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Chinese firms use obscure legal tactics to stem virus losses

20 Feb 2020

“IT IS GOING to be an almighty legal mess for months and years to come.” That grim prognosis of the potential legal and business consequences of the viral outbreak in China comes from a veteran of the country’s business scene. Dan Harris of Harris Bricken, an American law firm, worries that today’s trickle of mainland suppliers declaring force majeure (FM), an obscure legal manoeuvre used to get out of contracts, could turn into a tidal wave.

The crisis has certainly put many firms in a bind. If this were a normal year, most factories would have shut for a week or so in early February so that migrant workers could return to their villages to celebrate Chinese new year. By now, plants would be roaring at full capacity. But because of a lockdown of a large area around Wuhan, the outbreak’s centre, and ongoing restrictions on travel, workers are only slowly trickling back. Morgan Stanley, an investment bank, reckons that production may reach only 60% to 80% of normal levels by the end of February.

The result is that the supply chains of global firms, which often rely on “just in time” deliveries of stocks, are being disrupted. Chinese buyers of imported commodities are also hurt, thanks to weak local demand. Nomura, a Japanese bank, thinks Chinese year-on-year economic growth could plunge to 3% in...


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This content was originally published by The Economist: Business. Original publishers retain all rights. It appears here for a limited time before automated archiving. By The Economist: Business

Covid-19 – Johns Hopkins University

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