The Dark Side of Chinese Economic Growth

[HenryTo]

Courtesy of Reuters - demand for security services will continue to increase on a higher level than world GDP growth - with China being the "model."
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Foreign security firms guard China as crime rises
Mon Jun 5, 2006 2:10 AM ET

By Jerker Hellstrom

SHANGHAI, June 5 (Reuters) - Fifteen years ago a wooden door with a padlock was enough to protect a home or shop in downtown Shanghai. Now reinforced metal gates, shotgun-toting security guards and fleets of armoured cars are signs that times have changed - and foreign investors are hoping to profit.

With crime on the rise as China's economy booms, security products and services are becoming a hot ticket for an armada of overseas investors, many of which serve foreign-owned companies and factories in China.

They have plenty to protect: approvals for foreign direct investment in the booming economy topped $18 billion in the first four months of this year alone, bringing the total to a whopping $488 billion over the last ten years.

At the same time, cases of crime in China grew eight-fold between the mid-1980s and the mid-1990s, as social disparities increased, according to official data. Crime has risen another 7 percent in the last four years.

"Security companies have a huge potential. The security industry in this country will be as large as America's within the next 10 years," said Peter Humphrey, founder and managing director of ChinaWhys, an international business risk advisor.

China's market for security equipment is already worth about $3 billion annually, accounting for about 4 percent of global sales. It is expected to grow at around 16 percent annually through 2008, according to research firm Freedonia.

U.S. conglomerate Tyco International Ltd. <TYC.N> is betting on strong growth for its fire alarms, burglar alarms and video surveillance systems.

"The rapid growth beginning in China just mirrors what is happening here economically," said Mark Barry, Asia president of Tyco Fire & Security, which says it is the world's top provider of video surveillance equipment and systems.

"As the growth of this economy continues, there's a similar growth in security products themselves."

UNDER-POLICED

China's economy has expanded at around 10 percent annually for three straight years and is on course to post similar growth in 2006.

But the boom has a darker side, creating a deepening gulf between rich and poor that has helped to spark a growth in crime, leaving police overworked and looking for help.

"There's a steady trend in criminalisation in China, and the police are struggling to keep up with it," said Humphrey. "The general police in China are probably under-resourced and under-trained to manage the kind of new crimes that are emerging."

Despite the market's growth, foreign firms are still largely limited to selling security hardware and electronics such as alarms and monitoring systems.

They are still mostly locked out of the lucrative security services sector, which includes guarding and cash-in-transfer services, said Ken May, China general manager of Group 4 Securicor Plc <GFS.L>.

Foreign firms have been able to partly get around the ban by providing building management services in some instances that effectively include personnel who double as security guards.

But Anglo-Danish Group 4 hopes that new rules expected later this year will let more of its guards into China, allowing it to grow beyond its current force of 1,000.

"If the regulations could allow us to operate freely, I think we could be at least double that, if not triple that, in two years' time," May said.

"I liken it to India, where we started 17 years ago with almost nothing. We now have almost 100,000 guards in India. We want to do the same thing in China."