Political Risks in China
Due to the related political concerns, China is seen as a risky location to begin or continue operating a business. Before beginning a business or continuing operations in China, any international management should understand the various political risks that are connected to the country. There are many political dangers in China, along with concerns of kidnapping or other physical injury, which primarily affects employees of businesses, and risks of organization-led extortion efforts. There is a unique kind form of political risk that is characteristic of the business environment in China and this has been the cause of the never-ending battle between the central government and the local and state governments in relation to the applicable laws and whether they are being observed or not. This political environment has made it challenging for businesses that wish to start their operations in China or those that are already operating in China to exactly understand what the rules are (Foreign Relations, 2003).
Political Stability in China
The political stability in China is one of the leading political risks in China. The foreign business activities levels in China following the Tiananmen Square massacre has greatly reduced in several areas and this includes foreign investment and tourism (China Political Risk Management). While the businesses that have not already had their operations running in China are concerned about continuing to invest in the country, those that have already invested appear to be waiting for the quiet period when the economic progress is likely starting again and with the hope that China will not get to the point that it will have to expel investors from other countries in the meantime (China Political Risk Management).
Foreign Manufacturing and Political Stability
There is no possibility of foreign manufacturing firms and joint ventures will be forced to close down following the situation of the current regime, however, the political stability in the nation remains a big concern to foreign investors. In addition, the economic growth and reforms in China dating back to 1978 has dramatically improved, there has been an increase in social mobility, and personal freedom has really expanded. The above implies that currently, there is greater travel freedom, more cultural and educational pursuits, employment opportunities, more housing and jobs choices, as well as information access. The recent past has also witnessed the country pass new civil and criminal laws that mean additional safety for both citizens and foreigners (China Political Risk Management).
Managing Political Risks in China
China has been recognized as being one of the best investment illustrations in relation to the significance of managing political risks. In the last twenty-five years, the economic reforms in the nation have resulted to a rapid increase in foreign investment, extremely rapid growth, rescued millions of citizens from poverty and moved the companies operating in China into a global stage. However, the economy of the nation and the foreign business that rely on the vitality of the country remain specifically vulnerable when it comes to external shocks like global commodity prices, regional political unrest, epidemics, and Western world protectionists’ sentiment (World Bank Report, 2008).
Volatility and Uncertainty in China
The rapid growth has resulted in the dislocation of many people following companies that are owned by the state shedding employees; increasing wealth gaps, public resistance in relation to land redistribution, and major accidents in industries, have all resulted in social instability. Such volatility is likely to force sweeping action by the state and this includes systemic crackdowns, social spending at a large scale; supply chain disruption, fixed assets being endangered and the erosion of the confidence of investors (Foreign Investment in China).
Challenges for Foreign Companies
Foreign companies having their operations in China complain of uncertainty and this is caused by the investment climate that has been influenced politically. In this sense, Chinese competitors at the local level, in most cases are better placed to navigate the complex business environment in China (Glasse, 2010). There is poor enforcement of the legal protections; inconsistently protected copyrights in addition to the murky financial system and only favor entities that are owned by the state. There is also always the retaliatory protectionist policies threat that tends to favor only the local companies at the expense of companies from other countries.
Reputation Risks for Foreign Organizations
There are also reputation risks on foreign organization in the home nations. The same way that Yahoo and Google have been criticized sharply for allowing the government of China to interfere with the consumer Internet use in the United States, other organizations are likely to be accused to be engaged in unfair labor practices or encourage environmental conditions that are not safe (Glasse, 2010).
Conclusion
Many international managers make costly mistakes in relation to managing political risks while opening up their organization practices in other countries. In the case of China, an international manager has to take into consideration the political risks before deciding whether or not to start a business in China or continue its operations in China. Some of the political risks associated with China include poor reputation risks on organizations from foreign country, uncertain investment climate, dislocation due to rapid growth and unstable political climate.
References
China Political Risk Management. China Monitor. Retrieved December 10, 2017, from http://www.chinariskmanagement.com/Political.html
Foreign Investment in China. USCBC. Retrieved December 10, 2017, from http://www.uschina.org/info/forecast/2007/foreign-investment.htm
Foreign Relations. (2003). Relations with Neighboring Countries. Retrieved December 10, 2017, from http://www.china.org.cn/english/en-shuzi2004/dwgx/dw-zb.htm
Glasse, J. (2010). Foreign Business in China Political Instability. Retrieved December 10, 2017, from http://www.faqs.org/abstracts/Business-international/
World Bank Report (2008). GDP and economic indicators of China, Retrieved December 10, 2017, from http://www.worldbank.org
