Last week the British chambers of commerce in China surveyed its members on the impact of the virus on their operation in China, and have responded by its 126 members of different sizes from different industries, among which 97% of the surveyed members believe that the virus has brought significant or a slight negative impact on their operation in the Chinese mainland so far.
Obviously, the outbreak of the virus has brought incalculable loss to the Chinese economy. Up till now this virus has not ended and would still last for some time. This article aims to briefly estimate the potential impacts of this unfortunate event on the FIEs.
1. Whether it would cause mass layoffs?
February 10th is the first day for institutions and enterprises in many provinces to get back to the work positions. On this day the famous Chinese elevator advertiser XinChao Group announced to dismiss 500 employees, including 20 senior managers, which accounts for 10% of all its employees, meanwhile, all its remaining senior managers would accept a 20% decrease in their salaries. Though their official reason for this layoff event is “their graded last in 2019 KPI appraisal, and the staff redundancy due to clients’ less demand for its business”, it is widely believed that the virus is a significant consideration for the layoff. Mr. Jixue Zhang, its chairman of the board, stated that “for the purpose of fighting with the virus, we shall reduce cost to ensure we survive it”. We may reasonably infer that small enterprises in the industry of catering, travelling or manufacturing are also under great pressure of downsizing.
Under the Notice of properly dealing with Labor Relations during period of the Epidemic Prevention and Control of Novel Coronavirus issued by PRC Ministry of Human Resources and Social Security, “enterprises which are negatively impacted by the virus and have serious difficulties in operation may negotiate with the employees to adjust their salaries, to rotate day offs or to have shorter working hours for the purpose of stabling job position, and enterprise shall avoid layoffs to the best extent”. We understand “to the best extent” is a kind of appeal rather than mandatory order, and obviously, the government approval has already estimated the layoff pressure of the enterprises.
In case the enterprises still have serious difficulties in the operation and in the continuance of its labor contracts after having taken corresponding measures, the enterprises may terminate the labor contracts under Article 40 and Article 41 of PRC Labor Contract Law after satisfying certain procedural requirements and paying statutory economic compensation. But we shall note that the PRC government authorities officially require enterprises to avoid layoffs, therefore the legal result and policy orientation of layoffs during this period is still unclear and shall prudently proceed under the assistance of lawyers.
As per our previous experiences, the FIEs in China generally would be more cautious regarding the termination of labor contracts, especially for the mass layoff events. In addition, FIEs usually have mature solutions to deal with such emergency events. We understand that the mass layoffs of FIEs in China may not happen purely due to the outbreak of the virus.
2. Whether it would cause withdrawal of foreign capital away from Chinese market?
The large scale of capital withdrawals and liquidations of FIEs in China would seriously hinder the economic growth, and would leave for serious social problems including unpaid debts and employment issues. Judging from our previous experiences, the mass withdrawal of foreign capital generally happened in case of a serious international economic and financial crisis and FIEs in China were generally impacted by the global downsizing; the emergency events such as virus is not the major reason for their withdrawal from Chinese market. For instance, a similar event in 2003, SARS, didn’t cause such result.
We shall notice that many countries have taken restrictive measures after the outbreak of this virus, which have restricted the personnel and products exchange with Chinese enterprises, and have caused great negative impacts on the operation of FIEs in China and their international transit of goods. Besides, foreign consumers’ confidence and needs of products from China are objectively lowered down due to the virus. But as we have mentioned before, FIEs generally have mature solutions for such emergency events, and foreign capital would not only focus on the short term interest like cheap labor force and tax exemption. They would focus more on the long-term investment returns, and would include the Chinese market in their mature global market management system.
The PRC Ministry of Commerce (“MOFCOM”) held an online press conference on February 10. The press spokesman stated that the MOFCOM was closely watching for the potential impact of the virus on the Chinese international trade, and from a general perspective, the Chinese market still has a competitive advantage to attract foreign capital. On the same day, MOFCOM also issued the Notice of actively improving services quality for FIEs and attracting foreign investment during the Novel Coronavirus, which required local government authorities to “actively help FIEs to restore normal operation order” and to “continuously optimize the business environment”. We understand that with the policy support to FIEs, that the chances are of foreign capital withdrawing from the Chinese Market due to the virus will be minimized.
