Analysis: Local, global security firms in race along China's "Silk Road"

Frontier Services

24/04/2017 24:00

* Tens of billions of dollars pour into China's "Silk Road" 
    * Security companies compete for projects 
    * Chinese firms mostly small, lead teams of locals 
    * International rivals see advantage in scale, experience 
    * State enterprises sometimes treat safety as afterthought 
 
    By Brenda Goh, Michael Martina and Christian Shepherd 
    SHANGHAI/BEIJING, April 24 (Reuters) - Global security 
companies and their smaller Chinese rivals are jostling for 
business along Beijing's modern-day "Silk Road", the grandiose 
plan for land and sea routes connecting the world's second 
largest economy with the rest of Asia and beyond. 
    Representing investments of hundreds of billions of dollars, 
the pet project of Chinese President Xi Jinping is seen boosting 
economic growth at home, and as positive for everything from 
steel prices to cement makers. 
    Security firms also expect to tap the rush, offering to 
protect thousands of Chinese workers - and the pipelines, roads, 
railways and power plants they build - as they fan out across 
the world under the "One Belt, One Road" (OBOR) initiative. 
    It won't be easy, however, with executives warning that 
state-owned enterprises running or planning projects from Africa 
to Vietnam sometimes prefer to deal with fellow Chinese, treat 
safety as an afterthought and try to keep costs to a minimum. 
    "OBOR is a lifetime (of work) for us," said John Jiang, 
managing director of Chinese Overseas Security Group (COSG). 
    The small consortium of security providers was set up early 
last year and operates in six countries: Pakistan, Turkey, 
Mozambique, Cambodia, Malaysia and Thailand. 
    "In eight years' time, we want to run a business that can 
cover 50-60 countries, which fits with the One Belt One Road 
coverage," Jiang told Reuters. 
    Chinese personnel are essentially barred under Chinese law, 
and that of many host nations they work in, from carrying or 
using weapons. 
    Instead, COSG and its rivals usually work with and train 
local staff and focus on logistics and planning. 
    In Pakistan, for example, where attacks by militants and 
separatist insurgents are considered a serious threat, COSG has 
a joint venture with a local security firm with links to 
Pakistan's navy. 
    The Pakistani army also plans to provide 14-15,000 armed 
personnel dedicated to guarding Chinese projects, according to 
local media reports. 
    The $57 billion China-Pakistan Economic Corridor, the 
largest single project under the OBOR banner, envisages roads, 
railways, pipelines and power lines that link China's western 
reaches with the Arabian Sea via Pakistan. 
     
    CHINESE VERSUS INTERNATIONAL 
    Major international security operators hope their scale and 
experience can convince China's price-conscious state-owned 
giants to pay for foreign expertise. 
    Firms like Control Risks and G4S  GFS.L  offer staff with 
military backgrounds and decades of experience in risky regions 
around the world. 
    G4S said it had seen an acceleration of interest in its 
services since OBOR began gaining traction. 
    Michael Humphreys, a Shanghai-based partner at Control 
Risks, said around a third of the security consultancy's work in 
China was related to OBOR. 
    Hong Kong-based logistics firm Frontier Services Group 
 0500.HK , co-founded by Erik Prince who created the U.S. 
military security services business Blackwater, announced in 
December it was shifting strategy to capitalise on OBOR. 
    It plans to set up an office in the southwestern province of 
Yunnan, which adjoins Southeast Asia, and another base in 
Xinjiang in China's west, the starting point for the CPEC 
project crossing Pakistan. 
    Smaller Chinese firms like COSG, Shanghai-based Weldon 
Security and Dewei Security, meanwhile, see their advantage over 
multinationals in state-owned enterprises' preference for hiring 
Chinese to handle sensitive projects. 
    Only a handful of the estimated 5,800 Chinese security 
companies operate overseas, with the vast majority focusing on 
the domestic market. 
    "For Chinese firms, especially with security work, they 
(state companies) want to speak with another Chinese person. We 
can also one hundred percent reflect their thinking when we 
work," said Dewei general manager Hao Gang. 
     
    NO EASY SELL 
    Security risks facing Chinese workers abroad are varied and 
often unpredictable. 
    Yu Xuezhao, a former soldier working in Kenya for Dewei, is 
helping to train hundreds of local guards to protect Chinese 
contractors operating there, including oil giant Sinopec 
 600028.SS  and China Road and Bridge. 
    Africa, where China invested long before OBOR was formally 
created, is considered a part of the initiative. 
    "The most common incidents we encounter are thefts and 
strikes," 27-year-old Yu said, speaking from a training compound 
in the Kenyan capital Nairobi he has managed since 2015. "We 
train security guards to inspect cars and do ground patrols." 
    Events can quickly escalate. 
    In 2015, for example, an attack on a hotel in Mali killed 
three workers at a Chinese state firm, leading to calls by 
Beijing for beefed up security. 
    Officials revealed then that 350 security incidents had 
occurred between 2010-2015 involving Chinese firms abroad. 
    Such concerns do not easily translate into lucrative 
contracts, however. 
    In some cases, security companies are called in to deal with 
an emergency rather than to coordinate a long-term strategy. 
    "For a lot of companies, they come to us when they've 
(already) got a problem," said Humphreys of Control Risks. 
    "They've started the project and they can't move it forward 
because they have a labour dispute or someone is throwing petrol 
bombs at their trucks." 
    Hao and other Chinese security executives added that most 
state-owned enterprises were building their overseas security 
capabilities from a low base. 
    "A lot of the larger state-owned enterprises have only just 
started to go out in the last few years. As such, overseas 
security work remains a blank space for those firms who had not 
gone out before," he said. 
    Some Chinese experts said companies operating abroad were 
beginning to think more about the importance of safety. 
    "This is something Chinese companies need to study more," 
said Lu Guiqing, general manager of private builder Zhongnan 
Group and former chief economist at China State Construction 
Engineering Corporation. 
    "When you 'go out' safety is the most important. What's the 
point if you end up losing people?" 
 
 (Additional reporting by Joseph Campbell in BEIJING and George 
Ng'ang'a in NAIROBI; Editing by Mike Collett-White) 
 ((brenda.goh@thomsonreuters.com; +86)(0)(21 6104 1763; Reuters 
Messaging: brenda.goh.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA SILKROAD/SECURITY