Research On The Formation Mechanism Of Political Risks In International Construcion Projects

International contracting is acknowledged as comprehensive economic activities, with characteristics of high investment, wide scope and long construction period. With the extension of Chinese international contracting affairs overseas, losses caused by political risks emerge an inevitable problem. Though extant researches are generally conducted within the scope of identifying and evaluating political risks, studies focusing on political risk formation mechanism are still scant. In the complex and variable international political atmosphere, demonstrating the formation mechanism can contribute to the subsequent risk evaluation and response work from theoretical point.The level of political risk is influenced by the international environment, domestic environment of host-country and the industrial environment. Also, the vulnerabilities of both corporation and project are indispensable impact factors. The paper, which is based on a good understanding of external political environment and internal vulnerability of project, firstly identified 9 macro impact factors and 10 micro impact factors.7 categories of political events are clarified, based on which the political formation and transmission mechanism can be further analyzed. Subsequently, based on combing the complex connections among impact factors and the risk events,7 types of causality trees are constructed underpinned by causality tree method. System dynamic model is then adopted to reflect the procedure of political risk forming and transmitting. Directed acyclic graphs are extracted from the system dynamic model to subsequently formulate the Bayesian network model. With macro- and micro- data obtained from 348 questionnaires, expectation maximization algorithm (EM) is adopted to assist the conditional probability learning procedure. Netica software can be employed to run the simulation. Finally, political risk network is verified with key nodes and critical paths of political risk network obtained. Case studies were respectively done in South Asia, sub-Saharan Africa, West Asia and North Africa where Chinese contracting are clustering. Various critical paths of political risk formation are demonstrated. The simulating results fitted the actual situations thus testified the accuracy and effectiveness of the simulation model.The outcomes can be conductive to improve the research system of political risk, which means following standard political risk network building procedure and then deducing the critical path to clarify the related formation mechanism. International contracting practitioners can take measures to hinder related risk formation and transmission provided by identified key nodes, through which the controlling capacity of political risk could be enhanced.