3. Whether it would cause negative impact on foreign senior managers in China?
As per the answers from the National Immigration Administration of PRC, at present, except for the lockdown of the exit channel of Wuhan ports, all port visa agencies are operating as usual. Visa-free transit policy for foreigners are still effective. All land, sea and air ports of China are functioning. Foreigners can enter or exit as usual with their valid international travel documents.
In regard to the issue of working visas and resident permits of foreign senior managers, under the government authority’s arrangement, relevant government authority will be in full service for extension and issuance of visas and stay or residence permits to ensure foreigners' legitimate stay in China. Those who are unable to exit as scheduled or extend the visas, stay or residence permits due to the reason of epidemic prevention and control shall be given a lighter or mitigated or be exempted from punishment. For those enterprises which host high numbers of foreigners, the authorities will allow additional agent service or provide other necessary conveniences depending upon the situation.
Despite the above, for the purpose of epidemic control, it is helpful to reduce cross border movements. Foreign senior managers shall make reasonable cross border travel arrangements. Also, it is advised that foreign senior managers shall learn in advance regarding entry requirements of destination countries or regions. Besides, those who have symptoms of infection should seek immediate medical treatment at the nearest hospitals. Information such as recent activities as well as close contacts should be provided to relevant authorities for any necessary control measures.
4. Whether the government has any business supporting policies regarding virus?
The Notice of actively improving services quality for FIEs and attracting foreign investment during the Novel Coronavirus requires government authorities to fully advise FIEs regarding Chinese supporting policies regarding finance, tax, social security, employment, government procurement, etc. The government authorities shall ensure that FIEs are equally treated and the negative impact caused by the virus shall be reduced to the largest extent. Up till now, the government authorities have issued many supporting policies for small and medium enterprises faced with operation difficulties. This article chooses policies in certain provinces summarized as follows:
| District | Policies |
| Beijing | Encouraging operators of large markets to properly reduce/exempt the rents during the period of the virus Delaying the payment of social security fees |
| Shanghai | Refunding the unemployment insurance premium Delaying the payment of social security fees, and delay the adjusting period of social security fee base Free from rents of several months for lessees of premises for business use held by state owned enterprises Delaying the payment of land conveyance fees, or to be paid in installments |
| Guangdong | Delaying the payment of social security fees |
| Jiangsu | Exemption of certain taxes, delaying payment of taxes Reducing the cost for renting and enhancing support of finance subsidies to help enterprises with the basic operation during the epidemic period Enhancing support to enterprises regarding credit finance and financing guarantee to help enterprises with the case flow |
| Zhejiang | Reducing the prices for natural gas and water for industrial use Reducing the taxes for small enterprises, delaying the tax payment Reducing the rents of small enterprises Delaying the payment of social security fees, and refunding the unemployment insurance premium |
After the outbreak of the Novel Coronavirus, many FIEs in China have provided strong support to the Chinese government for their epidemic control, including donating funds and medical supplies. We have learned that many of our clients have also provided medical and fund support to the seriously infected provinces via different channels. We believe FIEs in China would establish a stronger cooperation relationship with PRC government after the challenge brought by the virus.
[1] Impact of coronavirus for British business in China
(https://mp.weixin.qq.com/s?__biz=MzIyNDc1OTk3Mw==&mid=2247487581&idx=1&sn=d4585d24b7b72c6e9173786c136c8201&chk
sm=e80b4997df7cc0817f303d33db54216e2980a7d17f5aa31521eda12fefaca08beb24dfb0fc08&mpshare=1&scene=1&srcid=&sharer_sha
retime=1581423446474&sharer_shareid=1fa9837238c140bba468f52b75b87b4a#rd)
[2] It shall be noted that graded last in KPI appraisal is not the legitimate reason to terminate employment contracts. We would not discuss this issue in this article.