With corruption on the rise it has become a major contributor to changes in a countries economy. In order to measure this and portray the corruption of public sectors in countries and expose governments the corruption percentage index was designed to expose the reality of corruption and that it must be stopped. In accordance with the Transparency International (2018) the CPI is essentially a measure of corruption amongst 180 different countries and they are scored on a scale of 0-100 with 0 being very corrupt and 100 being very clean. As at 2017, China has scored a 41 which has improved from the previous 3 years giving them a rank of 77 out of 180 countries (www.transparency.org, 2018). As for the Philippine’s as of 2017 they have scored a CPI of 34 which has only gotten worse over the past 3 years, ranking them at 111 out of 180 countries (www.transparency.org, 2018). This show China has a lower level of perceived corruption when compared to the Philippine’s.
There are many factors which contribute to these changing CPI’s of either countries. With China being one of the world’s fastest growing economies there is a lot of illegal business that occurs ‘under the table’. Especially with high concentrations of state ownership or subsidiaries of large corporation’s where officials are able to take advantage of companies for their own benefit (Johnston, 2008). ¬¬¬¬¬Some of the major forms of corruption come from tax fraud and embezzlement for example in late 2000s two bureaucrats from the Guizhou Province were given the death penalty for $9 Million worth in embezzlements (Johnston, 2008). Whilst on the other hand the Philippines having an even lower CPI has seen extortion of its weak states in times of uncertainty and insecurity. Similarities in the corruption of these countries are found within their political systems where those with power are able to drain their citizens and effectively act as ‘deadweight loss in the economic sense’ (Li and Wu, 2007). Typically, in the Philippines the state head has underlings who steal collections from state confers, this can occur in a variety of ways such as having collecting officials who will create fees or taxes without any intention of giving back to the communities or aiding in growing the economic sectors (Li and Wu, 2007). The reason as to why China and Philippines likely have differing CPI’s is because of the type of corruption which is relevant to both, with China its fraud occurs at the corporate level as opposed to the Philippines where citizens and states are robbed.
The corruption within these countries greatly deteriorates their prospects for growth, increases the inequality gap between social hierarchies and affects the overall governments and its corporations (www.transparency.org, 2018). With third world countries like China and Philippines it becomes increasingly harder to eradicate corruption as high-level officials are simply able to bribe authorities and continue to extort their respective countries.
2. Political risk is the affects of government actions on the economy and investment returns which could depreciate due to changes or instability (Wagner, 2018). For both China and the Philippine’s their levels of political risk would be relatively high considering the amount of grasp their politicians and governments have in their respective economies. With Chinese governments often being majority owners in companies and having their own representatives on the board of supervisors, they are able to exert significant influence over the economy (He, 2017) and thereby risk on their economies lay with them. As for the Philippine’s with their high levels of corruption amongst authorities’ political risks are higher especially with the amounts of corruption.
Recent news has shown China’s desire to eliminate such political risks as well as corruption in its country, for example China wishes to reduce financial risk in order to increase its national security for China overall and its people (China.org.cn, 2018). Similarly, the Philippine’s is looking to stabilise its economic system in order to maintain long term investments and ensure that current investors remain in the Philippines. Previously the Philippines was seen as a “low capital investment” location however officials are looking to change this and further develop the country to maintain and grow its economy in the future years (Gavilan, 2018).
Current political relations between China and the Philippine’s are very promising especially since the 2016 election of Philippine president Rodrigo Duterte which has brought together China and the Philippine’s through economic and political relations. With China coming into an agreement to aid the Philippines in economic and infrastructure assistance with a value of $73 million USD as well as further plans for provisions of agricultural technologies (Tiezzi, 2018). This will offer a significant advantage to our plans for investment in China as political risks are reduced between both countries.
In order to hedge against political risks, it is important to determine what laws will apply to the firms expansion into these new markets from Philippine, especially with China being a transitional economy it is still apparent that the government still greatly controls corporations behind the scenes (Bremmer and Zakaria, 2018). In this case it is important to diversify risk of R;D, supply chains, and production to ensure it is able to maximise its utility around China (Bremmer and Zakaria, 2018).