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China crisis - what does the latest share slide mean for your business, and your contracts?

13 January 2016

When I first wrote about the turmoil in the Chinese stock market back in July last year, there was still some debate as to how serious the crash was, and what the direct or indirect implications would be for businesses with trading interests in the region.

The latest ructions, which saw 7% wiped off the value of the Chinese stock market before the government suspended trading on Monday 4 January (how much worse would it have been if they hadn't introduced that automatic cut off after the major falls in value last year?) and a fortnight of further drops, suggest that there is something fundamental at play here – a point reinforced by the empathetic fall in the values of many other stock markets globally. So it's as well for you, as GC, to consider your company's likely exposure and what you can do or be prepared to do as a lawyer to help your company to mitigate it.

To summarise our July blog it would be wise to ensure that, at the least, you know the answers to the following questions:

  1. What parts of your supply chain have direct or indirect links into or out of China?
  2. Are all your live contracts easily accessible, up to date (and summarised for ease of executive, auditor and insurer briefing)?
  3. Do any force majeure provisions account for this kind of economic eventuality and how will the exercise of such provisions by or on you affect your company?
  4. Do you have the freedom in your contract to seek out alternative suppliers and what are the cost and process consequences if you do?
  5. What happens if a link in the supply chain goes bust?

Of course, most of this is work that you may have done or be planning to do within your team or through a law firms/its process outsourcing team soon anyway as part of your Modern Slavery Act compliance work – so at least one exercise can address two pressing current needs.

Commentators are suggesting that the real crisis in China, and the one that is likely to have wider global implications, is the enduring slowdown in what is the world's second largest economy. Whatever side the coin falls, if you have business interests in the region then it's as well to be clear now what your legal position is likely to be if and when the Chinese tremors start shaking your company's supply chain foundations.