The China Signal - April 4
Las Bambas extension approved in Peru, CWE sues Ecuador, Brazil’s CB increases yuan holdings, Cofco wins major port concession in Brazil
G’day, and welcome to The China Signal. This week, an Ecuadorian audit committee calculates $5 billion in losses sustained by repaying Chinese debt with Ecuadorian oil at below market rates; Peru approves Las Bambas extension; CWE sues Ecuadorian state owned electricity company for $100 million; Brazil’s central bank quadrupled its yuan holdings in 2021; Cofco wins a 25 year concession for a bulk agricultural terminal in Brazil’s Port of Santos; the US Senate Foreign Relations Committee holds a hearing on China's Role in Latin America and the Caribbean; plus more. Read on.
Corruption & Law ⚖️
“Ecuador was harmed by almost 5 billion dollars from an agreement signed by Rafael Correa with China”
~Above for the full Spanish article~
Bribes to Petroecuador officials and the payment of commissions to other intermediaries are allegedly behind “the biggest oil corruption scheme in Ecuador” has ever had, which involves Petrochina, a subsidiary of state-owned China National Petroleum Corporation (CNPC). By paying credits to China with Ecuadorian oil at a very low price, a report by the country’s Comisión de Fiscalización y Control Político (Political Control and Audit Committee) revealed losses in revenue of approximately USD $4.8 billion.
Chinese loans were the main form of financing throughout the Rafael Correa administration (2007-2017), with interest rates over 7%, exceeding rates of other lenders like the International Monetary Fund (IMF). To repay these loans, Ecuador committed to deliver 1,325 million barrels of crude oil to Petrochina International Company Limited, Unipec Asia Co Limited and PTT International Trading Pte Ltd until 2024. This oil was set at a lower price than the international market value: the Comisión estimates a loss of USD $3.60 per barrel across the 1,174 million barrels delivered, which were later resold at current market prices by global banks and private companies.
Since then, the country’s former president Lenín Moreno (2017-2021) has managed to obtain help from the US International Finance Development Corporation in exchange for excluding Chinese companies from its telecom networks (TCS January 15, 2021). Following current President Guillermo Lasso’s meeting with Chinese counterpart Xi Jinping, debt renegotiation talks are expected to resume shortly (TCS February 10). (RP)
Critical Minerals, ESG 🌳
Peru’s Ministry of Energy and Mines (Ministerio de Energía y Minas) has approved an extension to joint-lead (MMG Ltd, International Investment Co Ltd and CITIC Metal Co) Las Bambas copper mine (Cotabambas, Grau province; Apurímac region). Development will affect the Chalcobamba pit, whose location is approximately four kilometers northwest from the original Las Bambas process plant. First production at Chalcobamba is expected in the second half of 2022. Over the next few years, overall copper production is expected to increase from around 380,000 to 400,000 tonnes per annum, with an estimated construction budget of US$130 million. Las Bambas is a key extraction site for the global copper market, already meeting 2% of global demand.
Since operations were started in 2016, protests and road blockades (most recently in early March) have caused Las Bambas to frequently curtail its operations, including for longer periods such as between October and December 2021. After the government’s approval for expansion was announced, new complaints were raised about uncompleted due diligence procedures.
The local Huancuire community said it would take all necessary "legal and social" measures to prevent the development of a second open pit copper mine [and to be] "adamant in pointing out that we will not allow, or tolerate the start of operations.
Most of those living near the mine are indigenous people of Quechua descent and have repeatedly accused the Chinese company of failing to provide enough jobs and money to the region, one of the poorest in Peru, despite the vast mineral wealth.
Later on Friday, March 25, the federal government said in a statement it would send more national police troops to the region, an effort it says will free up the movement of vehicles and people and avoid disruption to regional economic activity. The move is a shift in strategy by the government of leftist President Pedro Castillo, who was attempting to avoid police confrontation with communities in the area.
Background: MMG Ltd.
Minerals and Metal Group Ltd. (“MMG”) has a 62.5% share of the Las Bambas project. MMG is headquartered in Melbourne, Australia, with a focus on zinc, copper, gold and silver.
The company was formed in 2009 following the purchase of the majority of assets of Australia-based OZ Minerals Ltd. by China Minmetals Corporation (CMC) through its subsidiary China Minmetals Non-ferrous Metals Co. Ltd (CMN). CMN currently owns approximately 67.68% of the total shares of MMG, with the remaining 32.32% owned by public shareholders. MMG is listed on the Hong Kong Stock Exchange.
