Political Risk

Political risk refers to government interference in the business affairs of foreign persons or companies doing business in a particular country. The type of interference can range from outright nationalization of industries through asset confiscation, and on to contract repudiation with respect to contracts with government entities or government owned firms.

In the US, a stable government with known rules and regulations is presumed. This is not necessarily the case in all parts of the world, and China is particularly hazardous with respect to political risk. The possibility of nationalization of industries needs to be considered – in fact this has already occurred in China (in 1949). Similarly, there are the risks of confiscation, expropriation, currency inconvertibility and contract repudiation. Currency devaluation and rampant inflation are possible scenarios in many countries (although they don’t seem likely in China at the present time), wreaking havoc on the adequacy of insurance limits, as one of many potential problems. There is also risk to company employees of personal harm or kidnapping, and risk to the firm of extortion attempts.

A unique form of political risk occurs in China, and this is the constant battle between the country’s central government and the provincial and local governments over applicable law, and observance or non-observance of it. This makes it difficult for companies operating in China to know exactly what the rules are. The concept is captured by the Chinese saying: "The mountains are high and the Emperor is far away."

We will keep your aware of the ever-changing political risk situation, help you navigate through it, bring to you our network of professionals on the ground in China including Hong Kong, and advise when and how political risk insurance may provide solutions.

talks capitalism, but breathes socialism… Karl Marx believed that socialism presupposes capitalism; in other words, that society has to undergo capitalist transformation before the correct conditions for socialism can exist…. An economy containing privately owned businesses is just one of those things, like adolescence, that one has to go through. How long will this capitalist phase last?”

Gordon G. Chang, author of The Coming Collapse of China