Within the epicentre

In the face of overwhelming macroeconomic complications, China’s in-house counsel, at the very heart of the problems, are finding their expertise and services immensely valued. Kevin Cheng reports

Entering the second half of 2022, businesses in China are breathing a collective sigh of relief at the resumption of production activities, having ridden out the worst domestic covid-19 resurgence since the original outbreak, but must immediately brace for escalating geopolitical tensions, mounting regulatory pressure and a disrupted supply chain.

If there is any silver lining to the uncertainties, it would be that legal teams and in-house counsel are getting plenty of the spotlight to demonstrate their indispensable value to their companies, and by extension the entire economy.

SUPPLY CHAIN REACTION

Luca de Meo, CEO of Renault, said recently that there will be no sudden let up in the supply chain shortages that have dogged the auto industry. The truth is, the auto industry is not the only victim. In the past few years, a perfect storm of interwoven, mutually escalating factors has shaken the roots of the global supply chain on which our world’s economy precariously hangs in the balance. The crisis has also manifested in surging prices for and often shortages of aluminium, palladium and nickel, critical raw materials for the automotive and semi-conductor sectors.

Port congestion and risings logistics costs are also major concerns facing transportation and shipping operators, who recently witnessed an alarming sevenfold surge in freight rate from April 2020 to September 2021, according to the World Container Index.

“This year, we see growing supply chain risks due to the ongoing pandemic, the Russia-Ukraine war, and the contest between US and China, resulting in an amalgamation of adverse factors contributing to the worldwide economic downturn,” says Xie Chenyang, vice president and chief legal officer at Foxconn Industrial Internet, a Shenzhen-based provider of intelligent manufacturing integration solutions.

Under China’s adamant “dynamic zero-covid” strategy due to devastating Omicron-induced regional outbreaks that included a two-month lockdown of Shanghai, manufacturers nationwide have experienced varying degrees of either diminished production capacity of complete halts in the first half of 2022.

The ongoing Russia-Ukraine war, initiated in February 2022 and prompting a series of US and EU-led economic sanctions against Russia, has exacerbated a tense international environment already plagued by the Sino-US trade war continuing in its fifth year. These geopolitical conflicts are sending palpable ripples across the worldwide flow of raw materials, food and electronics.

“Global supply chain turmoil, mandatory compliance requirements on multiple fronts, inflation in the US and deceleration of China’s economic growth invariably pose challenges to the new generation of in-house counsel,” says Xie.

So what roles should be played by legal departments and in-house counsel, dwarfed by these colossal challenges?

Huang Yiyun, general manager of the China legal department of Autoliv, the world’s leading automotive passive safety supplier, points out that, unlike external legal advisers, in-house counsel should not limit their perspectives to only legal matters. “We are not limited to reviewing contract clauses,” she says. “By helping the supply chain and sales teams formulate strategies, we bridge the legal and business sides of the operation.”