Thirty leading risk and insurance professionals from major businesses operating in China share their views on the threats and opportunities presented by a broad range of risks
Those who attended the debates were largely in agreement on their key concerns, with human capital considered one of the biggest worries.
Getting people with the right skills and then retaining them is a concern that will resonate with risk professionals across the region.
In China it is the same, but the problem is compounded still further as a result of the country’s recent rapid growth.
This has generated economic benefits and driven business expansion but it has also brought huge improvements to its education system.
With more young people educated better than ever before, they are eschewing less skilled working roles in favour of jobs more suited to their higher qualifications.
At a time when skills at all levels are needed to sustain the boom, getting the right employees is crucial.
When this problem occurs in other countries, a quick and simple solution is to import labour to fill these roles but that cannot be done so easily in China.
As a result businesses in the service sector and some manufacturers are struggling to fill positions despite ambitious expansion plans and lengthy order books.
This problem might be less evident in Beijing and Shanghai as they are the country’s key cities and a major attraction for younger people – but travel to the third or fourth tier cities and the skills gap is very noticeable.
One risk manager said that if his organisation was looking to develop operations in a city that had a population as high even as five million, it would have to factor in the difficulty of being able to recruit appropriate talent and in some cases it might even be impossible.
China’s one child policy has further exacerbated the situation by limiting the number of people of working age.
While restrictions on this were relaxed recently, the results of these changes will not be seen until those born under the new policy come of working age.
In a country with an ageing population, supporting this with a limited and relatively inflexible group of working age will be a challenge many of the risk professionals at the roundtables agreed.
Regulatory issues were another primary worry for risk professionals. While it is not so much a case that more legislation is being introduced, risk managers say that existing regulation is being enforced much more strictly.
Businesses based outside China faced the toughest regulation, particularly in terms of anti-competition rules.
Legislation is also subject to change, often at a local level, which is both difficult to predict and keep track of as it occurs.
There are other legal risks too. One risk professional working for a non-China based business said that it was difficult if not impossible to enforce contracts in China. Instead he said contracts should be used only as a guide. In effect, when there is a disagreement companies cannot sue, primarily because the other party would be connected in some way to the state so the legal action could also mean a possible negative impact for that company operating in China.
Reputation and nat cat risks
Many risk professionals SR spoke to talked about the significance of brand integrity. Two major food safety scandals – one involving out-of-date meat being sold to fast food restaurants and the other connected to contaminated dairy products – have demonstrated vividly the potentially damaging consequences around reputational risk.
While the insurance sector continues to seek appropriate coverage and protection for this risk – something many risk professionals in China indicated they would welcome – the future seems to lie in businesses and insurers developing strategic approaches to minimising the impact and helping clients make the best choices.
China is prone to significant earthquake activity and also typhoons. Businesses operating in the country have learned to adapt to this threat by taking a considered approach to supply chain issues to avoid business interruption problems.
Risk managers at the roundtables, particularly those involved with manufacturing and other forms of production, said that the Thailand floods and Japan tsunami had caused some business interruption problems. However, all agreed that they had learned from the experience and were now better prepared should an event of similar magnitude occur again.
While much of the West has struggled economically over the last decade, China has experienced the most phenomenal period of expansion. Double-digit percentage GDP growth was achieved for several years.
This has now come down to below 8%, still impressive by Western standards but a worry for some in China. There is some debate about whether or not the reduction in GDP growth is indicative of a wider economic slowdown or merely a natural levelling.
The majority of risk professionals and other observers SR spoke to agree that the figure most likely represents a more realistic plateauing of the growth curve although some, particularly from the hospitality sector, said they had experienced a softening in demand in the past year or so.
Positive risk practice
Those who attended the two debates were dynamic both in their outlook and their attitude to risk, and it was clear that this small pioneering group of risk managers were deeply engaged in promoting positive risk practice among the businesses for which they work and beyond.
Risk management in China is still at a fledgling stage but the number of risk professionals is growing steadily, as is their understanding of this increasingly complicated subject.
Together with increasing support from the country’s growing insurance and broking sectors, risk management in China appears in good shape to help companies tackle major problems they might face and make the most of the many advantages the country offers.
A comprehensive StrategicRISK China Risk Report will be published later this year to expand on these and other issues. To see all our Asia risk reports, click here.