Business Law Journal

The Suspension of Hiring of Young Graduates

Over the past several years, China’s technology sector has been a significant employer of most of its university graduates.  In the past, major publicly traded companies like Tencent and Alibaba have hired thousands of Chinese college graduates, providing thousands of young graduates a successful start to their careers, along with satisfying compensation and promising futures.

However, in the wake of regulatory tightening in the technology industry, many of China's tech giants, including Tencent and Alibaba, have been forced to pull back and freeze hiring.  Accordingly, tens of thousands of skilled employees have lost their jobs, or are unable to find work in the technology sector this year alone. 

An example of regulatory tightening affecting hiring in was highlighted when Alibaba, —a company which raised $25 billion in its IPO, breaking the record as the largest IPO to date on U.S. markets— was added to the provisional list of companies that would be delisted from U.S. exchanges under the 2020 Holding Foreign Companies Accountable Act (HFCAA) by the U.S. Securities and Exchange Commission (“SEC”) as of August 1, 2022.  In addition, on August 26, 2022, the Public Company Accounting Oversight Board (PCAOB) signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China, reaching an agreement that allows for the audit inspections of Chinese stocks.  Faced with these additional regulatory risks, Alibaba suspended hiring for the moment, leaving many young graduates scrambling. This severe lack of labor demand is causing a shortage of hi-tech manufactured goods and supplies to the global market.

Potential Impact on Domestic Contracts

The U.S.’s efforts to uncouple itself from Chinese dependency so far has been unfruitful.  The U.S.’s economic entanglements with China are too significant to be dismissed or replaced.  In the area of hi-tech products and manufactured goods, China remains the largest business partner in terms of development and production.

With major Chinese companies suspending hiring, the production of many hi-tech and labor-intensive goods has significantly slowed, leading to demand difficulties and production unable to keep pace with the needs of the global economy.  This has had very serious consequences for retailers who are wrestling with materials and product shortages here in the U.S.  Nearly two years following the start of the pandemic, retail businesses continue to be impacted with delivery delays and product shortages.  Retailers and their customers are growing frustrated, leading to cancelled orders and looking elsewhere to source goods and/or materials. 

Over the last two years, we have seen an increase in requests for the renegotiation of contract terms, modification of purchase orders, and/or the cancellation of the entire sales agreements altogether.  In some other circumstances, American and Chinese businesses, together with their consumers and relevant parties, have had to deal with contractual disputes arising from the issues over whether the COVID-19 pandemic rises to the level of a force majeure event, an unforeseeable event that precludes contract performance and/or the impossibility of performance.

Conclusion

If you are handling international sale of goods with a China-based supplier, or are having difficulties with your customers over supply chain shortages, you may be facing a challenging dilemma with requests to renegotiate contract terms, rescissions, cancellations of purchases or in certain cases, declarations that your contract is unenforceable.  If you are experiencing issues with, or have concerns over your contracts, please contact the author of this article or the attorneys in the firm’s Business & Tax Team at Atkinson Andelson Loya Ruud & Romo with your international trade related questions and concerns.

This AALRR post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process. 

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