Enter China’s Security Firms

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Enter China’s Security Firms

Chinese private security companies are seeing an opportunity as the U.S. withdraws troops from Iraq and Afghanistan. But plenty of complications await them.

A security vacuum is developing around Chinese workers overseas. The recent kidnapping of 29 Chinese workers in Sudan (where another worker was shot dead during the abduction) and 25 workers in Egypt has sparked a strong reaction in China. As a result, Beijing is looking to bolster consular services and protection for Chinese citizens working and travelling overseas. On the corporate side, private analysts are urging companies to do a better job of training employees before they are sent abroad. Yet with at least 847,000 Chinese citizen workers and 16,000 companies scattered around the globe, some of them in active conflict zones such as Sudan, Iraq, and Afghanistan, key projects and their workers are likely to require more than just an expanded consular staff to keep them safe.

It’s with an eye on this growing danger that new Chinese private security providers see a business opportunity. Shandong Huawei Security Group appears to be a leader among Chinese security providers, which thus far have predominantly focused on the country’s robust internal market for bodyguard and protective services. Huawei provides internal services, but in October 2010, opened an “Overseas Service Center” in Beijing. The company’s statement on the center’s opening explicitly cites the withdrawal of U.S. troops from Iraq, and the potential for a security vacuum to result, as key drivers of its decision to target the Iraq market.

Chinese investors are rapidly increasing their presence in Iraq. China National Petroleum Corporation (CNPC), for example, is helping to develop oil projects that will likely substantially eclipse its flagship Sudan operations in size, while Chinese construction companies are also likely to play a central role in rebuilding and improving the country’s civil and energy-related infrastructure, destroyed by years of war and neglect.

Shandong Huawei and other emerging Chinese security providers will also likely target the Afghan market. The U.S. government’s latest geological survey showed massive mineral potential in Afghanistan, with reserves of lithium, copper, cobalt, iron ore, and other minerals potentially worth as much as $1 trillion. Chinese mining and construction companies are likely to move aggressively into Afghanistan, following the example of state-owned Metallurgical Corporation of China, which is developing the massive Aynak copper deposit.

The Aynak project has benefitted from the close proximity of troops from the U.S. Army’s 10th Mountain Division, but as Washington strives to pull U.S. forces out of Afghanistan by 2014, Chinese miners will increasingly be on their own for security. As the growing number of Chinese companies and workers in Iraq and Afghanistan are forced to adapt to an environment without large U.S. military forces effectively providing a shield for their operations, the heightened security risks from insurgent attacks, banditry, and other physical threats are likely to drive them to seek new armed security providers – precisely the business opportunity that Shandong Huawei and its peers seek.

Filling the Void

The first known attempt to create a foreign-focused private security firm in China came in 2004, when a Ningbo businessman created a bodyguard firm alleged to have drawn staff from China’s special forces community and the paramilitary People’s Armed Police (PAP). In contrast, Shandong Huawei’s venture into the Iraq security market appears to be both larger-scale and focused. On its website, the company says it recruits its personnel from among retirees of special police and military units and the PAP. Huawei also specifically notes that its employees include men who have served tours in Iraq, likely former PAP who guarded China’s Ambassador to Iraq.

As far as we know, there are no other Chinese security firms publicly declaring a desire to protect Chinese businesses working abroad. Nonetheless, if Shandong Huawei’s efforts to generate business in Iraq succeed, it’s likely that more Chinese firms will target the overseas market, particularly since the domestic private security market is becoming increasingly crowded.

The global private security market is an increasingly competitive one, though, so why would a Chinese company consider hiring a firm like Shandong Huawei instead of Control Risks, G4S, or another established global security provider?

One answer is a tried and true Chinese advantage: price. Chinese sources say the cost per man for a private security guard from China range from 3,000-6,000 RMB per month ($476 to $952). Thus, a 12-man Chinese security detachment costs from $190 to $381 per day. This is comparable to the prices for local private guards in Afghanistan, but much more affordable than the rates that many Western providers would likely charge. Chinese firms would probably retain their cost advantage even if demand for experienced ex-tactical operators in China rises and wages increase.

Skill also factors in. In terms of capabilities, Shandong Huawei is currently not a “Blackwater with Chinese characteristics,” but its personnel are almost certainly very competent operators. Since the guards working for the overseas wing of most Chinese security firms would likely be drawn from personnel who had served in elite police and military units like the Snow Leopard counter-terrorism force, the general protective skill level would likely be much higher than that of local Iraqi or Afghan guards, and closer in quality to what a company would get by hiring a Western security firm. The personnel likely to form the ranks of China’s overseas private security providers won’t have the combat experience of the men working for a firm like Academi (formerly Blackwater/Xe), but they would also be conducting different types of operations, as they wouldn’t likely become offensively-oriented participants in conflicts the way Blackwater did in Iraq, for instance.

