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Expropriation risk: 70 ► Political violence risk: 48 ► Terrorism risk: 22 ► Exchange transfer and trade sanction risk: 35 ▼ Sovereign default risk: 47 ►
Overall Risk Temperature: 50 (Medium -3) ▼
Special topic:
China’s one-party system means that overt expressions of ideological or affective polarization are minimal. The Communist Party monopolizes the political space, effectively rendering partisan hostility moot. It represses dissent and promotes loyalty by controlling discourse via institutions such as schools, workplaces, state media and academia to further political indoctrination and maintain ‘social harmony.’ Ideological rigidity and conformity encourage depoliticization among the broader public, with loyalty to the party purposefully conflated with patriotism. Polarization is thus not a major topic of discussion and concern in China.
Crises have on rare occasions fomented ideological polarization and street-level demonstrations. The 2022 ‘White Paper Protests,’ for instance, were ignited by China’s protracted zero-COVID policy and attendant strictures. However, China’s extensive surveillance apparatus and heavy-handed clampdowns by security forces generally deter protests.
Moreover, what public opinion data exists suggests that citizens overwhelmingly support the Communist Party, with any criticism largely confined to economic concerns deemed to undermine the party’s performance legitimacy. The party’s pervasiveness has around 100 million members and is embedded in both the public and private sectors — likely bolsters this trend, with party loyalty and connections to key members often a prerequisite for career advancement.
Polarization is likely to be greatest on the elite level. Elite polarization was significantly more pronounced in the pre-Xi Jinping era, though traces of competition remain between several factions within the party leadership.
Following extensive and prolonged anti-corruption purges since Xi came to power in 2012, the other factions have been greatly weakened. However, Xi’s purges have more recently pivoted toward targeting loyalists, he previously installed to replace those from competing factions, suggesting the purges have moved beyond a consolidation of Xi’s power to a routine mechanism of maintaining political control and ideological conformity.
Some observers have suggested that Xi’s intensifying purging of top-level officials undermines perceptions of political stability. The fundamental opacity of China’s elite politics complicates such assessments, and the party’s preeminence is broadly supportive of longer-term stability, though primarily economic risks remain.
Differences vis-à-vis policy direction, economic management and personnel appointments likely exist within China’s political, academic and business elites and can be thought of in terms of three categories: hard-liners (statist nationalists), reformists (market-oriented pragmatists) and neo-Maoists (socialist populists).
Xi and his clique comprise of hard-liners advocating for nationalism, state capitalism and disengagement with the West. By contrast, the sidelined reformists of the previously dominant factions favor market-oriented economic policies and engagement with the West. Reformists survive among the elite, particularly among prominent economists and entrepreneurs. Some have periodically openly criticized Xi’s statist economic policy, often gaining a considerable audience before they are rapidly censored or vanish.
Expropriation Risk 70 ( Medium high) TREND ►
China’s government has not expropriated foreign property overtly since the early Maoist period and shows no inclination to do so now. It is possible, however, that the local level authorities might force a foreign firm to divest at a low price or on unfavorable terms — or effectively force it to remain when it would rather leave. The government could conceivably pressure large foreign firms to make philanthropic donations of money or resources — that is, extort them — as the domestic internet giants did during the short-lived ‘Common Prosperity’ push in 2021. The Anti-Foreign Sanctions Law explicitly authorizes the government, among other things, to seize real estate and other assets of individuals and organizations that “directly or indirectly participate in the drafting, decision-making, or implementation” of sanctions against China. A new intellectual property (IP) rule effective from May 2025 expands its potential use against foreign governments deemed complicit in IP disputes involving Chinese firms.
Rather than expropriation of assets, the greatest threat to large foreign multinationals is the risk of being leaned on by the Chinese government to lobby their home government to become more friendly to China.
Political Violence Risk 48 (Medium) TREND ►
The Communist Party’s political control apparatus is sophisticated and well resourced. It is virtually impossible to mobilize any political opposition. Outbreaks of localized violence targeting local officials over specific grievances occur, but the system can crush them before they develop. Authorities are practiced at combining forceful repression with half measures to defuse discontent. The ‘White Paper’ protests across the country against the government's draconian COVID-19 regime in late 2022 demonstrated that the potential for mass protests is never completely extinguished. However, the conditions that led to these protests were extreme and exceptional, and they were short-lived.
