1. Political risk
1.1 Foreign political environment
1.1.1 Political Turmoil.
Since “9.11” events, terrorism and global anti-terrorism become a prominent features of international politics. The overseas Chinese workers are facing more safety problems. The threats includes regional conflicts and terrorist incidents, interests conflict between Chinese investors and operators of host countries, the racial discrimination, and “anti-Chinese” sentiment. The statistics show that up to 2006, Ministry of Foreign Affairs had dealt with more than 30, 000 various types of security incidents. Up to December 25, 2006, at least 558 Chinese citizens were detained or influenced by the turmoil, and at least 37 people in 76 murder (robbery, theft, shooting) were killed, 42 injured.
1.1.2 Policy Risks
china's overseas investment projects mainly focus on the energy resources sector, but the commitment to the rights of resource exploration, mining, purchase are made by the existing government. Once the government changes, these policies promise might fail, and the investment will then lose its foundation for development.
1.1.3 Exchange risk
According to Lang Xianping’s opinions, the exchange rate is one of the means of the Governments to achieve a political and economic purposes. This is due to the pressure of appreciation/depreciation, speculation of international financial forces and domestic macro-economic profile. The uncertainties of These forces increase the exchange risk .
1.1.4 Protection risks
Due to the absence of investment protection agreement, investors can not get compensation of the losses resulting from the political risk. This increases the safety risks of overseas investment.
1.2 Domestic political environment
1.2.1 Management problem
Because the management of foreign investment are complex and the overall planning are not so clear, enterprise may face difficult or blind when investing overseas.
1.2.2 Ineffective supervision
Due to the weak supervision, foreign investment may face risks of loss of state assets, ineffective bank credit control, and prior risk monitoring mechanism.
1.2.3 Lack of Service
As foreign investment basically belongs to project examination and approval system in china, which lacks public services such as supervision, tracing, analysis, guidance and consultant. Many enterprises know little about the laws, exchange policy, tax policy, environmental policy of the host country, and this would result the risk of insufficient and asymmetric information.
2. Commercial risk
2.1 Financial risk
There are mainly two methods of Overseas financing, one is from the international financial institutions, and the other is issuing bonds on international capital markets. With the changes in domestic and international financial environment, the constraints of such financing methods are apparent: First, the debt burden of countries and enterprises continues to increase, which significantly increased the exchange rate and interest rate risk; secondly, the means and channels of overseas financing are too few which can not meet the financial of business; Third, the lack of flexibility means of financing can not meet the business development and investment effects requirements.
2.2 Decision Risk
china's overseas investment decision risk is primarily reflected in the following two aspects.
2.2.1 There is no risk analysis and control process in the decision making, therefore it is difficult to guarantee the correctness and scientificity of decision-making.
2.2.2 Lacking of effective process control mechanism and supervision process results in the inefficient enforcement of plan. And when the situations changes, no measure to quickly settle result in the deterioration of the whole situation.
In addition, there is credit risk of partners, risks of losses because of excessive competition in investment, risks of losses from speculation in the international bulk trade and a series of market risks.
3. Other risks
Other risks includes mismatch of accounting system between china and foreign countries, raising their income taxes, limit of property right, loss of state assets, and natural disasters such as tsunami, earthquake, disaster froze, all those risks shall be taking into consideration when making the decision of foreign investment.