The Free Trade Agreement (FTA) between Ecuador and China would mark a historic milestone for our country as the first trade agreement with an Asian nation. Currently, the agreement is undergoing review and approval by the National Assembly. The Central Bank of Ecuador (CBE), exercising its technical autonomy, issues the following analysis on the trade relationship with China. The objective of this trade agreement is to encourage the expansion and diversification of trade between both countries and promote sustainable development of Ecuadorian economy. This would be achieved by granting access to national products to a market consisting of approximately 1.4 billion consumers, with an estimated annual per capita income of USD 19 841 by purchasing power parity[1], according to the International Monetary Fund (IMF)[2]. It is worth noting that, according to estimates from the same organization, by 2024, China’s economic activity would grow by 4.2%, and this dynamism would be maintained around 3.8%, on average, for the period 2025-2028. This figure is higher than the estimated average for the world economy (3.2%) and advanced economies (1.8%).
The analysis of the cumulative trade balance from January to November between these two countries for the period 2016-2023 shows a deficit result for Ecuador; however, it has decreased from USD -2.1 billion in 2016 to USD -244 million in 2023 (Figure 1), primarily driven by the improved performance of exports such as shrimp and mining products compared to imports.
Figure 1. Evolution of the total trade balance, petroleum, and non-petroleum trade between China and Ecuador
In millions of USD, accumulated from January to November 2016-2023
Source: Central Bank of Ecuador
Note: The figures consider China as the country of origin in imports
According to the most recent figures, between 2019 and 2021, China emerged as the second-largest destination for Ecuador’s non-oil exports. Starting in 2022, the Asian country took the top position in this ranking, surpassing the United States, a country that historically held this position (Figure 2). Thus, the significance of the Chinese market for the country’s exportable goods is emphasized.
Figure 2. Ranking of the main destination countries for Ecuador’s non-oil exports
Ranking based on FOB value, 2018-2023
Source: Central Bank of Ecuador
During the period 2016-2023, Ecuador’s cumulative exports from January to November to China averaged USD 2.84 billion. In these months of 2022, exports to this Asian market reached a historical record of USD 5.38 billion. In 2023, these exports maintained a high level, standing at USD 5.29 billion, representing a decrease of 1.6% compared to the previous year.
Regarding the main non-oil export products to China, it is evident that shrimp has shown a significant increase, as its share rose from 13.3% between January and November 2016 to 67.9% in the same period of 2023 (Figure 3). Likewise, the external sales of lead and copper concentrates averaged USD 1.11 billion between January and November 2022-2023, whereas in the same months of 2016-2020, they reached an average of just USD 180 million.
Figure 3. Evolution of exports to China by main product
In millions of USD, accumulated from January to November 2016-2023
Source: Central Bank of Ecuador
In order to grasp the significance of China for Ecuador’s exports, Figure 4 illustrates that, between January and November 2023, 54.0% of total shrimp exports were destined for the Chinese market. A similar situation occurs with mining products (71.0%), balsa and conifers (62.0%), and fishmeal and fish oil (58.4%).
Figure 4. Evolution of exports to China by main product
In millions of USD and percentage, accumulated from January to November 2023
Source: Central Bank of Ecuador
Regarding imports from China, between January and November 2023, this category reached USD 5.54 billion, representing a decrease of 5.5% compared to the same period of the previous year.
Among the main imported products by subgroup classification according to use or economic destination (CUODE), noteworthy items include: mining products for industry, chemical and pharmaceutical products, industrial machinery, other fixed equipment for the industry, and private transport vehicles. According to Figure 5, the first three mentioned subgroups have shown significant growth between 2021 and 2023. Meanwhile, imports of other fixed equipment for the industry and private vehicles maintained their growth trend in 2023, surpassing the value imported in the previous year.
Figure 5. Evolution of China’s main import products by CUODE subgroup
In millions of USD, accumulated from January to November 2016-2023
Source: Central Bank of Ecuador
When analyzing exports and imports to and from China by Technological Intensity Grade (GIT), there is evidence of complementarity between both economies, as the Asian country is deficient in products in which Ecuador has a surplus (Figure 6a). For example, between January and November 2023, 97.7% of the total value exported to China corresponds to primary goods, while imports from China mainly consist of low, medium, and high-tech manufactures (Figure 6b).
Figure 6. Exports and imports by Technological Intensity Grade
(a) Exports
Percentage share, accumulated from January to November 2016-2023
Source: Central Bank of Ecuador
(b) Imports
Percentage share, accumulated from January to November 2016-2023
Source: Central Bank of Ecuador
The figures analyzed above demonstrate the importance of China as a strategic trading partner for Ecuador. It is essential to highlight that this Free Trade Agreement (FTA) includes preferential access to the Chinese market for approximately 99.6% of the products that make up Ecuador’s exportable offer, such as shrimp, bananas, cocoa beans, flowers, among other products, mainly from the primary sector.
Moreover, exporting entities are mostly (approximately 71%) composed of micro, small, and medium-sized enterprises, organizations of the Popular and Solidarity Economy, and artisans. Likewise, this trade agreement would allow access for Ecuadorian products with high export potential, such as frozen meats, yogurt, dairy products, pitahaya, guavas, among others.
Additionally, this agreement safeguards sensitive industries of the Ecuadorian economy, such as textiles and apparel, white goods, metalworking, wood and furniture, school and apparel footwear, plastics and ceramics, represented through the exclusion of 828 products. Similarly, a gradual tariff reduction is considered over a period of up to 20 years for other moderately sensitive products, including vehicles, household items, meats, among others.
According to estimates by the Ministry of Production, Foreign Trade, Investments, and Fisheries, in the first year of the agreement’s implementation, exports would increase by 22.8%, and imports by 39.1%. Until 2030, an average growth of 8.4% in Ecuadorian exports and 7.8% in imports is expected. Therefore, the Monetary Policy and Regulation Board and the Central Bank of Ecuador consider that the Free Trade Agreement with the People’s Republic of China is a significant opportunity for economic growth and sustainable development for our country.
[1] In international dollars of 2017. International dollars are a metric used to compare the national production of different countries more accurately, taking into account differences in the cost of living and price levels in relation to the United States.
[2] According to October 2023 IMF report titled “World Economic Outlook.”
