Previous Quarterly Editions
Expropriation Risk: 65 65 65 69 ▲ Political Violence Risk: 48 48 48 48 ► Terrorism Risk: 30 28 28 26 ▼ Exchange Transfer and Trade Sanction Risk: 55 45 45 45 ► Sovereign Default Risk: 37 37 37 27 ▼
TREND ▼
Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
President Xi Jinping, who is likely to remain in power until 2027 at least, considers environmental policy a high priority, including climate change. His administration has adopted 'ecological civilisation' as a signature ideological slogan and increased the enforcement power of the Environment Ministry within the bureaucratic system as part of a sweeping reform of the government structure in 2018. It has also increased the weight of environmental targets as criteria by which officials are assessed for promotion. China's national emissions trading scheme (ETS), which began last year, is the world's largest, covering 12% of global CO2 emissions, and will expand further.
Xi has committed China to achieving peak emissions by 2030 and net-zero by 2060. The former target will likely be met, while the latter may not but is taken seriously and significant progress towards it is likely.
A perennial threat to emissions reduction is the tendency of officials, particularly in the lower tiers of the bureaucracy, to protect jobs in the short term at the expense of long-term environmental goals. Were China's economy to sink into prolonged economic distress, its national leaders too would consider unemployment a greater threat to regime security than climate change and treat emissions reduction as a luxury they could not afford.
China's share of greenhouse gas emissions is so large that Beijing could, if it chose, singlehandedly sabotage global efforts to mitigate climate change. This gives Beijing unique leverage in climate negotiations. It tries to push as much of the cost as possible onto developed countries, whose living standards and emissions per capita are higher than China's.
Climate change policies in China are led from the top down by the Communist Party leadership. China has no civil society and there is very limited scope for individuals or groups outside government to put pressure on the central government or make demands of it. However, environmental non-governmental organisations are tolerated and even encouraged to the extent they
assist the central government in implementing its climate policies, for example by training personnel or disseminating knowledge.
There are official channels for citizen petitions, and a certain amount of citizen activism is possible on the internet, but this is often directed at local problems or smog rather than greenhouse gas emissions. The overlap between the two problems is only partial. For instance, relocating coal power and heavy industry away from heavily populated areas mitigates urban air pollution but does not by itself reduce greenhouse gas emissions and can even increase them.
China's geography makes it inherently vulnerable to floods, droughts and typhoons. Much of inland China is arid. Water stress is a chronic problem. Floods and famines feature prominently in the cultural canon and historical memory, often implicated in rebellions and civil wars. Flood control and famine relief have been regarded as critical functions of the government for millennia, and citizens today still judge their government's performance on its ability to manage the country's frequent natural disasters. Extreme weather resulting from climate change therefore has high political salience and poses a direct threat to regime legitimacy.
However, the damage to property and life caused by natural disasters is a product not just of their severity but also of a country's capacity to respond. As China has grown richer, the quality of its infrastructure has improved, and the state's emergency response and relief capabilities have increased. So far, China's growing resilience and response capabilities have outpaced the rising threat.
China plans fundamentally to change its energy mix to create what Xi has called a "new power system". Over the next decade, 1,200 gigawatts of solar and wind energy will be installed, equivalent to the entire U. S.’ electrical capacity. Nuclear power capacity
will also increase sevenfold from present levels. China is largely self-sufficient in its nuclear power technology, which is generally regarded as high-quality and safe.
China is also a world leader in nuclear fusion research and aspires, realistically, to become the world leader in space-based solar power. Both technologies could make a potentially game-changing contribution to emissions reduction.
TREND ▲
The Chinese government has not expropriated foreign property overtly since the early Maoist period and shows no inclination to do so. However, locally, it is possible authorities might force a foreign firm to divest at a low price or on unfavourable terms, or effectively force it to remain when it would rather leave.
The Anti-Foreign-Sanctions Law explicitly authorises the government, among other things, to seize real estate and other assets of individuals and organisations that "directly or indirectly participate in the drafting, decision-making, or implementation" of sanctions against China.
The law was used for the first, and so far, only, time in February 2022, to sanction the U.S. defence firms Lockheed Martin and Raytheon Technologies in connection with their arms sales to Taiwan. It was not made clear what the sanctions entailed.
Beijing's past behaviour suggests it will not use its power to seize foreign assets readily, as it did not in practice need a legislative basis for it anyway, but the creation of a legislative basis would make the process more straightforward, so, other things equal, the risk has risen.
There is also the possibility of government pressure on large foreign firms to make philanthropic donations of money or resources, as the domestic internet giants have recently done.
TREND ►
The Chinese Communist Party’s political control apparatus is sophisticated and well-resourced and makes it virtually impossible to mobilise or coordinate any kind of opposition political movement.
Outbreaks of localised violence targeting local officials over specific grievances do occur, but the system is able to crush them before they can gain momentum or link up with people with similar grievances elsewhere.
An elite-level coup cannot be ruled out, but there is nothing to suggest this is currently a significant risk. A coup in any case would likely remain ‘within the system’, and perhaps even remain concealed for some time afterwards, rather than a violent conflict playing out in public.
In a country of China’s size, isolated acts of violence by individuals with grudges inevitably sometimes occur and can include bombings. However, the only potential for organised terrorism in pursuit of a political agenda comes from Xinjiang. The government claims terrorists in or from this region 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 systems of surveillance and social control in Xinjiang.
Beijing has a record of selectively applying regulations to hurt firms from countries whose governments say or do things it objects to. Such undeclared but de facto sanctions have been used against Japan, South Korea and Australia. Restrictions can affect imports and exports. The industries targeted vary but are typically those holding little importance to China’s economy and significant, if not necessarily overwhelming, importance to the target country. A series of laws and regulations introduced over the last few years, most importantly the ‘Unreliable Entity List’, give Beijing means of imposing sanctions directly and overtly too.
The Anti-Foreign-Sanctions law authorises the government to apply sanctions in a tit-for-tat manner to foreign individuals and organisations that "directly or indirectly participate in the drafting, decision-making, or implementation" of sanctions against China. Countermeasures may include denial or cancellation of visas, deportation, seizure of real estate and other assets located in mainland China, prohibiting transactions and cooperation with mainland 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 on the one hand and risking countersanctions by China on the other.
Return to contents Next Chapter
The central government’s fiscal position is sufficiently strong there is negligible risk of it being unable to meet its debt obligations. It is possible, however, a Chinese state organ might, without making it explicit, decide to withhold or block payment to a foreign creditor deliberately, as a means of applying pressure on that firm or its home government for political reasons, most likely as part of a broader suite of measures.
