In early September, Chinese social media erupted over footage of residents in the earthquake-hit city of Chengdu apparently being prevented from fleeing their compounds during a Covid-related lockdown, enacted after an increase in local cases. In spring, looting and small riots broke out in Shanghai, when residents were unable to access food and medicine in a timely manner during a lengthy lockdown.

China remains something of a global outlier in attempting to completely eradicate any outbreak of Covid. The Chinese Communist Party (CCP) has long argued for the necessity of preventing a wider surge of the virus, which could overwhelm hospitals, and its data supports such an approach.

According to Johns Hopkins University, the country has officially recorded fewer than 15,000 deaths since the pandemic began. While the veracity of that figure might be questionable, it’s statistically far less than any other nation. The CCP has also estimated that its strategy has helped to avoid up to one million deaths and 50 million illnesses, while it allowed the Chinese economy to grow in 2020 when every other major economy contracted.

One problem for the CCP, which has staked its political legitimacy on its no-tolerance approach to Covid, is that the economic numbers are heading in the wrong direction. Economists have been steadily downgrading China’s growth forecast for 2022 to well below the government’s target of 5.5 per cent – which was already substantially lower than 2021’s final rate of 8.1 per cent – with the 2022 forecast now at 3.5 per cent, according to a survey of economists in late August. Further strain is predicted for 2023.

In addition, according to a survey from the US–China Business Council published in late August, confidence in China among US companies has fallen to a record low, leading many to delay or cancel investment. Global investment banks are also reportedly rethinking their prospects in the country.

Yun Zhou, Scholarship Officer of the IBA Corporate and M&A Law Committee and a partner at Zhong Lun Law Firm in Shanghai, says China’s political leaders are under tremendous pressure to keep the economy going. ‘The challenge is really the balance between the economy and the political agenda that they adhere to, in terms of zero-Covid. Obviously, those two do not go along very well with each other.’

Another issue is that the highly transmissible BA.5 variant of Covid has highlighted the limitations of a zero-Covid policy. All 31 mainland provinces recorded local Covid cases in late August, reflecting the broadest exposure to the virus since at least February 2021.

This led Ting Lu, Chief China Economist at financial company Nomura, to say that ‘despite a decline in headline Covid cases, the actual Covid situation in China might be worsening, as Omicron has once again spread to large cities’.

Feng Zhou says the spread is very concerning, both to the government and society. ‘We didn’t get tested very often in 2020 and 2021, only when there was a need to travel outside Shanghai. Now a test must be taken every 72 hours if you intend to visit any place in Shanghai.’

He says the new variant is having a huge impact on peoples’ mobility and on the economy at large. ‘And the economic situation in China is not particularly good this year because of the pandemic, tightened regulations on certain sectors, and geopolitical issues’, he explains.

Yun Zhou says a lot of intellectuals in China believe that the country’s population is paying too high a social and economic price to adhere to a zero-Covid policy. ‘But the government is quite used to applying very strict methods when they see a risk. And if they want to do it, they will be able to do it’, he says.

However, he adds that, ‘gradually, even though the overall policy stays the same, the underlying application is becoming more lenient and tolerant’.

Among the hurdles to getting ‘back to normal’ is the fact that many elderly – and therefore vulnerable – citizens continue to resist vaccination.

‘The traditional Chinese understanding of vaccines is that they are a form of virus. So, traditional Chinese medical practice is very much against vaccination’, says Yun Zhou. ‘The elderly are also more susceptible to any negative side effects, and that could be one of the reasons why they resist.’

To combat this reluctance China recently became the first country to approve an inhaled Covid vaccine, which gives added immunity in the lining of the nose and upper airways where the virus typically enters the body.

Following the 20th National Congress of the CCP, which begins in mid-October, Feng Zhou is optimistic that China’s Covid policy might evolve over the next six months. ‘After we have a stable political transition, economic issues will have more priority’, he says. ‘If the economy is so bad that the government feels that it’s just too much sacrifice, then there could be an adjustment to the policy.’

He highlights the government’s work on increasing vaccination rates and developing new vaccines and drugs. ‘If we have more weapons in our arsenal, we have a much better vaccination rate, and we don’t have a worse variant in the future, then maybe the policy will change’, he says.

