Photo credit: Teresa Zhuang
Rainer Burkardt was born near Frankfurt am Main in 1967 and studied law in Frankfurt am Main and Bayreuth. In 1997, he started working in the legal department of a German company in Beijing. He received a DAAD scholarship and studied the Chinese language in Beijing. Afterwards he worked as a lawyer for a major US law firm and from 2003 for a German law firm in Shanghai. Since 2009 he is the trusted attorney of the Austrian Consulate in Shanghai. Rainer Burkardt has been running his own law firm with 15 attorneys since 2013. He is married and lives with his wife and two children in Shanghai..
Thank you for taking the time to discuss COVID-19 with us. You have a law firm in Shanghai and are mainly attending to German-speaking companies, which are also located in China. How did you experience the last months in Shanghai?
It could have been worse; we were able to enter Shanghai without any problems after the end of our holiday on the occasion of the Chinese New Year celebration at the beginning of February and spent 14 days in self quarantine at home. At that time, it was still possible to go outside despite quarantine. A few days later, the apartment doors were fitted with an electronic sensor that indicated if and when the door was opened. Leaving the apartment was no longer allowed. Both the delivery of food and the collection of waste were carried out up to the apartment door.
Many air travelers had to go to state quarantine centers from that time on, which fortunately we were spared due to our timely return. These passengers were medically checked and if even one of them was suspected to be infected with the virus, all passengers had to be put into state quarantine. For this purpose, cheap hotels were rented by the local government and cordoned off by the police. Some of the rooms were very small and in poor condition. We were glad to have returned to Shanghai in time to avoid this. The 14-day quarantine was followed by home office and home schooling. My colleagues and I have now been back at the office for four weeks. The German-speaking school of our children is now open but only for higher grades. The lower grades may only be able to return to school after the summer holidays.
Which big questions are currently on your clients’ minds and with which topics do they approach you?
According to official sources, China's economic output dropped by 6.8 percent in the first quarter. In many regions, all non systemically important companies were completely closed for several weeks. After the officially approved ramp-up, many employees were initially not available because they were still in their home provinces after Chinese New Year and were either not allowed to leave or to enter the province where their jobs were located. It was only weeks after production resumed that the majority of the workers were back at work. Even now, when almost all companies can work again, companies remain closed or close again because of a lack of orders due to the COVID-19 pandemic in Europe and the USA. In many areas, this leads to supply chains being broken off, with the result that also companies which resumed production are no longer able to deliver or deliver on time.
Production and business life in China and globally have been declining sharply for months now, and in some cases there are total breakdowns. Can one speak here of force majeure in the legal context, and if so, what consequences do you expect for your clients, but also for Chinese companies?
The legal instrument of force majeure is explicitly regulated in Chinese civil law. In an interpretation, the Supreme People's Court has developed the concept of "change of circumstances" (frustration of purpose). Both instruments are regarded as exceptional cases. A "change of circumstances" is assumed if, based on reasons for which neither party is responsible, fundamental changes in the objective circumstances forming the basis of the contract occur, which are unforeseeable for the parties, making the execution of the contract apparently unfair or making it impossible to achieve the original purpose of the contract for which it was concluded. In this case the contract may be amended or terminated. Force majeure is defined as an objective situation that is unforeseeable, unavoidable and insurmountable. If one of the parties is not, partially or temporarily unable to provide services according to the above-mentioned criteria due to an event of force majeure, it shall be released from liability. The law protects against the misuse of the instrument of force majeure by applying a strict causality requirement between non-fulfilment and the force majeure event, as well as a legal consideration of whether "force majeure" and/or "change of circumstances" apply, in accordance with the principle of fairness. Based on the experience during the SARS outbreak in 2003, it is likely that the impairment of (supply) contracts due to the coronavirus is subject to force majeure.
As business breaks off, the question of how to deal with those employees who are now employed less or unemployed is naturally also raised. In Europe, models such as short-time working were swiftly presented. Are there comparable measures in China?
The Chinese labour law is very employee-friendly and exceptions such as short-time work or dismissals require the involvement or approval of the local trade union organization and the local labor authorities. Currently, the government's policy is to keep as many workers as possible in employment to avoid social hardship and unrest, as there are not enough social benefits to bridge a longer period of unemployment. Even if general legal regulations do not offer immediate solutions, it is always worth trying to find an individual solution with the local authorities.
What about other forms of support for Chinese and foreign companies in China? For example, the possibility of reducing rents or applying for tax deferrals?
We researched on behalf of our clients – the result was sobering! Hardly any of the state support schemes offer any real help. There are reliefs, such as deferrals or minor tax reductions, but these cannot compensate for a company that has got into financial difficulties due to COVID-19.
Travel restrictions to and from China also occupy your clients. At the moment it is hardly possible to enter China, but with the booming economy, trips to China will become necessary again. When do you expect travel restrictions to ease again? What opportunities do you see for international companies in China, if they continue to last for a longer period of time?
Travel restrictions will certainly remain in place until late summer/autumn, not only on the Chinese side but also on the European side. The Chinese government does not want to risk a second wave of infection under any circumstances. Many of our current projects cannot be continued due to the travel restrictions; for example, because there is a lack of foreign fitters to set up the production facilities. In order to solve this problem, state-of-the-art technology is sometimes used, such as VR glasses, into which the relevant assembly instructions from specialists, based in Europe, are displayed for the local fitters.
How do you expect your German-speaking clients to react to the crisis in the coming months, but also in the long term? Do you think there will be a withdrawal from the Chinese market, for example?
I am sure that there will be no significant withdrawal of German-speaking investors from the Chinese market! On the contrary – first of all, internationally active German-speaking small and medium-sized enterprises (SME), which we mainly advise, are known for the fact that they are not easily pushed out of the market by crises. Furthermore, over the last 20 years, the Chinese market has grown into a significant, if not the most important, market for many foreign companies alongside their home market. And finally, new opportunities are opening up for existing and future foreign investors that did not exist before the COVID-19 crisis. The government has – to ramp up the economy again – instructed the authorities to (also) look favorably on foreign investments. In combination with the "Foreign Investment Law", in force since 1 January 2020, and the upcoming revision of the negative list, we expect new investment opportunities that will bring new investors to China.
What positive changes in the Chinese, but also global economy do you expect or would you at least like to see?
Like any profound crisis, the COVID-19 crisis will have a "cleansing effect" that will eliminate uncompetitive players in the market, ultimately benefiting not only the remaining companies but also their suppliers and customers as the market becomes more dynamic and offers better opportunities for innovative companies.