Full coverage: 2015 Boao Forum
By Zheng Gang, business risk management expert, a member of the One Belt One Road research team of the Research Center under the State-owned Assets Supervision and Administration Commission of the State Council
The strategy for the One Road One Belt was one of the most-frequently discussed topics during the year-end Central Economic Work Conference, at the recent closed two sessions of the National People’s Congress and Chinese People’s Political Consultative Conference and the current Boao Forum for Asia.
Governments, research institutes and companies feel both challenged and excited by this grand strategic conception with implications for the next 30 years of China’s development. Going global is something of an inevitable trend, but can it be achieved smoothly? If so, can investment and talent return after going global? One of the important keys may be appropriate risk assessment and control.
Just taking the Silk Road Economic Belt as an example, this involves several war-torn countries as well as some lesser-risk countries. Extremism and terrorism frequently blight some of these nations. Many are undergoing political and social transformations and lack an ordered market, mature legal or sound business environment. Religion and nationalism play critical roles in their politics and society.
Chinese companies stepping out the 21st Century Maritime Silk Road or Silk Road Economic Belt might face highly complex and diverse risks including:
1. major political/policy changes by the host nation;
2. religious/nationalist wars and/or civil strife;
3. government nationalization and expropriation;
4. third-country intervention;
5. government withdrawal of cooperative support;
6. discrimination against market access, including trade barriers and invisible investment;
7. breach of contract and/or delayed company payments;
8. commercial trade fraud; and,
9. organized crime and terrorism-related risks to the safety of employees and facilities of Chinese companies.
It is thus an urgent priority for the Chinese government and companies to assess, forecast and control such potential risks. To some extent, controlling the risk depends directly on the implementation and survival of the Belt and Road initiative.
The Chinese government has already realized its importance. The Ministry of Foreign Affairs has set up a global emergency call center for consular protection and services. The Ministry of Commerce has issued a series of normative documents including Overseas Risk Warning on Foreign Investment and Cooperation, An Early Warning and Information Release System and Guidelines for Safety Management of Overseas Chinese-funded Enterprises. Some policy-based institutions like the China Export & Credit Insurance Corporation enhanced their support for companies seeking to globalize. The China International Contractors Association has established an overseas security platform.
It is fair to say that the Chinese government has made fruitful efforts in helping Chinese companies globalize. But the feedback from these companies indicates there are still areas of dissatisfaction with regard to overseas risk control:
1. Policy-based risk assessment focuses overly on the macro-level politics, economics and society of host countries instead of the localizing companies;
2. Policy-based risk monitoring information mostly comes from official and public channels. But there is no risk monitoring for local communities where the investments are made and often involving non-governmental organizations. For many Chinese companies working overseas, this local angle is the key to preventing a problem from possible upgrading into a crisis;
3. Early risk warning is not early enough and is sometimes even unavailable. Chinese institutions overseas cannot provide early crisis warning and monitoring services for specific companies. Thus overseas Chinese companies are in certain cases not informed timely about the crisis signals.
4. Official Chinese agencies overseas tend to focus on government-oriented diplomatic mediation rather than communicating with local non-governmental organizations. Their countermeasures tend to be simple or single. Crises over the last few years have been directly related to social and cultural differences within the host countries as well as improper communication between a Chinese company and the local community, labor union and non-governmental environmental organization.
5. For many reasons, the central state-owned enterprises overseas communicate with official agencies abroad more smoothly than most private companies (with the exception of a few stellar private firms). The private firms have far less information support and assistance in communication with host countries. This is an important reason why many private companies fail to respond to risks in a timely and effective manner.
For obvious reasons, governmental and semi-governmental organizations tend to provide general public service, instead of supplying tailored risk assessment and information support to specific companies.
Therefore the most realistic solution is to introduce market forces that make companies take more responsibility for their own risk control as well as seeking professional consultation. In fact many advanced European and American governments and companies have already done this.
On the one hand, they establish professional departments for risk control and internal security investigation to ensure risk monitoring, evaluation and analysis at company level. On the other, they permit private risk-management, security and intelligence subcontractors of a relevant professional background, competence and complex strategic awareness to address and solve specific overseas risks.
This proven operating mode ensures justified use of professional public relations within a systematic legal framework and ordered market that eliminates conventional threats to large local companies overseas, meeting their demand for timely information support and risk control. It also enables official diplomatic and related authorities to focus on the global national imperative while ensuring more flexible protection for local overseas interests, and so benefiting the entire nation.