Future episodes cannot be ruled out, particularly since a slowing economy may continue to drive public discontent. Significant events — such as the death of a senior former leader — can become flashpoints for public dissatisfaction that catch the party by surprise. An elite-level coup is conceivable, but any coup would likely remain ‘within the system,’ and perhaps even remain concealed for some time afterward, rather than spilling over into large-scale violence.
The most direct risk to foreign firms is that they will be targeted in politicized ‘counterespionage’ operations. In May 2024 a new state secrets law came into force, containing an undefined provision on ‘work secrets’ that could potentially be applied to foreign companies sharing information obtained through conventional research and due diligence.
Terrorism Risk 22 (Very low) TREND ►
In a country of China’s size, isolated acts of violence by individuals with grudges inevitably sometimes occur and can include bombings. There has been a notable uptick in violent ‘revenge against society’ lone wolf attacks by disgruntled individuals over the past year, including an incident in Zhuhai in November, where a man killed 35 people by driving his car into a crowd.
However, a terrorist attack has not occurred in over eight years. The government has highlighted Xinjiang and Hong Kong as the only potential sources for organized terrorism in pursuit of a political agenda. It claims terrorists in or from Xinjiang have caused more than 400 deaths since 1990. All but a couple of these incidents have been very small and unsophisticated, and none has occurred since 2017, when the government rolled out comprehensive surveillance and social control systems in Xinjiang.
A significant weakening of state capacity for any reason could lift the lid on extreme discontent, particularly among Uyghurs, with potential for widespread violence. However, rather than a lifting of restrictions, the government has declared they should be “normalized and institutionalized.”
The greater threat of terrorism arises from attacks on Chinese infrastructure projects overseas or in regions close to China’s borders in Central Asia rather than inside China itself, such as attacks on Chinese workers in Pakistan in March and October of 2024.
Exchange Transfer and Trade Sanctions Risk 35 ( Medium low) TREND ▼
Beijing has a record of selectively applying regulations to hurt firms from countries whose governments say or do things it objects to. Such de facto sanctions have been used prominently against South Korea, Australia, Canada and Lithuania. Restrictions can affect both imports and exports. The industries targeted vary but are typically those that hold minimal strategic importance to China and significant (if not necessarily overwhelming) importance to the target country.
A series of laws and regulations introduced in recent years — for example, the Anti-Foreign Sanctions Law and the Unreliable Entity List — give Beijing means of imposing sanctions directly and overtly, with associated deterrent effects. The range of such tools continues to expand. The Anti-Foreign Sanctions Law authorizes the government to apply sanctions in a tit-for-tat manner to foreign individuals and organizations that “directly or indirectly participate in the drafting, decision-making, or implementation” of sanctions against China. Countermeasures may include prohibiting transactions and cooperation with Chinese individuals and entities and “other necessary measures.” The law potentially puts foreign firms in a position of having to choose between violating foreign sanctions and risking Chinese counter sanctions. Since 2023, China has applied it against U.S. companies and individuals in connection with U.S. arms sales to Taiwan and the imposition of U.S. sanctions on Chinese entities linked to alleged human rights abuses in Xinjiang.
The Ministry of Commerce on February 4, 2025, added U.S. retailer and Calvin Klein-parent PVH Group and U.S. biotechnology firm Illumina to the Unreliable Entity List over alleged “discriminatory measures against Chinese enterprises.” China simultaneously imposed additional tariffs on certain U.S. imports in retaliation to new U.S tariffs on Chinese goods imposed by Trump.
Sovereign Default Risk 47 (Medium) TREND ►
Ratings agencies have been lowering China’s credit rating over the past year due to increasing risks in China’s public finance outlook — a development met by criticism in Beijing. On a national level, China remains overall in a relatively strong fiscal position and is at moderate risk of being unable to meet debt obligations, but the central government has continued to issue large amounts of debt, contributing to a rising debt-to-GDP ratio. Risks remain on the level of local governments due to a high volume of hidden and off-balance-sheet debt. Although China’s economic slowdown and recent China-U.S. trade war intensification could amplify debt servicing challenges, Beijing has positioned itself to rapidly deploy further fiscal support if tensions escalate. While such support could ease liquidity challenges temporarily, underlying structural issues, including an overreliance on land sales for revenue, would remain unresolved.
It is possible that a state organ might, without making it explicit, decide to withhold or block payment to a foreign creditor as a means of putting pressure on that firm or its home government for political reasons, most likely as part of a broader suite of measures.