President Xi previously scoffed at the idea of ‘living with the virus’. Yet, in an encouraging sign that his views may be changing, he recently travelled to Kazakhstan and Uzbekistan, and will attend the Group of 20 summit in Bali in November – his first overseas ventures since the pandemic began.

Image credit: Weiming/AdobeStock.com

Through its Anti-Corruption Committee, the IBA has also created a task force to help Ukraine through its reconstruction process and assist the country in avoiding common pitfalls. Focusing on anti-corruption and compliance-related matters, the aim will be to reduce the loss of valuable international community resources to corrupt practices. The task force is preparing online training in areas including anti-corruption, whistleblowing, responsible business conduct, conflicts of interest, risk assessments and the role of compliance officers. Serhiy Derkach, Head of the Corruption Prevention and Detection Department at the National Agency on Corruption Prevention of Ukraine commented: ‘We highly appreciate the IBA initiative to create the task force to support Ukraine in its endeavours to dispel corruption. The international experience and best practices in promoting integrity and anti-corruption compliance in business and the public sector that will be shared is very welcome.’ See further information on the task force here.

Also in keeping with previous conferences, a number of showcase sessions will be held. This year, these will include ‘Atrocity prevention – from Rwanda to Ukraine, why international law still matters’, which will feature the IBA’s Executive Director, Dr Mark Ellis, and Professor Leila Sadat, Special Adviser on Crimes Against Humanity to the International Criminal Court Prosecutor, and ‘Bridging diverse interests in the extractive industries’, which will be led by the IBA Energy, Environment, Natural Resources and Infrastructure Law Section.

Register for the Annual Conference and view the full programme here.

The Cartels Working Group of the IBA Antitrust Section has co-published a new book with specialist publisher Concurrences, entitled Information Exchange and Related Risks: A Jurisdictional Guide. The book was launched at the IBA 26th Annual Competition Conference in Florence, which took place from 9–10 September, and is edited by Zoltán Marosi, co-head of competition and antitrust at DLA Piper in Budapest, and Marcio Soares, a partner at Mattos Filho in Rio de Janeiro.

The subject of this comparative guide is the prohibition on exchanging commercially sensitive information among competitors. The guide spans 28 jurisdictions, encompassing all global regions, to provide a compendium of best practices and key insights about leading cases, laws and regulations, as well as enforcement trends.

IBA members will receive a ten per cent discount off the book’s price until 9 February 2023 by using the code IBA10 at the checkout. The book can be purchased here.

The IBA’s Corporate Counsel Forum has published a podcast entitled ‘Sanctions screening: A Canadian view’. In the podcast, Harpreet K Sidhu, the IBA Corporate Counsel Forum’s Publications Officer and the General Counsel, Corporate Secretary and Privacy Officer at Pethealth – A Fairfax Company, interviews Shawn Neylan, a partner at Stikeman Elliott.

They discuss the issue of sanctions screening and particularly what in-house counsel need to know about this important topic. The discussion has a focus on the Canadian perspective. However, the themes covered in the podcast will be of interest to counsel and companies across many jurisdictions.

Listen to the podcast here.

The International Bar Association Legal Policy & Research Unit (LPRU) has published its second report as part of its ‘50:50 by 2030: A longitudinal study into gender disparity in law’ project, in collaboration with the LexisNexis Rule of Law Foundation, this time focusing on the legal profession within Uganda.

‘We had memorable trips adjacent to IBA Conferences including a safari in Botswana (pictured). Our most successful joint venture was the never-to-be-forgotten African Regional Forum conference in Lagos in 2004, brilliantly organised by Modupe Akintola, the SGP Vice-Chair. To the astonishment of the IBA’s London office, the conference made a profit’, says Keith. ‘We were a team but Tom was always the leader and devoted to the enduring success story of the IBA. He has a permanent place in my IBA memories.’

Tom is survived by his wife Mudite, whose support and encouragement for his IBA endeavours was outstanding, four children and eight grandchildren.

Europe’s current energy crisis is set to worsen as winter approaches, according to most analyses. Energy shortages combined with severe price hikes for gas and electricity threaten industrial slowdowns and factory shutdowns. Recession in Europe’s top economies –Germany, in particular – appears likely.

