Factor in investment risks, says Marsh

 

BELT and Road projects, with investments that could total US$1 trillion (RM4.2 trillion) from China, will provide huge investment opportunities for 65 nations – including Malaysia – but they could also carry risks for Beijing and the recipient nations.

In a July 19 report on Navigating the New Silk Road, Marsh & McLennan Companies lists the opportunities and risks associated with these projects in select countries.

The New-York based firm specialising in insurance brokerage and risk management notes that the Belt and Road initiative is strongly influencing the flow of Chinese outbound investment.

It adds that it is timely for potential investors to look out for opportunities in transportation infrastructure, railway construction, energy and resources exploitation and shipping and logistics.

Marsh & MaLennan says Chinese enterprises need to be “business-like and realistic” in factoring potential risks into the cost of investment projects.

“They need to make the best use of top-flight foreign risk analysis firms, while also employing the expertise of leading Chinese think tanks doing risk analysis, such as the Chinese Academy of Social Sciences.”

Chinese companies investing abroad should also be more concerned about corporate social responsibility, which can be a key element in enhancing China’s “soft power” in the Belt and Road area.

Firms should pay close attention to their treatment of local workers and the environmental impact of investment projects. (Both are issues in Myanmar).

Risks associated with Belt and Road projects, with examples, are listed in Marsh’s report by Miao Lu, the executive secretary-general of the Centre for China and Globalisation.

Political risks

Such risks are seen across large stretches of overland and maritime routes covered by One Belt, One Road.

Myanmar is a case in point. Chinese investment in the country fell 90% from US$407mil (RM1.7bil)) in 2012 to just US$46mil (RM197mil) in the following year due to rising anti-Chinese sentiment and opposition to key projects in Myanmar, notably the huge Myitsone dam.

Big power rivalry in Asean countries, South Asia and Central Asia may also threaten Chinese investment activities in these areas. An example is seen in port construction in Bangladesh, where there was competition between Japan and China for approvals to build the facility last year.

Potential risks

These exist in Central Asian countries. An example is seen in conflicts among Kyrgyzstan, Tajikistan and Uzbekistan.

Uzbekistan opposes a planned hydropower project funded by China as the proposed dam is located upstream on the Amu Darya River in Tajikistan.

Security risks

Chinese investments may be exposed to regional turmoil, terrorism and religious conflicts. These countries include Pakistan and Afghanistan.

As Chinese enterprises lack a comprehensive strategy to deal with security risks, they rely on Chinese consular and diplomatic protection that are inadequate safeguards against terrorism, ethnic and sectarian violence.

Economic risks

One major risk for Chinese companies is the possibility of the countries defaulting on foreign lending. As countries in Central Asia are among the poorest economies in the world and have dysfunctional governments, this has become a risky zone.

The five Central Asian republics – Kazakhstan, Turkmenistan, Kyrgyzstan, Uzbekistan and Tajikistan – all feature heavily in the plans for the land component of the Belt and Road.

But another source of risk can also come from Chinese companies themselves, which may make unwise decisions when they encounter engineering safety and management issues.

Very often, these Chinese companies are also ignorant about corporate governance and professionalism.