The massive measures taken by the Chinese government to curb infections with the novel coronavirus are unprecedented and have brought public life in large parts of China almost to a standstill. No one can yet reliably estimate how the epidemic will develop – forecasts range from a rapid containment in the first quarter to a global pandemic by 2021. Many observers now assume that business relations in and with China will not return to normal before the middle of the year. Many companies in Germany are already affected by the consequences and are confronted with a large number of legal issues. For transaction practice, the epidemic brings another global uncertainty factor that does not stop at China’s borders.
Many meetings, roadshows and major events have already been cancelled, and not only in Asia. Employers are faced with the question of whether they are currently allowed to send employees on business trips to China or, conversely, whether they have to bring employees back from China. Unlike in China, German law does not contain any special regulations here, but certain obligations do arise from the employer’s duty of care. For example, the employer must observe protective measures during business trips. In general, no employee has to expose himself to a life-threatening danger. At the moment, it is best to only order unavoidable trips to China and to check how dangerous the current situation is for posted employees on site in China. The Foreign Office warns against travel to Hubei Province and advises against unnecessary travel to the rest of the People’s Republic of China, with the exception of Hong Kong and Macao.
In day-to-day business, many companies are currently having to deal with production downtimes in China and disruptions to supply chains. Under the buzzword “force majeure”, difficult legal questions arise regarding delivery obligations and claims for damages. The transaction practice, on the other hand, has its own challenges. In almost all projects with Chinese participation, the time windows are currently being postponed, and in some cases the deadlines are being extended in bidding procedures. In the contract documents, the provisions on the purchase price, closing adjustments as well as MAC clauses and general scenarios regarding termination or withdrawal are put to the test.
The outbreak of the coronavirus will inevitably have a negative impact on deal announcements, as initial figures for 2020 also confirm. According to Deallogic, the number of transactions with Chinese participation is one third lower than in the same period last year and the transaction volume has even collapsed by 70%. However, this trend is unlikely to affect all areas, especially distressed deals could increase and in the healthcare sector an increase in M&A transactions can be expected. Much will certainly depend on how quickly the measures taken by the Chinese authorities take effect. We assume that companies will also consider greater diversification due to the impact of the epidemic. The tendency to relocate production capacities from China could also increase. However, a normalization of the recently inflated valuations and a possible forced relaxation of government investment controls could well give a new boost to M&A activity in China in the medium term.