Belt & Road fuels growth in Chinese security, insurance industries

By Alessandro Arduino Source:Global Times Published: 2017/7/11 19:20:58

The Belt and Road initiative (BRI) launched by Chinese President Xi Jinping in 2013 is gaining momentum. It aims to promote economic development and exchanges between China and more than 60 countries. The BRI is not immune, however, to a number of important risks that in many instances are new to Chinese companies operating abroad.  

While the volume of Chinese overseas investment has increased eightfold in the last decade, the amount of Chinese funds dedicated to the BRI is unprecedented. One oversight that must be addressed is that the BRI requires a wide range of security considerations along both the maritime and land routes.

Chinese corporations acknowledge that the risks associated with outbound direct investments in emerging economies carry a failure rate due to intertwined factors such as economic crises, conflict, civil unrest, assets nationalization and currency devaluation, just to name a few. At the same time the Chinese SOEs, due to their public nature and commercial capacity, have the tendency to blur the lines between commercial and political factors. Consequently, they tend to rely too optimistically on Beijing's support in case of a crisis.

The government support to the BRI is a long-term guarantee of the Chinese will to sustain infrastructure development and connectivity, promoting sustainable development. It does not mean that Beijing will pick up the bills of unrealizable projects. China has already showcased an increasing crisis management capability in the evacuation of Chinese nationals from dangerous zones, as in Libya in 2011 and more recently in Yemen. Nevertheless, micro crisis situations cannot be addressed all the time by central government intervention.

Separatism and insurgency are primary variables in the risk assessment equation, but their value is often overestimated without taking into account local problems ignited by the influx of Chinese capital and workers. The impact of Chinese infrastructure projects in local communities could alter the internal dynamics of power and wealth, creating a new breed of winners and losers. Security is dynamic not static.

Beside the mandatory initial project assessments, Chinese corporations investing along the BRI need to continuously monitor the project effects among stakeholders. The Chinese energy and IT sectors have a high-level ability to produce accurate, on-going risk assessments and contingency planning. This ability to understand threats needs to be matched by the other Chinese SOEs.

A new driver in risk mitigation is coming from the Chinese insurance and private security sectors. With the need to underwrite timely deliverance of infrastructure along the BRI, the growth of the loss avoidance sector in the insurance industry is promoting the employment of capable Chinese private security corporations and risk management best practices. Central government support, combined with the insurance sector's stimulus to secure the timely delivery of projects, will foster a better understanding of risk assessment, risk transfer and risk mitigation. 

An efficient cooperation model among the relevant Chinese governmental agencies, including the SOEs and the private security sector, is a feasible solution to sustain the BRI win-win outcome. The opportunity, if addressed with the appropriate measures, will successfully mitigate the risks to the BRI. 

The author is co-director of the Security and Crisis Management Program at the Shanghai Academy of Social Sciences.

Posted in: VIEWPOINT

blog comments powered by Disqus