Reliability is another selling point for a company like Shandong Huawei in the eyes of Chinese companies. The track record of local forces protecting Chinese workers on overseas projects isn’t especially good. By our count, at least 43 Chinese citizens have perished since 2004 in violent attacks outside of China, including in places like Sudan where local forces are supposed to protect foreign workers. Also, with respect to future danger spots, the reputation of local security forces in Afghanistan is particularly poor. In October 2009, Taliban attackers were able to easily overpower Afghan police guards and kill 11 people at a U.N. guesthouse in Kabul, including five U.N. staff. With local forces often unreliable and influenced by complicated local and tribal politics, using a trustworthy protective service from one’s home country holds great appeal. The common language and cultural familiarity of a competent Chinese private security firm is also likely to be comforting to company managers, as it would greatly ease communication, particularly in an emergency.

Strategic Implications

Chinese armed contractors will likely appear with increasing frequency in coming crises involving Chinese citizens overseas, as they offer an option for providing Chinese companies and workers with armed protection without resorting to the more escalatory and more diplomatically risky step of deploying actual uniformed soldiers abroad to protect Chinese workers and economic assets in volatile areas.

During the recent Sudan hostage crisis, The Wall Street Journal reported that the Sudanese troops who engaged in the rescue effort were joined by a dozen armed Chinese private security contractors. While that article and coverage of the issue in the Chinese media didn’t identify where the contractors came from, there’s a strong likelihood they were drawn from the same pool of former security forces personnel that Shandong Huawei recruits from and perhaps even came from the company. Chinese sources say it was the Sudanese military that told news outlets armed Chinese contractors were participating, so it appears that Beijing wants to keep its use of private security contractors out of the public eye.

There are a number of strategic implications of this rise of armed private security providers by Chinese firms. For a start, if a project is in an area unstable enough to require armed private guards, there’s a significant probability of armed encounters between security providers and potentially hostile locals. Coupled with this is the fact that given their police and military backgrounds, the contractors are likely to look and comport themselves like soldiers, and would probably be armed with similar types of weapons. There’s real potential, then, for confusion on the ground in a place like Sudan when a private contractor who looks like a soldier engages rebels or others who then mistake him for an actual member of Chinese government forces. A local whose relative was shot near a Chinese drilling site by a security guard who looks like a soldier is likely to blame Beijing, which could spark additional violence against Chinese interests in the area.

All this raises the question of how the Chinese government would respond if a private security provider from China has a “Fallujah moment” and a large number of personnel are killed in a conflict zone, as happened to Blackwater in Iraq in 2004. In a hostile area far from home, many things can go wrong, even when a force is competent and well-prepared. Would Beijing be prepared to take punitive measures if insurgents in Sudan, Iraq, or Afghanistan managed to ambush Chinese private security guards? Would Beijing be willing to seek the help of the U.S. military for a rescue operation if Chinese contractors were under fire in an area of Iraq or Afghanistan where U.S. special forces units were in theater?

Firms who hire private security providers from China will have to find ways to manage friction with the local military and other security forces that previously protected Chinese workers and assets. Companies could end up paying twice for security – once to pay off disgruntled local commanders and then again for the actual security service from the Chinese private security provider. This could be exacerbated by the fact that the Chinese government, like Chinese companies, is perceived to be increasingly affluent. Beijing has consistently relied on paying ransoms to free hostages, while the latter, unfettered by a Foreign Corrupt Practices Act, for example, are widely perceived to engage in bribery, which is the coin of the realm in many unstable areas.

In addition, lines could be blurred if the PLA is involved in an evacuation of Chinese citizens from an active conflict zone as it did in the spring of 2011, and private armed Chinese contractors are called in to assist by private Chinese parties with urgent security needs that Beijing might not be willing to handle.

Another issue is that of the legal code of conduct that would govern the operations of private Chinese security personnel working abroad. China is a signatory to the Montreux Document, which lays out a suggested code of conduct and best practices for private military and security firms. However, the document isn’t legally binding. One possible solution to this would be for the Chinese People’s Congress to build upon the law it passed in 2011 to curtail bribery by Chinese companies working overseas and formulate a binding set of regulations for private security providers working outside Chinese borders.

More broadly, incidents involving private security contractors working outside China would also pose substantial legal and diplomatic challenges, even if the Chinese government creates laws governing the firms’ activities. For instance, we strongly suspect the Chinese response to a contractor who committed a crime in Sudan or Iraq would be to quietly whisk him back to China for legal proceedings, as opposed to risk the injustices the local judicial system might wreak upon a foreign national. This in turn would almost certainly reinforce the view that host state governments are weak and permit Chinese to enjoy extraterritoriality at the expense of locals’ desire for justice.

Finally, private security services are likely still unaffordable to the small businessmen and entrepreneurs who may venture into risky areas. As such, local groups with an ax to grind against China or who seek to put their government in a tough position could turn to targeting the private Chinese businesspeople who live outside of corporate compounds guarded by the skilled former PAP members. Under such a scenario, Beijing would have to grapple both with the diplomatic problems outlined that could result from Chinese private security firms operating in a region, as well as the pre-existing problem of private businessmen who are too small to track and effectively protect, but whose fate will nonetheless spark nationalistic reactions in China to which the government may have to respond.

Andrew Erickson is an associate professor in the Strategic Research Department at the U.S. Naval War College. Gabe Collins is the co-founder of China SignPost and a former commodity investment analyst and research fellow in the US Naval War College's China Maritime Studies Institute.