Other notable active projects include Democratic Republic of Congo’s Kinsevere (copper) and Australia’s Dugald River (zinc) and Roseberry (zinc, copper and lead concentrates) mines. (RP)
“Toachi Pilatón: a Chinese company sues Ecuador for USD 100 million”
~Above for the full Spanish article~
State-owned contractor China International Water & Electric Corporation (CWE) has sued Ecuador's state-owned electricity holding company Corporación Eléctrica de Ecuador (CELEC) for 100 million USD, due to alleged breaches in the contract for the construction of the Toachi-Pilatón hydroelectric power plant.
Earlier this month, CELEC had declared the "unilateral termination of the contract" with CWE for not having delivered the decade-long works on time and having detected “several flaws, such as cracks, settlements and functionality problems”.
97% of the original 254.4 megawatts-power project has been completed. Full-scale operating hydroelectric complex is expected to cover four times the total energy demand of the province of Santo Domingo de los Tsáchilas, which represents 6% of the annual national consumption and it is located 80 km southwest of Quito.
Background: China Water & Electric Corporation
China International Water & Electric Corporation (“CWE”) is a Chinese listed subsidiary of state-owned China Three Gorges Group. It focuses on the design, contracting and consultancy of international hydropower projects under a clean-energy globalization strategy.
CWE was established in 1983, becoming one of the first state-owned corporations approved by China State Council to undertake international contracting projects. It currently runs 32 branches worldwide with 19 projects between Africa, Central, Southern and South-Eastern Asia and Latin America. Within Latin America, another notable site is the San Gaban III Hydropower Station in Peru (Carabaya province; Puno region). (RP)
Brazil's central bank more than quadrupled its foreign reserves in Chinese yuan last year, policymakers reported on Thursday, as it trimmed holdings of U.S. dollars and euros and built Brazilian reserves of currency from its biggest trade partner.
The Chinese currency, which until 2018 was absent from the forex reserves of Latin America's largest economy, rose to 4.99% of Brazilian central bank holdings at the end of last year, from 1.21% at the end of 2020.
That gave it the third largest share of the central bank's reserves, slightly behind the euro, which fell to 5.04% last year from 7.85% in 2020. Dollar reserves fell to 80.34% of the total from 86.03% a year earlier.
The shift underscores China's growing economic importance to Brazil, where it represents 28% of international trade, more than twice the United States, its next largest trade partner, World Bank data shows.
Cofco International said on Wednesday it had won a 25-year concession for an agriculture bulk terminal at Brazil's Port of Santos, expanding its footprint in the world's top soybean exporter.
The STS11 terminal will be fully operational in 2026, Cofco said in a statement. The terminal will help expand Cofco's port capacity in Brazil to 14 million tonnes.
Broader Latin America and the Caribbean 🏝🏔
United States 🇺🇸 + China 🇨🇳
Last Thursday, the US Senate Foreign Relations Committee held a hearing on China's Role in Latin America and the Caribbean. During the hearing, Biden administration officials such as Deputy Assistant Secretary of State for the Western Hemisphere Kerri Hannan spoke of China’s “engagement” with the region as one of America’s “most pressing challenges,” one that requires close cooperation between Congress and the administration, as well as allies and partners. Officials such as Hannan differentiated themselves from the Trump administration’s rhetoric by stressing that the US would not respond to this challenge “by trying to force countries to choose between the United States and China, but rather by proving that we are better partners committed to advancing shared interests and values.” Yet the administration’s concerns were clearly laid out, as Peter Natiello, Senior Deputy Assistant Administrator for USAID’s Latin America Bureau, argued: “We are concerned about the coercive, exploitative, and predatory tactics that the PRC often employs.”
Experts also provided discerning perspectives on how the US should respond to China’s growing economic influence in the region, some with more securitized perspectives than others. Margaret Myers, Director of the Asia and Latin America Program at the Inter-American Dialogue, argued that while concerns exist, “the US must tread carefully when applying pressure on LAC governments to limit economic options and partnerships with China, noting that doing so, even when a viable alternative is provided, will in many cases be viewed not as helping, but as harming LAC development prospects.” (IA)
Illegal, Unreported or Unregulated Fishing 🎣
Experts estimate that 30 percent of the garbage collected on the [Galápagos Islands’]… shores come from the Chinese fleets that fish off Ecuador’s coasts, Juan Pablo Muñoz-Pérez, a biologist at Ecuador’s San Francisco de Quito University, said in a February 14, 2022 study on environmental website Mongabay.
