New frontiers present new risks

China’s Belt and Road (B&R) initiative is inspiring a new philosophy surrounding multinational people risks, explains Jon Gregory.

In May 2019, terrorists waged an attack on a five-star hotel in the port city of Gwadar in Pakistan, targeting Chinese and other foreign infrastructure investors. The port city of Gwadar is at the epicentre of B&R’s China-Pakistan Economic Corridor (CPEC), which launched in 2015. CPEC involves the expansion of Gwadar as part of a $10bn China-led investment.

That incident highlights some of the ongoing controversies and people risks surrounding China’s highly-ambitious $1tn B&R investment. China has described CPEC as the “fastest and most effective” of its B&R projects to date. Demonstrating the importance of the project, Pakistan has itself deployed 15,000 military personnel to protect Chinese nationals and other international workers involved in CPEC projects. The number of attacks on Chinese nationals has increased since the Chinese investment footprint started to get traction in 2016.

According to AIG’s risk consultancy partner NYA, companies involved in B&R projects face a range of threats – not just terrorism, but also kidnap, crime and political violence. It is clear that the risks to human capital go beyond straightforward security concerns, requiring a collaborative and innovative response from an insurance and risk consultancy perspective.

21st century Silk Road
It is difficult to gauge the true extent of the B&R Initiative, consisting as it does of thousands of energy, construction and infrastructure projects. Arguably the most significant macroeconomic scheme ever embarked upon, China has committed to contributing $150bn a year to projects in as many as 78 countries (which collectively account for 65% of the world’s population).

The aim is to improve China’s trading routes and influence the creation of a new world order by constructing a ‘belt’ of overland corridors and a maritime ‘road’ of shipping lanes and ports. It has been five years since President Xi Jinping announced the inception of China’s vast 21st century Silk Road. With more than 1,700 projects complete or near completion and thousands more in the pipeline across Asia, Africa and into Europe, the complex people risks inherent in B&R are increasingly apparent.

Source: Mercator Institute for China Studies

There are inherent uncertainties and perils when entering new territories, amplified by the fact that the B&R ecosystem encompasses some of the world’s least-developed nations. “Protecting Chinese citizens and assets abroad is also becoming an increasing focus and concern of the Chinese government,” notes the RAND Corporation, in research published last year. “Many Chinese abroad are travelling or working in unstable or unsafe developing countries. In 2011, China rescued 47,000 Chinese abroad, of which more than 35,000 were workers in Libya.”

According to NYA’s most recent threat assessments, the risk of kidnap for ransom, crime, extortion and corruption, and terrorism is ‘severe’ or ‘substantial’ (meaning the likelihood of an incident is almost certain or probable, respectively) in parts of Asia, the Middle East and Africa affected by B&R. An influx of Chinese nationals and other international workers involved in B&R land-based projects in participating nations “will invariably increase their threat exposure”, it warns.

A total of 30 notable incidents involving Chinese nationals have already been identified since 2007, across 15 different countries. This includes the murder of three Chinese nationals in their apartment in Kabul, Afghanistan in August 2013; the explosion of a suicide car bomb outside the Chinese embassy in Bishkek, Kyrgyzstan in 2016; an armed attack on a Chinese consulate in Karachi, Pakistan in 2018, in which seven local guards were killed; and the kidnap of three Chinese nationals working at a thermal power plant by members of the PKK in Sirnak, Turkey in 2017.

NYA further states: “The perceived status of Chinese workers is likely to incentivise opportunistic and financially motivated crimes such robberies, petty extortion and kidnap for ransom. Controversial Chinese-led business projects around the world have previously led to civil unrest directed against Chinese interests and government officials. Incidents of this nature will likely continue to occur with varying intensity in B&R-participating nations.”

The risk from Islamist terrorism remains elevated in a number of Arab League nations, due in part to the areas becoming increasingly fragmented, with fighters travelling and returning from war-torn countries. There have already been a number of incidents where militants have abducted foreign nationals for ransom and, in some cases, have killed hostages after failing to obtain a ransom. “Such incidents will remain a concern in the long term, particularly in volatile areas in the Middle East, as well as in Pakistan and Afghanistan,” according to NYA.

The China-Pakistan Economic Corridor. Source: Business Standard

The Middle East and Horn of Africa are located in the middle of the B&R land and maritime routes, with China recognising the potential for instability to derail its plans for Eurasian connectivity. In 2018, the Chinese government committed $23bn in loans earmarked for infrastructure and reconstruction projects, with the aim of supporting social stability. Beijing wants to “become the keeper of peace and stability” in the region, according to China’s President Xi.

A new sensitivity to people risk
In the past, Chinese state-backed firms self-managed their personnel security risks, or looked to government support when operating overseas. This has increasingly proved insufficient, according to RAND, which questions the role of the Chinese armed forces in providing security for B&R, noting that “many experts do not believe the PLA [People’s Liberation Army] is yet capable of protecting Chinese interests beyond the borders of the PRC”.

In his book, Securing the Belt and Road Initiative, Alessandro Arduino raises the concern that without the proper security market knowledge and evaluation of risk, Chinese state-owned enterprises are prone to (mistakenly) choose the cheapest available option, “focusing solely on the price of security services and not the quality of the output”, due to their narrow profit margins.

But AIG is seeing a shift in philosophy when it comes to protecting workers and assets abroad, in its discussions with Chinese multinational clients. This includes the increased use of external international security consultants, as organisations working along B&R routes seek to address their security concerns more effectively. There is recognition that if not adequately addressed, people risk exposures can have serious implications from a business interruption, brand and liability perspective.

Our role as an insurer and risk adviser is to understand the environments in which our clients (Chinese and non-Chinese) are operating and the very real threats they face. For projects of the scale and complexity of B&R, insurance partners require depth and experience involving comprehensive solutions via insurance or general consultancy. It is not possible to simply rely on kidnap and ransom insurance or traditional business travel products – intelligence-led crisis response services offering broad security protection, crisis management, evacuation and medical assistance are also required.

AIG’s Global Trade Series event in June in Shanghai, ‘China and the future of the global economy’, examined many of these risk issues relating to the B&R and wider global trade. Find out more here:

Contributed by Jon Gregory, head of crisis solutions, AIG

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