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News & Knowledge

China: Fighting the financial fallout of the coronavirus – A moving target

14th April 2020

When China ground to a halt as a result of COVID-19, industry players worldwide were primarily concerned with issues such as salvaging or getting out of deals and managing human resources. Lawyers, especially in the PRC, were called on to advise and represent clients on transactional negotiations and dispute resolutions centered around issues such as force majeure and employee pay. MSI's Chinese law member DaHui Lawyers provides further insight.

As China quickly speeds back up, current concerns are complicated by numerous new factors, e.g., the standstill in the rest of the world, uncertainty about a resurgence in China, and even the fact and remaining repercussions of what happened in China. Deals did go bad, courts and regulators are backed up with work, and some businesses are sinking or sunk.

What are the (additional) business and legal issues in such circumstances, particularly from a PRC perspective?

On the one hand, China is more open to foreign investment. Sinking businesses are seeking support while revived ones are on the hunt for opportunities. On account also of the recently sealed U.S.–China trade deal, the national and local governments in China are throwing open their doors to foreign investment like never before (e.g., lifting restrictions in sectors such as asset management and securities). And if a shortage of cash sounds like an obstacle for interested foreign parties, now is when they might appreciate the great extent to which PRC businesses welcome foreign investment in the form of intangible assets. The challenge foreign investors will face, however, is finding the right PRC partner or investment target: especially with so many businesses in China just floating above the surface, deep due diligence and airtight contractual controls are all the more important.

On the other hand, some businesses in China – as everywhere – are going or will go under. Whether a subsidiary in China not worth supporting with an influx of capital, a local partner weighing down a joint venture, or even only a contractual counterparty becoming insolvent, foreign interests should get involved immediately and intensively. A timely awareness and proper exercise of rights and processes implicated in each scenario can result in substantial savings (by recouping or reducing losses). Dissolving a business, unwinding a joint venture, and enforcing creditor rights call for precise strategies, delicate negotiations, and thorny-tangled regulatory or court procedures – even under ordinary circumstances, and thus all the more so at present.

Although the playing field is quickly changing, it is important to know the local contours and make the right play in each and every phase of the global crisis. Businesses outside China in particular may benefit by bearing in mind that the phase in China is very different from that in Europe, in the U.S., or elsewhere.

About DaHui Lawyers - Beijing

DaHui Lawyers is a PRC law firm committed to practicing law at the highest international standards.

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