European countries are sourcing alternate supplies of energy and reducing their reliance on Russia. But in the immediate short term, governments and companies will need to prepare for a financial hit.

John Zadkovich, a partner at Penningtons Manches Cooper, says there are several ways governments can alleviate the current and future energy crises. Perhaps the most dramatic, he says, would be for policymakers to consider expediting approval processes and reducing bureaucracy for energy projects.

In February the European Commission introduced new Guidelines on State aid for climate, environmental protection and energy to enable EU Member States to more easily provide subsidies for climate and renewable energy projects.

Member States may also grant aid to make good the damage caused by the exceptional occurrences under Article 107(2)(b) of the Treaty on the Functioning of the European Union – provided the aid is directly linked to the exceptional occurrence, is proportionate, and causes no conflict with EU State aid rules.

While some companies may be able to hedge against energy price hikes, Zadkovich says it’s more likely that businesses will simply look to rationalise, including, for example, by passing the costs to customers through price increases.

However, he adds, contractual terms with customers or suppliers may not allow such flexibility and a business will be stuck with the original terms agreed. Moreover, an ill-informed attempt to renegotiate a contract – especially deploying some form of brinksmanship – may constitute a repudiatory breach, he warns.

Depending on the governing law of the contract, parties may have some redress, albeit limited, says Zadkovich. Some civil codes provide that a ‘change of circumstances’ – in essence, an ‘unforeseeable’ event that causes an excessive burden on a party through no fault of their own – enables a party to apply to renegotiate the terms of the contract, apply to a court to renegotiate the terms of the contract, or terminate the contract.

Determining whether the ‘change in circumstances’ was actually unforeseeable may be difficult, especially when volatility in commodity prices, for example, is common.

Other legal options may prove more useful. Parties in the process of acquiring assets that are affected by energy/commodity prices can include in an acquisition agreement a condition precedent to the effect that there has been no material adverse change in the value of the acquisition target, commodities or in the law for the period between executing the acquisition agreement and completion.

Zadkovich says companies in the oil and gas sector may be well-versed in price review clauses, which are common in many modern supply agreements. ‘Given such agreements contemplate 15–20-year terms and prices obviously change during that period, the price review clause contains an agreed formula by which the price of the commodity can be changed by reference to market prices or some other agreed price objective’, he explains.

The trigger for such reviews depends on the contract, but they could be set at milestones, objective events and/or a change in market conditions, adds Zadkovich.

He warns that some companies may ‘deem it is more efficient to breach their contract than comply with it’.

There’s a risk too that executives could be held personally liable for failing to inform the market or regulators about the financial impact energy price rises might have on the business, or if supply is disrupted. ‘The effect of high energy prices on a company is material, especially where local laws and/or listing rules compel them to not trade whilst insolvent and not to mislead markets as to the company’s true financial state’, says Zadkovich.

In a post-Covid world, typical ‘boilerplate’ force majeure clauses no longer provide the level of protection for events once easily classed as unforeseen.

Instead, Zadkovich advises companies to ‘pay careful attention to the terms of their existing contracts and don’t assume their counterparties will simply “get it”’. He adds that companies should ‘study the contract for any ability to review and/or renegotiate terms due to adverse energy related prices’.

Sarah Fitts, Co-Chair of the IBA Power Law Committee and a partner at ArentFox Schiff in New York, says ‘energy supply and pricing has always been a risk for companies that are heavy energy and resource consumers, such as some manufacturers, but it has just become more volatile as a result of Russia’s actions’.

‘The likelihood that energy prices in Europe would substantially increase by autumn has been discussed since before March 2022, so the risk of significant energy price hikes has been foreseeable for at least six months’, adds Fitts. Smart companies, then, will need to plan to become more energy-efficient or find alternative sources of supply.

Fitts explains that due to this foreseeability, contractual force majeure provisions and business interruption insurance policies may be more difficult to invoke, for example, if there are production slowdowns, especially if they were drafted or obtained after the Ukraine conflict began. ‘The precise drafting of the provisions and the facts of the situation will determine whether coverage is actually available’, she says.

Image credit: Paolese/AdobeStock.com