China's economy began to expand rapidly after the country adopted its reform and opening-up policy in 1978. However, the pace of growth of China's economy has been slowing since 2015. There have also been increasing concerns about China's ambiguous stance toward market neutrality, opaque rule of law, and issues concerning product safety and intellectual property violations. Moreover, China's rise has led to instability in the surrounding regions and posed a challenge to the existing international order, as seen in the state's strained relations with Taiwan and its territorial disputes with neighboring states over the East China Sea and South China Sea. All these issues are collectively known as the “China risk”, a term referring to a variety of country risks involving China. This book is an attempt to elucidate, through comparative analysis of political risks, how companies in Japan, South Korea, and Taiwan perceive the China risk as they pursue business opportunities throughout the regions.
Since the days of the Cold War, cross-Strait relations have been viewed as a serious security concern for the East Asian region. Since China and Taiwan do not have diplomatic ties, businessmen from Taiwan cannot expect any guarantee from the Chinese government or support from Taiwan as they invest in China. Chapter 1 analyzes how businessmen from Taiwan have been dealing with China's provincial governments on their own under such restrictive conditions. China, when it adopted the reform and opening-up policy, began a “peaceful unification” initiative and called for economic exchange with Taiwan. However, the policy also has an object, which utilizes economic instruments as political leverage to induce specific desired outcomes. Chapter 2 analyzes how China used Taiwanese businessmen to influence Taiwan politics.
Chapters 3 and 4 are about South Korean companies. China has been South Korea's most important economic partner since the two states established diplomatic relations in 1992. Chapter 3 points out that South Korean conglomerates sought to maximize the economic benefits to be gained from China without paying much attention to the China risk, a strategy that led to the strengthening of the two countries’ economic ties. As pointed out in the concluding chapter, South Korea, unlike Japan, does not have historical issues with China that could strain the two countries’ relations. Therefore, for South Korean conglomerates, the China risk only refers to the domestic problems in China. Chapter 4 points out that small- and medium-sized enterprises in South Korea respond to the China risk differently. These companies spread the risk by investing in other states.
Chapters 5 and 6 analyze changes in Japanese companies’ perception of the China risk from 1972 to the present. Chapter 5 deals with Phase 1: 1972 to 1991 and Phase 2: 1992 to 2001. Chapter 6 focuses on Phase 3: from 2002 to 2011 and Phase 4: from 2012 onward. During Phases 1 and 2, China's anti-Japan sentiment did not affect the two countries’ business relationship. However, political risks stemming from anti-Japan sentiment gradually began to surface during Phase 3. During Phase 4, Japanese companies encountered anti-Japan demonstrations in China. In response, they adopted the China Plus One strategy, under which they diversified their investments and reduced their commitment in China.
Chapter 7 reiterates the importance of human relations – an issue taken up in other chapters as well – and summarizes the characteristics of the differing ways in which Taiwanese, South Korean, and Japanese executives interact with Chinese officials.
The concluding chapter summarizes three points: the influence of state relations, companies’ different approaches to the China risk in accordance with the resources they have at their disposal, and China's rise as a change factor. This chapter argues that companies’ differing risk perceptions are rooted in complex bilateral relations between China and the companies’ home countries.
There are two major features of this book. First, it focuses on the risks that companies may face when investing in China, even though many of the current discussions on the China risk tend to emphasize national security concerns. As far as I know, this book is the first study on the China risk published in Japan that compares and contrasts the responses of the three neighboring countries from the standpoint of companies. Second, the book provides an international comparative analysis from the viewpoint of companies. I investigated prior research on Taiwan's economic policy toward China at a time when Taiwan's direct investments in China were not yet very active. Most studies at the time were limited to theoretical discussions because of a paucity of data.Footnote 1 The authors in the book under review have provided their analysis using the abundance of data available today and interviews that they themselves had conducted. Thus, the analysis in this book is highly persuasive.
Political developments in each country may also bear out the book's assertions. In Taiwan, the Democratic Progressive Party, which supports Taiwan's independence, has won both the presidential election and the legislative election. This was the first time in Taiwan's history that a transfer of power took place both at the executive branch and at the legislative branch at the same time. What triggered this development was the so-called Sunflower Movement, in which student and civic organizations occupied the parliament building in March 2014. This negative reaction is exactly what is discussed in chapter 2.
After the publication of this book, South Korean President Park Geun-hye decided to deploy the THAAD missile defense shield. Chinese media said that the Chinese government would not hesitate to impose economic sanctions against South Korea in response. However, South Korea depends heavily on major conglomerates, which have sought to deepen their ties with China, to sustain its economy. Therefore, the book highlights potential problems that South Korean companies may face in dealing with the China risk before they actually surface.
Therefore, I agree with the analysis provided in the book, and think that it is based on outstanding research. But I still have some questions and concerns.
First, one of the consistent themes of this book is the importance of building human relationships and the training of human resources to achieve this end. However, the book does not make it clear how effective such human relations really are in handling the China risk. For example, the intellectual property rights issue is considered the most significant topic in the debate on the China risk. Peter Navarro, the director of the National Trade Council in the Donald Trump administration, criticizes China's handling of intellectual property violations by citing problems of pirated and forged products.Footnote 2 The book does emphasize the importance of building human relationships, but it does not attempt to demonstrate how such relationships may function when it comes to solving actual problems like the intellectual property rights issue.
Second, the book argues that companies take different approaches in handling the China risk depending on the different resources they have at their disposal. The book cites the case of Taiwanese companies that sought to address deteriorating labor–management relations in China by establishing better human relationships (pp. 19–31). However, it is ironic that Taiwanese companies typically face labor conflicts in their home country more frequently than Japanese or South Korean peers do in theirs. Taiwanese companies also face worker strikes and violence in Vietnam. For this reason, it is possible that labor conflicts in China may also be related to companies’ management strategies. But the book does not provide any comparative studies about the management strategy moreover, so this observation seems to be a general statement about the management strategy.
Still, these questions and concerns raised by me will not diminish the book's contribution to the comparative studies of the China risk, which remains an extremely important subject of research. This book is undoubtedly essential reading for those seeking to deepen their understanding of the China risk, and will certainly inspire many researchers to undertake their own studies to examine for themselves its viewpoints and conclusion.
