Challenges and risks of ‘One Belt, One Road’
Print Edition
Few people could imagine the extensive scope of the Silk Road Economic Belt and Maritime Silk Road initiative when it was first announced by President Xi Jinping in 2013.
In just two years, the “One Belt, One Road” concept has expanded immensely as a vision that connects China to Asia, Europe and Africa in trade, development and culture. About 5.5 trillion yuan (US$900 billion) will be invested in 900 projects over two transcontinental Silk Roads to connect 60 countries.
The outward investment will come from a combination of newly formed funds, such as the Asian Infrastructure Development Bank, the New Development Bank and Silk Road Funds, and from state-owned and private companies. Many Chinese companies are seizing this opportunity, often underestimating the challenges and risks of venturing into the external markets.
Outward investment crosses a set of countries that have a diverse range of cultures, economies, and legal, political and regulatory systems in various states of development. Some of these regions lack political stability and effective governance.
Overlaying these factors with global trends such as technology, globalization and significant ongoing cross-border investment, the challenges are obvious.
Insurance strategies that serve companies well within a domestic context need to be tailored to different rules and operating environments.
When Chinese enterprises expand into other countries, they need to actively research and forecast all types of cross-border operating risks and take steps to mitigate those risks.
When transacting business in a geographic market, companies must comply with all applicable laws and regulations of that particular jurisdiction, including insurance and tax. No two countries are the same. These regulations vary significantly from one country to another. The penalties of non-compliance can be severe.
Credit risk. In China, companies have developed credit and payment systems that ensure counterparty transactions are completed. Credit risk is well understood within a domestic context. When going abroad, Chinese companies will face customers that may operate on different credit, payment and enforcement principles. They can insure against these credit risks by engaging in a program that evaluates counterparty risks and insures against counterparty defaults.
Political risk. Every day, the news brings headlines related to trade restrictions, civil disorder, political stalemates, infrastructure bottlenecks and corruption. Political risk may seem bewildering and unmanageable. The first step is trying to understand how such risks could trouble a large investment project. When these risks are outlined, a well-planned insurance program can mitigate these risks.
Interconnectivity Risk. This emerges as businesses cross borders, contract and outsource, and expand their geographic footprint. Supply chain management presents a significant area of risk, especially in emerging markets where firms may have more limited visibility of their suppliers and distributors. The majority of risks that have the potential to disrupt a supply chain originate from suppliers. These include delays or incomplete deliveries, quality control issues and working capital constraints.
Alternate risk. This relates to unique proprietary risks that cannot be addressed effectively by traditional insurance. After these risks are identified, companies can engage in “global fronting” programs that incorporate either risk retention or transfer via captives, fully funded structures, rent-a-captives or indemnity programs. Chinese companies engaging in alternative risk programs can benefit from favorable loss experiences and gain enhanced control over the structure of their insurance program. In the Asia-Pacific region, regulatory changes are likely to fuel captive growth, especially for state-owned enterprises that span multiple industries.
Chinese companies are facing more complex multinational risks than ever before. They need the assistance of a multinational insurance company with expertise in multi-country risk exposure and multinational and alternative risk capability. Such an insurer can contribute to the education of best practices from markets all around the world.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
