Risk Perceptions and Mitigation Strategies of Chinese Companies Investing in Pakistan

Abstract

A study under the auspices of Institute of International Relations & Media Research revealed that Foreign direct investment (FDI) from China plays a crucial role in addressing Pakistan's development challenges and driving investment-led growth. However, Chinese companies face significant risks, primarily security volatility, economic uncertainty, instable policies, bureaucratic quagmires and political limbo. Frequent changes in government, whether through multiple factors or others influences often lead to shifts in economic policies, regulatory frameworks, and investment priorities.
This Research involving insights and interviews of hundreds of Chinese companies working in Pakistan revealed that on Risk Chart 1- 5 (valuing 5 maximum risk and 1 the lowest risk) security concerns ranked as highest gravest risk, with 4. 83 severity level (almost 96.6 percent), encompassing safety threats from non-state actors and geopolitical pressures. Economic uncertainty followed with a 3.67 severity level (almost 73.4 %), stemming from fluctuating economic policies influenced by internal and external factors. Other risks include political unrest, global geopolitical influences, and structural challenges. Role of non-state actors, often operating at the behest of global powers under geopolitical agendas also pose a significant risk for Chinese investments.
To mitigate these risks, Chinese companies identified hiring local talent and partnering with local businesses as the most effective strategies. Local hiring help minimize risks for foreign companies. Engagement with local hiring and local businesses create an environment in which employees feel sense of ownership with Chinese companies’ stakes and prospects. Local employees help companies to align with indigenous economic & market dynamics, cultural influences, social influences and religious influences.
On Mitigation Strategy Chart 1-5 (Valuing 5 maximum effectiveness and 1 lowest effectiveness), Hiring local talent achieved 4.17 effectiveness level (almost 83.4%), while partnering with local businesses scored 73.4 % effectiveness. Despite these challenges, most companies consider Pakistan a viable long-term investment destination.