By Joshua Berlinger, CNN
Chinese companies with risky investments in Southeast Asia’s Mekong region are increasingly turning to legal private security companies based in China for protection, according to a new report.
The Washington-based Center for Advanced Defense Studies (C4ADS) found that China-based companies represent 29 of the 49 foreign private security companies operating in Cambodia and Myanmar, the only two Mekong countries where official business registers provide enough information to confirm foreign ownership, C4ADS said. The second highest was Malaysia, with just four.
C4ADS data shows that these companies have been incorporated regularly since 2013, with peaks in 2019 and 2020.
Although C4ADS could not be sure what was behind the growth, the timing is likely related to the rise of China’s Belt and Road Initiative, the ambitious initiative Chinese President Xi Jinping, trillion dollar global infrastructure project which aims to connect Beijing to markets across Asia. Chinese companies have flocked abroad in search of new investment opportunities related to Belt and Road.
Like their Western counterparts, Chinese private security companies provide a variety of security and protection services to foreign clients operating in dangerous areas, including parts of Africa and Latin America.
According to comments posted on the website of a Chinese security firm, former Chinese Ambassador to Cambodia Xiong Bo, said in 2017 that Beijing must promote these companies “to ensure security abroad” for new investments because its country “cannot send navies like the United States.”
Ben Spevack, one of the report’s authors, said Chinese company websites often refer to security incidents that impacted Chinese investments abroad in areas perceived to be unsafe.
“It’s a big selling point for them,” he said of these security companies, which operate legally. “They are obviously selling a service.”
What’s in the report
The focus on Chinese private security companies was only part of C4ADS ’65-page report, which analyzed the growth and risks of special economic zones in the five Lower Mekong countries – Cambodia, Laos, Myanmar. , Thailand and Vietnam. C4ADS has undertaken to monitor the volume of business in the zones and the risks they represent for the governments that host them.
The zones are designed to attract foreign dollars by providing investors with tax incentives and simplified, limited regulations to make doing business easier, but experts say without proper oversight they can become breeding grounds for corruption and criminal activity. .
“It is a potential tool that can precipitate economic development, but it is not always the case,” said Spevack.
Spevack said the study is kind of a “first pass” that he hopes states will consider when deciding whether or not to form these economic zones.
“It’s not a red herring,” Spevack said. “It is not necessarily a final decision on the zones.”
Because economic data is not readily available to gauge the performance of these areas, Spevack and his co-authors analyzed data from the nightlight – the growth of lights at night observed by satellite – to measure growth. They found that economic zones generally stimulate growth, but success is “not always guaranteed”. The middle zone grew by about 10% more than the economy of its host country in the first three years after its creation, but five of the analyzed zones showed negative growth during the same period.
“Even when growth is present, negative externalities can undermine the benefits,” C4ADS found. “Without proper management, EDZs can serve as a basis for multiple types of transnational illicit activity and geopolitical machinations.”
Risk of special economic zones
The best known of these areas is the Special Economic Zone of the Golden Triangle (GTSEZ) in Laos and its chairman, Zhao Wei. The US Treasury Department accuses Zhao, a Chinese national and casino mogul, of using GTSEZ to lead a global criminal organization with interests in child prostitution, illicit wildlife trade and drug trafficking. United Nations Office on Drugs and Crime (UNODC) alleged Zhao regards the area as his “personal stronghold”.
Zhao has denied the allegations and says he is a legitimate investor working to make GTSEZ a major tourist destination.
There are other similar economic zones scattered throughout the Mekong River, usually along the borders of the five countries. Sihanoukville, once a backpacker’s paradise in Cambodia, is fast becoming a gaming megalopolis thanks to dozens of casinos built by Chinese developers. However, recent measures taken by Cambodia military in Sihanoukville has fueled concerns in Washington that the country is upgrading its facilities in the region at Beijing’s request. American officials expressed concerns about the presence of the Chinese army in a naval base in Sihanoukville, where Cambodian officials demolished two buildings funded by the United States “without notification or explanation”.
Another area is being set up in part by Wan Kuok-koi, a notorious triad leader who has spent more than a decade in prison in Macau. He is best known by his nickname, “Broken Tooth”.
Wan is the chairman of an investment company called Dongmei Group which is trying to launch an industrial zone in Myanmar along the country’s border with Thailand called Saixigang. Dongmei said on social networks that he tries to transform the area into Myanmar’s “Silicon Valley”; a major logistics hub; and a resort town. The investment group invoices the project as part of the Belt and Road plan.
Dongmei and Wan have been blacklisted by the US Treasury Department in December for engaging in “drug trafficking, illegal gambling, racketeering, human trafficking and a host of other criminal activities”.
Washington alleged that Wan, who has always proclaimed his innocence, is one of many Chinese nationals abroad “trying to cover up illegal criminal activity by framing their actions according to China’s Belt and Road Initiative.”
Under the sanctions, all assets held by Wan in the United States will be frozen and American citizens will be prohibited from doing business with him.
CNN was unable to reach Dongmei for comment on the Treasury charges. Wan could not be reached either.
Wan unveiled his own private security company in 2018, according to the report, touting it as an operation to “protect the interests of Chinese companies” linked to the Belt and Road program.
C4ADS discovered that most private security operations, like Wan’s, are used to protect investments in risk areas. However, most are run by former members of the Chinese security forces, not former gangsters.
“Private security companies can defend Chinese economic interests while allowing China to avoid the material and reputational risks that come with putting boots on the ground,” the report said.
But the industry “also provides cover for people with ties to organized crime, like Wan, to run armed companies in a host country.”
Journalist Zixu Wang contributed to this report.