China's flag flies from a ship sailing down the Mekong River.
Hong Kong CNN  — 

Chinese businesses with risky investments in Southeast Asia’s Mekong region are increasingly turning to legal, China-based private security companies for protection, according to a new report.

The Washington-based Center for Advanced Defense Studies (C4ADS) found that China-based companies account for 29 of the 49 foreign private security firms operating in Cambodia and Myanmar, the only two countries in the Mekong where official corporate registries provide enough information to confirm foreign ownership, C4ADS said. The next-highest was Malaysia, with just four.

Data from C4ADS shows these companies were incorporated steadily since 2013, with spikes in 2019 and 2020.

While C4ADS could not definitively determine what was behind the growth, the timing is likely tied to the rise of China’s Belt and Road Initiative, Chinese President Xi Jinping’s ambitious, trillion-dollar global infrastructure project that aims to connect Beijing with markets throughout Asia. Chinese companies have flocked overseas seeking new investment opportunities tied to Belt and Road.

Like their Western counterparts, Chinese private security firms offer various security and protection services to clients overseas operating in dangerous areas, including parts of Africa and Latin America.

According to remarks published on the website of one Chinese security firm, China’s former Ambassador to Cambodia, Xiong Bo, said in 2017 that Beijing needs to promote these firms “to provide security overseas” for new investments because his country “cannot send Marines like the United States.”

Ben Spevack, one of the report’s authors, said the Chinese companies’ websites often referenced security incidents that have impacted Chinese overseas investments in areas perceived to be dangerous.

“It’s a big selling point for them,” he said of these security companies, which operate legally. “They’re obviously selling a service.”

What’s in the report

The focus on Chinese private security firms was just a part of C4ADS’ 65-page report, which analyzed the growth and risks of special economic zones in the five countries of the lower Mekong – Cambodia, Laos, Myanmar, Thailand and Vietnam. C4ADS set out to track how much business the zones bring in and what risks they pose to the governments that host them.

The zones are designed to attract foreign dollars by offering investors tax incentives and streamlined, limited regulation to make it easier to do business, but experts say that without proper oversight, they can become breeding grounds for corruption and criminal activity.

“This is a potential tool that can precipitate economic development, but they don’t always,” Spevack said.

Spevack said the study is something of a “first pass” he hopes states will review when deciding whether or not to form these economic zones.

“This isn’t a red herring,” said Spevack. “It’s not necessarily a definitive ruling on zones.”

Because economic data is not easily accessible to gauge the performance of these zones, Spevack and his co-authors analyzed nightlight data – the growth in lights at night observed via satellite – to measure growth. They found that economic zones usually spur growth, but success was “not always guaranteed.” The median zone grew about 10% more than its host country’s economy in the first three years after its establishment, but five of the zones analyzed showed negative growth in the same time frame.

“Even when growth is present, negative externalities can undercut the benefits,” C4ADS found. “Without proper management, EDZs can serve as staging grounds for multiple types of transnational illicit activity and geopolitical machinations.”

Risk of special economic zones

The most notorious of these zones is the Golden Triangle Special Economic Zone (GTSEZ) in Laos and its chairman, Zhao Wei. The US Treasury Department accuses Zhao, a Chinese national and casino magnate, of using the GTSEZ to run a global criminal organization with interests in child prostitution, the illicit trade of wildlife and drug trafficking. The United Nations Office on Drugs and Crime (UNODC) alleges Zhao treats the zone as his “personal fiefdom.”

Zhao has denied the allegations and says he is a legitimate investor working to turn the GTSEZ into a major tourist destination.

There are other, similar economic zones dotted throughout the Mekong, usually along the borders of the five countries. Sihanoukville, once Cambodia’s backpacker haven, is quickly becoming a gambling megacity thanks to scores of casinos built by Chinese developers. However, recent moves by Cambodia’s military in Sihanoukville have fueled concerns in Washington that the country is upgrading its facilities in the region at the behest of Beijing. American officials have voiced concerns about the Chinese military’s presence at a naval base in Sihanoukville, where Cambodian officials demolished two US-funded buildings “without notification or explanation.”

Another zone is being set up in part by Wan Kuok-koi, a notorious triad boss who spent more than a decade in prison in Macao. He is better known by his nickname, “Broken Tooth.”

Wan is the chairman of an investment firm called Dongmei Group that is attempting to launch an industrial zone in Myanmar along the country’s border with Thailand called Saixigang. Dongmei said on social media that it’s attempting to turn the zone into the “Silicon Valley” of Myanmar; a major logistics hub; and a resort city. The investment group bills the project as part of the Belt and Road plan.

Former triad leader Wan Kuok-koi leaves in a car after his release from prison in Macao in 2012.

Dongmei and Wan were blacklisted by the US Treasury Department in December for engaging in “drug trafficking, illegal gambling, racketeering, human trafficking, and a range of other criminal activities.”

Washington alleged that Wan, who has always maintained his innocence, is one of several Chinese nationals overseas “trying to paper over illegal criminal activities by framing their actions in terms of China’s Belt and Road Initiative.”

Under the sanctions, any assets held by Wan in the United States will be frozen and American citizens are forbidden from doing business with him.

CNN could not reach Dongmei for comment on the Treasury accusations. Wan could also not be reached.

Wan unveiled his own private security company in 2018, the report said, framing it as an operation meant to “protect Chinese enterprises’ interest” tied to the Belt and Road scheme.

C4ADS found that most private security operations, like Wan’s, are employed to protect investments in risky areas. However, most are run by former members of China’s security forces, not ex-gangsters.

“Private security companies can defend Chinese economic interests while allowing China to avoid the material and reputational risks that arise from 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.