Political Risk And Management Of China's Direct Investment In ASEAN

In the21st century, the rapid development of economic globalization hasaccelerated the multinational companies’ development pace of the Foreign DirectInvestment in the world, especially for the Western countries. Due to the broadmarket space, abundant natural resources and cheap cost of production factors, somedeveloping countries and regions have become the object for the multinationalcompanies to invest. The Association of Southeast Asian Nations (ASEAN) wasestablished in the1960s. After half a century of development, the level of economicdevelopment of ASEAN countries has been greatly improved. In recent years，withthe unrest of political situation tending to be stable, the investment environment hasbeen greatly improved in the ASEAN. The flow and stock of foreign directinvestment continue to rise from the world to the ASEAN.China is one of the important investment partners of ASEAN. After more than30years’ reform and opening up, the economic and social landscape of China hasgreatly changed, and the comprehensive national strength has been greatly enhanced.In2000, the Chinese government proposed the strategy of "going out", encouragingqualified Chinese enterprises to go abroad to conduct foreign direct investment.Meanwhile some industries were also facing the situation that the domestic marketwas saturated and domestic demand was insufficient in China. In such anenvironment， some stronger Chinese enterprises have started the pace ofinternational investment.ASEAN market has become the first choice for manyChinese enterprises. China-ASEAN Free Trade Area was fully built up from2002to2010. The ASEAN countries provide various preferential policies for Chineseenterprises to invest ASEAN. The scale of China’s direct investment continues toexpand, the pace continues to accelerate in ASEAN. However, due to politicalinstability and constant conflicts in some ASEAN countries, political risk is alsoincreasing in the process of Chinese investment in ASEAN，bringing a variety of property damage and personal injury to the Chinese investment enterprises.Therefore, in order to improve consciousness and ability of Chinese enterprises toguard against political risk in ASEAN, this paper will analyze the political risksexisting in ASEAN countries, and put forward the corresponding risk managementstrategy to reduce the adverse effects caused by political risks to Chinese enterprises.Firstly, this paper reviews the relevant theories of foreign direct investment andpolitical risk and previous research, the definition, classification and assessment ofpolitical risk are summarized, laying the theoretical foundation of the whole study.Secondly, it carefully analyses the general development situation of China’s directinvestment in ASEAN, and summarizes the characteristics and motivations ofChinese investment in ASEAN. Then it focuses on the analysis of all kinds ofpolitical risk faced by the Chinese enterprises in the investment to ASEAN, and thecauses of these political risks from three aspects of international factors, host factorsand Chinese enterprise own factors. This paper also creatively carries on empiricalanalysis on the relationship between political risk and China’s foreign directinvestment in ASEAN. Based on the econometric regression analysis of ASEANcountries panel data during1998-2012, the regression results show that political risksignificantly inhibited the Chinese direct investment in ASEAN countries. Finally,aiming at all kinds of political risk in ASEAN countries，this paper put forwardmanagement strategies coping with the political risk from two aspects: the Chinesegovernment and enterprises.