Political Risk Rises in China

As the nation diversifies its economy, even U.S.-based multinationals may be targeted for protests.

dragonAs Chinese, Taiwanese and Japanese ships challenged each other over some tiny rocky outcroppings in the Sea of Japan in September, both Toyota and Nissan announced late last month that they were cutting back production of their vehicles in China—Nissan for eight weeks. The reason: protests by angry Chinese citizens at Toyota and Nissan dealerships in China that led to damage to some locations and concerns about a boycott of Japanese products, which some auto industry analysts suggest could be relatively long-lived.          

Might the same thing happen to American companies in China someday during some diplomatic flare-up between the two countries?

Hal Sirkin of Boston Consulting Group“U.S. companies have to be in China,” says an analyst with long experience in Hong Kong and China who currently works for an advisory firm with a number of clients with investments in China. “The market is just too big and too important to ignore. But they should be aware that they could become political targets someday.”

Hal Sirkin, senior partner and managing director at the Boston Consulting Group, says, “Good companies are always thinking about risk. In general, intellectual property risk was No. 1 for U.S. firms in China, but now I’m sure corporate risk managers are thinking about political risk there too.

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