Researchers and fishermen find Chinese-labeled containers in good condition, with current expiration dates. “Trash from Peru and Ecuador is carried by sea currents from the mainland, but it’s almost impossible for particles to reach Galápagos from China, floating against the current,” Muñoz-Pérez said.
Plastic [was found] in fish guts, iguanas and sea lions trapped in garbage, and turtles suffocated by plastic bags. According to information Galápagos National Park published on Twitter, during a single cleanup day on February 12, 100 volunteers collected 820 kilograms of garbage in the park.
Source: Galápagos National Park
A UNESCO world heritage site, the Galápagos archipelago and its ecosystem are acutely threatened by foreign-flagged jiggers. Between September-November, and February-April every year, local waters thrive with abundant giant squid stocks. The waters also fill with Chinese-based fishing flotilla, looking for an alternative to depleted stocks in its territorial waters. Chinese vessels have been increasingly found in the Galápagos’ Economic Exclusive Zone (EEZ), whose extension is 200 nautical miles (370 kilometers) from the islands. For further background, refer to TCS March 26, and IUU off the Argentinian coast in TCS June 5 and July 2.
Close monitoring of the situation has repeatedly called for stricter international laws and their enforcement, as vessels were found to have a history of convictions for illegal fishing, and maritime law violations, such as deliberately switching off satellite communications and changing their ship’s name. Last year Panama, Ecuador, Colombia and Costa Rica created the Eastern Tropical Marine Corridor (CMAR) initiative (TCS November 5) to combat IUU. Ecuador also sought US help while discussing a debt swap arrangement (TCS November 19).
Notwithstanding CMAR and similar initiatives, enforcement still does not come easily for countries like Ecuador and their peers in the south eastern Pacific since “Chinese boats that do fish commercially are often escorted by armed coast guard vessels”. More broadly, increased animosity at sea has been registered. In the past five years:
An Associated Press review of conflict databases compiled by non-governmental organizations, government tallies, and media reports found more than 360 instances of state authorities ramming or shooting at foreign fishing boats, sometimes leading to deaths.
During that same time, another 850 foreign fishing boats were seized by authorities and systematically crushed, blown up, or sunk. The figures cover incidents across six continents but are likely an undercount since no single entity tracks violent conflicts over fishing rights worldwide. Analysis did not include routine citations and arrests either.
Environmental and national security experts say countries that depend on fishing both as a source of food and commerce are at risk of greater conflict in the coming years. (RP)
Media 📰 📺
This report - the third of its kind - surveyed 418 working journalists in three of China’s high-priority investment and infrastructure locations, Kenya, Peru, and the Philippines. Overall, it concluded that overt ambassadorial gestures and direct pressure on local journalists are not common. However, attempts to influence international perceptions via ‘vaccine diplomacy’ and investment in expanding Chinese media networks in international markets appears to be thriving.
Relatively new ties between China and Peru seem to give local journalists a different, lower perception of China’s visible presence and influence in the Andean country’s media outlets compared to those of Kenya and the Philippines. (MH, RP).
The report provides good background on Chinese media in Peru:
In 2016, the National Institute of Radio and Television of Peru (IRTP, in Spanish) signed two agreements - with China’s State Administration of Press, Publication, Radio, Film, and Television, and with CCTV (now CGTN), emphasizing joint collaboration in four areas: news exchange; co-production and non-newsworthy content swaps; technological cooperation; and, personnel training.
Historically, the Chinese embassy in Lima has maintained close personal relationships with several well-known journalists, including editors-in-chief, television anchors, and opinion leaders, and are active in inviting journalists on free visits to China. [Moreover], as early as 2012, Diario Oficial El Peruano, the state-owned official newspaper, started to publish China specials with up to three paid publications inserted into the newspaper on any given day.
Under their agreement, IRTP has committed to assist CGTN in eventually setting up a permanent “delegation” in Lima, which would encompass a local news bureau and provide a base for executives charged with additional duties. Currently, CGTN’s only presence in Peru is an English-speaking freelance correspondent who reports to CGTN’s English-language news service in Washington DC, and Xinhua employs just five reporters, camera operators and photographers in Lima. The only other official Chinese media outlet in the country is China Hoy (China Today), which has been printed by the state-owned publishing corporation Editora Perú since 2009 and whose single representative in Peru also organizes cultural events on behalf of the Chinese embassy. China Hoy has been successful in having op-eds of high-ranking Chinese officials published in the Peruvian press, including El Comercio.