How the Pandemic Affects Business in China

Due to the ongoing coronavirus outbreak, international and Chinese companies are facing a huge difficulties, and many of our clients are asking how they can protect themselves in mergers and acquisitions in China that are currently being conducted for trade relations (such as imports/exports or operations), especially in most affected parts of the country.

This blog post is a brief overview of how the coronavirus pandemic affects business in China. Also, take the opportunity to sign up for a consultation on compensation for losses when working with China. Our experts will do their best to help you get out of difficult situations that have arisen due to the spread of the virus, with the least loss.

As the coronavirus (Covid-19), first detected in Wuhan in December 2019, spread throughout China and beyond, it has become clear that some Chinese companies are seeking to suspend or terminate their contractual obligations or the business as a whole. Manufactury closures, port restrictions, reduced energy demand and consumer spending have affected many sectors, including transport, tourism, energy and retail. Demand for M&A deals in China and the registration of a Chinese company have decreased significantly compared to previous months.

Global activity in the field of M&A in 2020 has decreased significantly compared to the same period last year. This may be due to some uncertainty about the potential effects of the virus. One way or another, as of March this year, many inbound and outbound mergers and acquisitions in China have been suspended. Advice on the legal implications of coronavirus on mergers and acquisitions in China during the coronavirus period will explain how to act and how appropriate it is to stop the transaction.

Legal due diligence of Chinese companies

Owners of Chinese companies should consider including in their contracts the possible effects of the virus on their business, including mitigation plans and an emergency plan. Buyers should consider conducting due diligence in China in order to understand the level of risk and have a general idea of ​​what is being offered to them. Checking a Chinese partner will help avoid pitfalls when concluding an international agreement.

Counterparty verification should include:

• the ability of the facility and its counterparties to meet their obligations under existing contracts;
• rights under contract law or, for example, Chinese law, which may justify non-compliance or termination of the contract (including force majeure);
• renegotiation of contracts with contractors that are in the process of implementation;
• risk of insolvency;
• risk of changes in legislation (travel restrictions, quarantine measures, etc.);
• insurance.

Due diligence in China is more relevant than ever

Assuming that the virus is likely to have a significant but short-term impact on the business, it is more likely that the deal will be postponed until the situation stabilizes. You can consult with our experts to suspend the merger deal in China during the coronavirus period to understand how to proceed. Transactions requiring approval from the Chinese antitrust authority cannot be closed until the necessary permission is obtained, even during this period.

The impact of the coronavirus outbreak on business in China

Company vendors should check to see if they can comply with the terms of contracts entered into before the virus spreads, whether it is a general obligation to conduct business in China or an obligation specifically related to contracts, production or personnel.

Commitments to develop appropriate contingency plans may also be appropriate. If you intend to sell a Chinese company, consider providing guarantees regarding risk assessment, scenario planning and the negative impact of the virus on your business.

Vendors should carefully consider the need to disclose coronavirus-related information (for example, regarding contractual guarantees) and be as specific as possible to meet any disclosure requirements for the buyer.