China’s Belt and Road initiative presents opportunities and risks to companies in Asia
The investment and infrastructure development opportunities generated by China’s multibillion-dollar Belt and Road Initiative are not without risks, according to new research from Aon, the leading global professional services firm providing a broad range of risk, retirement and health solutions.
Aon’s 2019 Risk Maps, developed in partnership with Continuum Economics and The Risk Advisory Group, examined political risk, terrorism and political violence around the world. This year’s findings show that businesses looking to take part in BRI, which aims to boost connectivity and reduce trade costs between Asia and Europe, need to be aware of the risks associated with the project.
Stephen Taylor, Head of Credit Solutions, Asia, Aon said: As the BRI investment trend continues, the use of credit and political risks insurance will grow, either where the lender is covering non-payment of debt or where corporations insure their assets and equity investments against risks such as currency inconvertibility and expropriation.
Key findings include:
• The Asia Development Bank estimates the infrastructure gap across 25 developing Asian economies amounts to USD 469 billion annually, meaning significant opportunities for development.
• Businesses in East Asia and the Pacific currently take an average of 100 days to import/export, in stark comparison to the 10-15 days taken by firms operating in G7 countries. The BRI could help to drive down the time taken to do business.
• The regulatory and institutional framework of many countries within the proposed BRI exposes investors to potentially significant risks, including sovereign non-payment, supply chain disruption and political interference.
The report also emphasises that government decisions have the potential to impact both regional trade and development. Businesses investing across borders should closely monitor the political situation in the host countries in which they are transacting and consider their insurance coverages in response to changing exposures and the potential for volatility caused by politically motivated decisions.
A positive will be the ripple effect from the infrastructure investment, particularly in the emerging economies of Southeast Asia and Africa, as we expect to see a rise in the companies investing across the supply chain, including manufacturing hubs being established in free trade zones. These companies will be turning to credit solutions to secure risk, support finance and accelerate growth.
Aon’s Risk Maps, developed in collaboration with Continuum Economics and The Risk Advisory Group, are designed to help firms better understand and navigate evolving exposures created by political risk, terrorism and political violence. In today’s complex geopolitical and economic environment, the maps enable clients to identify and track the different sources and degrees of risk, assisting businesses in planning and protecting assets, contracts and loans that could be adversely affected.