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China is particularly hazardous with respect to political risk. The possibility of nationalization ofindustries needs to be considered. In fact this has already occurred in China (in 1949). Similarly,there are the risks of confiscation, expropriation, currency inconvertibility and contractrepudiation. Currency devaluation and rampant inflation are possible scenarios in manycountries, wreaking havoc on the adequacy of insurance limits, as one of many potentialproblems. There is also risk to company employees of personal harm or kidnapping, and risk tothe firm of extortion attempts. A unique form of political risk occurs in China, and this is theconstant battle between the country’s central government and the provincial and localgovernments over applicable law, and observance or non-observance of it. This makes it difficultfor companies operating in China to know exactly what the rules are (China Political RiskManagement, 2009).
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