The Research On The Impacts Of Political Risk On China’s FDI Location Decisions

With the development of economy, the scale of China’s FDI is also growing. In thisprocess, the political risk has caused much loss. Therefore, it has great significance tostudy the influence of political risk on FDI location decisions. With the consideration ofthe lack of mechanism analysis of location decisions in former researches, as well as thecurrent foreign direct investment focused on high political risk countries. The paper hastried to improve the mechanism analysis of location decisions, and studied the differentimpacts of political risk factors on FDI location decisions.Based on the related researches, the paper has sorted out the connotation andextension of political risk, and found that the political risk could be divided into twocategories: the system political risk and the diplomatic political risk. The system politicalrisk included political institution, government governance and the social economic risk.The diplomatic political risk included the bilateral diplomatic relations. On the basis oftransaction cost theory, the impacts of political risk on FDI location decisions had beenequivalent to the cost-benefit decisions. It has solved the limitation of lack of mechanismanalysis. In addition, based on the four aspects of political risk, the paper studied on thedifferent impacts of the eight political risk factors on China’s FDI location decisions.Finally, in order to avert the political risk, we make targeted policy recommendations.