Ecuador's “China boom” encompasses investment, finance and trade and is overwhelmingly concentrated in the oil sector. Ecuador has established a top-level legal framework to limit the social, environmental and economic risks associated with this sector, although this framework is facing increasing pressure from a diverse array of interests. After an examination of the Ecuadoran economy and its general engagement with China, this chapter performs a case study on the experiences of Chinese state- owned Andes Petroleum and PetroOriental, in order to draw lessons for future Chinese investments for the upcoming expansion of Andes Petroleum's concessions into the Ecuadoran Amazon – an expansion that may test both Ecuador's legal framework and Andes's corporate goodwill.

We find that the record of Andes Petroleum and PetroOriental shows they have had relatively positive experiences in Ecuador to date when compared to other domestic and foreign- owned firms in the sector. However, the social and environmental landscapes in the new concession zones are vastly different from where these firms are currently located. Furthermore, this expansion is the first new concession under Ecuador's recent law on prior consultation, and problems have already arisen as to how the law has been applied. How the government, Andes Petroleum and civil society handle this situation will determine whether the Ecuador– China relationship becomes a model of responsible oil production or whether it will betray the vision behind Ecuador's impressive legal framework. Special attention should be paid to transparency and public accountability for all actors involved: government, civil society and the oil companies themselves.

Instruction: Ecuador, Oil and the Challenge of Diversification

Oil has been paramount in Ecuador's economy since its discovery there in the 1970s. It quickly displaced bananas as the country's most important export, as Figure 4.1 shows, and has dominated exports ever since. In 2012, petroleum exports represented nearly 60 percent of all exports and over 10 percent of national GDP.