Kira study: Force majeure provisions in Chinese contracts
Growing Concern: What We Learned From Looking At What Chinese Contracts Say About Force Majeure
The current coronavirus outbreak has seen an increasing number of Chinese businesses seeking exemptions for non-performance or non-compliance under their contracts. The economic effects are already rippling worldwide as supply chains and commodities markets are being thrown into turmoil. With the rapid spread of the coronavirus, the extension of the Lunar New Year holiday by the Chinese government, and transportation disruptions leaving hundreds of millions of workers unable to return to work (among other things) many Chinese businesses are struggling to fulfill their contractual obligations. As of February 11, nearly as many as 100 Chinese enterprises have received force majeure certificates from the China Council for the Promotion of International Trade. The certificates acknowledge the outbreak as a force majeure event, authorizing the businesses to declare that a force majeure has occurred in relation to their contracts.
Over the last two weeks, a number of major Chinese companies have claimed force majeure to excuse delays in their performance under their contracts. These include: China National Offshore Oil Corporation (CNOOC), the country’s largest importer of liquefied natural gas; Guangxi Nanguo, a copper smelter with an annual production capacity of 300,000 tonnes; and Jiangsu New Times Shipbuilding, a shipbuilder with an annual production capacity of 5 million deadweight tonnes (DWT). International companies with operations in China have also taken measures like closing factories and stores.
Companies with China in their supply chains should be hard at work considering whether they are in for disruption. Force majeure clauses constitute an important part of this story. Today, there is a lot of conjecture. We thought it worthwhile to leverage our contract review AI to generate actual data on what real Chinese contracts say about force majeure.