefit to Ecuador?  He said he
    had asked this of the Ecuadorian Foreign Ministry, which replied
    that "various economic projects" were the benefit.  The Ambassador
    noted our principal concern was Ecuador's budding relationship with
    an Iranian Bank that had been designated by the USG for
    facilitating proliferation of WMD.

    ¶10. (C) Ambassador Cai said that China's relations with Venezuela
    were good, citing a joint development fund with two-thirds Chinese
    capital.  The fund originally was for $8 billion, but after Chavez
    requested a doubling, was raised to $12 billion.  Credits from the
    fund are guaranteed by petroleum.

    ¶11. (C) Cai asked whether Correa's frequent criticism of the U.S.
    stemmed from ideology, and the Ambassador answered, yes.
    Ambassador Cai nodded and said, "but he is different from Chavez."
    He opined that Correa has substantial support in Ecuador but
    appears to be losing the middle class.

    China's Rapidly Increasing Commercial and Investment Ties with
    Ecuador

    --------------------------------------------- ----------------------
    ------------------------------

    ¶12. (C) China has already shown itself willing to make large deals
    in Ecuador (as it also appears to be doing in other oil-producing
    states in the region, particularly Venezuela).  In July 2009, the
    two countries announced a four-year oil sales deal, under which
    China providing a $1 billion advance payment.  The terms of the
    deal reportedly favored China.  Ecuadorian press reported that
    during the November 2009 visit of Jia Qinglin, Chairman of the
    Chinese People's Political Consultative conference (CPPCC) national
    Committee, the two countries announced the signing of three
    cooperation agreements, including an arrangement to buy Chinese
    military planes for Ecuador's Air Force.  This was on top of the
    January 2009 $60 million deal to purchase an air defense radar
    system from the China Electronics Technology Group Corporation.
    During his visit, Jia reportedly emphasized the benefits that China
    sees in enhancing economic cooperation between the two countries.
    He encouraged Chinese companies to increase commercial and
    investment ties with Ecuador, noting that Chinese investment in
    Ecuador had reached $2.2 billion and also that two-way trade in
    2008 was almost $2.5 billion, 50% above 2007 levels.

    Comment

    -------------

    ¶13. (C) Faced with a $3-4 billion (or higher) fiscal deficit in
    2010, and with no ability to print money or issue debt, and no
    intention of returning to the IMF or World Bank, the GoE is
    desperate to find large-scale financing from non-traditional
    sources.  Its efforts to date with Russia and Iran have been a
    bust, but China has proven a more willing, if demanding, source of
    both financing and investment.  Successful conclusion of the Coca
    Codo talks would further increase the importance of China to
    Ecuador.  However, faced with the often counterproductive public
    comments of President Correa and a complex investment climate
    resulting from the new constitution and apparent GoE ambivalence
    about attracting foreign investment, the GPRC is moving cautiously
    and making sure to negotiate terms favorable to China.
    HODGES

    =======================CABLE ENDS============================

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