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financial consequences of the coronavirus outbreak

Daxue Talks transcript #35: Coronavirus outbreak and Chinese law: Minimizing the financial impact for entrepreneurs in China

In this episode of Daxue Talks, Nicolas Coster, a French business lawyer based in Shanghai, discusses what Chinese entrepreneurs are legally allowed to do in order to face the financial consequences of the coronavirus outbreak. Among others, he discusses how employers can renegotiate contracts with their employees or what are the consequences for rental cost.

Full transcript below:

I am Nicolas Coster, I’m a French business lawyer. I’ve been in China for 16 years and specialized in foreign direct investment. So, basically, I set up companies in China.

What should seriously affected sectors such as restaurants, hotels, travel agencies know during the outbreak?

Now, most hotels, restaurants and, industries are closed but it depends where you are. For example, if you are in Jinchang district, all the restaurants are closed. If you go to Waitan, it is close too. In some other places, you are allowed to open but need to take special measures. You need to make sure that people who come to your place give their name, their mobile phone number so you are able to check the clients. If one of them gets sick, you can say when this person came to your restaurant.

For businesses that closed during the outbreak such as restaurants, hotels, travel agencies, what are the options to lower labor and rental costs during the shutdown?

The first choice is to negotiate with your employees. You can have a collective negotiation or an individual negotiation but in general, it is better to go to each employee and say that it is a special situation and try to negotiate. You can try to ask them to take holidays or to stay home or even lower their salary and reimburse them when the situation gets better. So, negotiation is what the Chinese government is pushing. Because, if you don’t negotiate, you’ll have to go to court, and it might take time. So, I think that all Chinese employees are able to understand that it is a special situation. You can also apply to the Labor Office to get flexible working hours for the employees during the period and the office often gives the right to do so.

Are travel agencies, hotels and restaurants obliged to reimburse expenses to clients who cannot travel due to quarantine, travel ban or rules?

There is no obligation according to the law. Most of the time when you go through a travel agency you sign a paper with terms and conditions. As a client, you need to check the terms and conditions and see what is stated for the “force majeure”. The current situation is clearly a case of force majeure according to Chinese law. So, once you have read it, you’ll often see that you’ll get payback 50%. So, it is a contractual issue. Some hotels and travel agencies have also a term for annulation. So, it really depends on each case. Of course, you can try to negotiate with them.

You mentioned that one of the first things to do to reduce cost is to negotiate with your employees. First, what options do you have? Second, how to renegotiate? What can employers do with the rental cost?

Options are very simple. You can ask the employees to take their normal holidays, you can ask them to take unpaid leaves, you can ask them to reduce their salary and ask them to work part-time and to reduce their income accordingly. What you cannot do, is to pay under the minimum monthly salary. You can also ask them to resign. It is really up to the employer.

For the lease contract, it depends on the landlord. If you have a state-owned company landlord, you have regulations that say that the state-owned landlord has to give you one-month free rent. The state advises landlords to reduce the rent and help the tenants during the crisis. Some of my clients have a 30% discount for 3 months, other tenants have renegotiated their contract.

The best way is to meet with your landlord and try to negotiate. What is sure is that because of the crisis there can be a real-estate crash at least for commercial buildings.

Daxue Talks is a show powered by daxue consulting, a china-based strategic market research company founded in 2010! With Daxue Talks, you will stay up to date with all the latest business updates in China.

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