U.S. multinational investment firm BlackRock highlighted some of the main risks about China.
For starters, it stated that military conflicts, whether in response to internal social unrest or conflicts with other countries, could disrupt economic development.
For example, the Chinese economy is vulnerable to long-standing disagreements and religious and nationalist disputes with Tibet and the Xinjiang region.
Since 1997, there have been tensions between the Chinese government and many people in Hong Kong who perceive that China is tightening control over Hong Kong’s semi-autonomous liberal political, economic, legal and social framework. Recent protests and riots have further heightened tensions.
Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets.
China has a complex territorial dispute regarding Taiwan‘s sovereignty and has threatened an invasion. Taiwan-based companies and individuals are important investors in China. The military conflict between China and Taiwan may adversely affect the securities of Chinese issuers.
Second, China has strained international relations with Japan, India, Russia and other neighbors due to territorial disputes, historical animosities and other defense concerns.
Risks about China
Third, China is alleged to have engaged in state-sponsored cyber attacks against foreign companies and governments. Actual and threatened responses to such activity and strained international relations, including purchasing restrictions, sanctions, tariffs or cyber attacks on the Chinese government or Chinese companies, may affect China’s economy and Chinese issuers of securities in which a fund invests.
As a fourth point, China could be affected by military developments on the Korean peninsula or internal instability within North Korea.
These situations may cause uncertainty in the Chinese market and negatively affect the performance of the Chinese economy.
Finally, the Chinese government has implemented major economic reforms to liberalize trade policy, promote foreign investment in the economy, reduce government control of the economy and develop market mechanisms.
However, there can be no assurance that these reforms will continue or that they will be effective.
The Chinese government may intervene in the Chinese financial markets, for example by imposing trade restrictions or suspending short sales of certain stocks.