China's investment environment: the security dimension

Abstract

Since 1978 China has been reforming its economic system and pursuing an open door policy and has made remarkable progress in its economic performance. It is widely believed that China will continue to grow in the coming decades and that it will offer huge opportunities for foreign companies and investors. Much has been written on the internal characteristics of the Chinese market and how they might be influenced by social and economic change within the country. But the security dimension of China's investment environment has received little attention. This article attempts to fill a significant gap in the existing literature. It argues that unless foreign companies are aware of and prepared for the security challenges to a stable investment climate in China, they will not be able to fully benefit from what could be the world's biggest market in the twenty-first century. Three major external security challenges can potentially have negative effects on foreign investment in China: China's unresolved territorial disputes with its Asian neighbours; arms proliferation in the Asia-Pacific region; and China's fluctuating relationships with the United States and Japan. There are also three inter-related internal security factors which need to be considered: the rise of economic regionalism; leadership succession; and the role of the military in post-Deng Chinese politics. Despite these security uncertainties China remains a major market in the world which no business leaders can afford to ignore. There are both risks and opportunities in the Asia-Pacific region, and for China in particular. Foreign companies must try to understand the complexity of the security dimension of China's business environment, including domestic economic and political changes which could have security implications as well as external forces that shape China's security perceptions and policies and formulate their business strategies accordingly.