Previous Quarterly Editions
Expropriation Risk: 66 69 69 69 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:28 28 26 24 ▼Exchange Transfer and Trade Sanction Risk: 45 45 45 45 ►Sovereign Default Risk:37 27 37 37 ►
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Chinese policy reflects the ruling Chinese Communist Party (CCP)’s priorities. Broadly, these are captured by the ‘centenary goals’ to achieve “basic socialist modernisation” and “modest prosperity” by 2035, and to build China into a “modern and powerful socialist country” by mid-century. This implies preserving the CCP’s political authority while acquiring the technological and military capabilities to put China on equal footing with the world’s technologically advanced nations, most significantly the U.S.
International economic and technological integration is viewed as a condition for progress towards these goals. China president Xi Jinping re-emphasised this when senior CCP leadership met in September 2022. Despite increasing friction in China’s relations with the U.S. and its allies, the CCP still recognises the need for dialogue.
Simultaneously, the CCP views the U.S. and, to some extent, other Western states as a source of threats to its political authority and to China’s national security, particularly regarding Taiwan’s status. Although relations with the U.S.-aligned advanced economies are worsening, China still enjoys considerable political influence and economic access around the developing world.
Yet in terms of resource endowments, military capability, and mutually compatible strategic interests, Russia is the only state that currently provides China with a significant partner to counterbalance the U.S.-led group.
China-Russia cooperation is strategic but limited. For Beijing, a secure border with Russia frees military resources for confronting the U.S. in the western Pacific. Russian research institutions are still making significant advances in certain technological fields such as robotics, making them attractive collaborators for the Chinese. Russia can also provide China with legacy knowledge regarding military and aviation systems, and experience gained through recent combat operations.
However, the latter’s benefit may be under re-evaluation by the Chinese in view of Russia’s poor military performance in Ukraine. Sanctions imposed against Russia by the Western allies have led private and state-owned Chinese companies to freeze business dealings with Russian clients and negotiations for future projects, reflecting their priorities regarding international partners. China does not appear to be providing any significant military-related transfers to Russia, at least officially.
There are rumours of discontent within China over Xi’s promotion of relations with Russia, particularly the declaration of an “unlimited partnership” during Russian President Vladimir Putin’s last visit to China before the Russia/Ukraine crisis began in February 2022. However, there is nothing concrete in the public domain to suggest this issue is significantly undermining Xi. Officially, Beijing’s stance is unchanged since the start of the crisis: it has refused to join sanctions against Russia and has said that bilateral exchanges in science and technology will continue.
Whatever Xi’s political fortunes, the basic strategic logic of partnership with Russia is unlikely to change for Chinese policymakers. The two states first announced a ‘strategic partnership’ in the mid-1990s. Today, Chinese threat perceptions of the U.S. are growing with the expanding range of U.S. measures to curb Chinese access to foreign technology and escalating tensions over Taiwan.
While this rivalry makes a relatively stable and friendly Russia indispensable to China, they also have little interest in helping Putin prosecute his goals for their own sake. Russia is only a supporting player in China’s broad-based drive for economic and military development and in its diplomatic initiatives to promote goals defined by the Chinese. Russia will not ‘call the shots’ in the China-Russia relationship, especially as Russia’s utility to China as a partner is declining.
Increasingly, Chinese authorities are focusing on foreign high technology providers in priority sectors. Such firms are still generally protected by China’s need for their technological contributions, and for their assistance in lobbying against the trend in their home jurisdictions towards restricting exchanges with China. But foreign firms in general face an increasingly difficult environment, given the national policy priority on self-reliance and promoting domestic firms.
China’s 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 to, amongst other things, 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 U.S. defence firms in connection with their arms sales to Taiwan. It was not made clear what the sanctions entailed.
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 done recently.
The CCP’s political control apparatus is sophisticated and well-resourced with it being virtually impossible to mobilise or coordinate any political opposition. Outbreaks of localised violence targeting local officials over specific grievances do occur, but the system can crush them before they gain momentum or spread. Authorities are also practiced at combining forceful repression with half measures to defuse discontent. An example is provided by the response to mass protests and mortgage payment boycotts linked to the slow-burn crisis in China’s overleveraged real estate sector.
An elite-level coup is conceivable but there is nothing to suggest this is currently a significant risk, partly as the most obvious figures around whom opposition to Xi might have coalesced have been removed. A coup in any case would likely remain ‘within the system’, and perhaps even remain concealed for some time afterwards.
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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 significant 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 surveillance and social control systems 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 ‘de facto sanctions’ have been used against South Korea, Australia, and Lithuania. Restrictions can affect imports and exports. The industries targeted vary but are typically those holding minimal strategic importance to China’s economy 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 mentioned above and the ‘Unreliable Entity List’, give Beijing means of imposing sanctions directly and overtly, with associated deterrent effects. The field and range of such tools continues to expand. For example, the 2021 Data Security Law provides for extraterritorial exercise of jurisdiction to retaliate against foreign government measures seen to harm Chinese interests. Cross-Border Data Transfer Regulations adopted in 2022 make a potentially wide range of data transfers out of China subject to security review by Chinese authorities, which will likely encourage data localisation by foreign firms operating in China.
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 and risking countersanctions by China.
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The central government’s fiscal position is sufficiently strong that there is negligible risk of it being unable to meet its debt obligations. It is possible, however, that a 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.
