China Watch – A foreign lawyer’s view from the inside

The one question that I get asked most often by my foreign lawyer friends is: “What is it really like to work in a Chinese law firm?”

I think that most if not all of my friends in the China offices of foreign law firms recognise – and even accept – the market trends that led me to this decision, but I am sure that some of them expect that moving to a Chinese law firm would be a bit too much of a culture shock. I will readily admit it was an adjustment, but every career move I have made has been an adjustment.

Moving from a top US law firm in Los Angeles to Baker & McKenzie’s China practice in Hong Kong and Shanghai 20 years ago was a big change, as was the move a few years later to in-house practice with Nortel in Beijing where I was eventually the Asia general counsel. But to be frank, my move back to private practice with Lovells in Beijing was an even bigger adjustment – it can take a while for a US lawyer to get used to a lockstep culture with the resulting collegiality among colleagues.

With each move there is a new system, new people and a gap between the original sales pitch and objective reality. However, once you settle in and learn how things work, you just get down to business.

“But,” my friends will protest, “certainly it is not that straight-forward in a Chinese law firm.” I concede that my first move from Lovells to AllBright was anything but straightforward, but that is a story for another day. My move to Zhong Lun has also required some adjustments, but that is to be expected. Now that I have been through the full annual cycle here, plus a little bit more, I feel pretty comfortable that I know how things work and now can just get down to business. It is in all respects a remarkably positive situation for me at this point.

Perhaps even more surprising to my foreign law firm friends is the fact that from the perspective of discharging client work on China-related projects, overall I am clearly in a much improved situation by comparison with my prior experience in the China offices of foreign law firms. My client base and the nature of the projects is essentially the same here at Zhong Lun as when I was at a foreign law firm: my practice then, as now, consists of M&A, corporate/commercial, TMT regulatory advisory and projects work for top international multi-national corporations and infrastructure companies as well as outbound work for Chinese companies. As is the case in virtually all of the China offices of foreign law firms, members of my immediate team include a mix of Chinese-speaking foreign lawyers as well as bilingual foreign-educated Chinese lawyers and graduates of top Chinese law schools who are fluent in English. As a result, we are able to produce the same calibre of work product at Zhong Lun as I was able to do in the China offices of the foreign law firms I worked in.

In short, same types of clients, same types of matters, identical service quality expectations and same ability to discharge the work because the composition of the team is the same as in the China offices of the foreign firms. In fact, the junior Chinese lawyers on my team went to the same schools and had the same high marks as their classmates who are working in the offices of the international firms here. The main difference is that, unlike their classmates at the foreign firms, they do not have to suspend their practising license certificate and are actually permitted to provide Chinese legal services.

Which brings us to one of the key practical advantages of practising in a Chinese law firm: we are actually permitted to practise Chinese law. As a practical matter, in most situations this is not a critical distinction since foreign law firms in China provide advice on Chinese law all the time, and the Ministry of Justice has been willing to turn a blind eye to this technical violation of the related restrictions (and I personally am not inclined to beat the drums to push the MoJ to adopt a stricter enforcement policy now that I have moved across to a local firm). Moreover, my personal situation is the same as it was at a foreign law firm – I am not licensed to practise in China even though I am in a Chinese law firm. But the upside for me is that I am surrounded by more than 700 qualified Chinese lawyers, so there is no need for me to add the awkward disclaimers to our advice that so many foreign law firms do here.

Still, if we are asked to provide a formal legal opinion, we can do so, which no foreign law firm can do. We can handle court litigation direct as well.

But it goes deeper than this. Many aspects of Chinese legal practice involve interfacing with regulators at one level or another. Anyone can call up the public hotline number for a given regulatory body and ask for guidance on the interpretation and application of particular laws and regulations (the value of which is often debatable, as the maxim “you get what you pay for” is particularly apt in such cases, since low level bureaucrats are notoriously unwilling or unable to provide anything other than the most conservative response, which often is 180 degrees opposite of the actual practice).

In a leading Chinese law firm like Zhong Lun, we have numerous partners who were involved in the drafting of key regulations or maintain close personal and professional ties to senior regulators. In a Chinese law firm, these types of connections (or “guanxi”) exist at so many levels of government across numerous government bodies in a wide range of localities in China. It is not uncommon in Zhong Lun to see internal emails soliciting introductions to a particular official in a remote local government, and it is remarkable how often the response comes back almost immediately that partner X in office Y has a direct contact (or has a friend or classmate who has the direct contact) with an official in city Z. This is a “guanxi” network that no foreign law firm in China can match.

At the same time, more and more regulators decline to interface directly with lawyers in foreign law firms, so the foreign firms have to work through a local law firm. A good example of this is in the area of merger control: no foreign law firm can submit the merger filings to Ministry of Commerce (Mofcom) directly, so many of them will engage a small local law firm with no relevant expertise to act as the ‘post box’ for the submissions. This is not always a satisfactory arrangement because if Mofcom officials have queries, they will contact the local firm that submitted the filing, but since that firm did not prepare the filing it is not in a position to respond. This gives rise to frustrations on all sides and is less efficient.

There is a similar advantage in terms of local know-how generally. In China, it is not simply a matter of what the regulations say, but the actual local practice. On a regular basis, lawyers in the firm will circulate general requests for practical advice on how to resolve particular arcane legal problems, typically generating multiple responses offering helpful guidance or advice. Scale has its advantages, and no foreign law firm in China comes close to approaching the scale of even a smaller mid-sized Chinese law firm let alone the larger national firms like Zhong Lun, Jun He and King & Wood Mallesons (which I like to refer to as the big three).

Another distinct advantage is scope of practice capability. I am able to draw upon expertise every day in respect of tax, IP, TMT, antitrust, real estate and construction, infrastructure projects, labour, anti-bribery, public company compliance and another half-dozen practice areas of direct relevance to my practice. I have access to more high-end specialist capability at Zhong Lun than I ever had at a foreign law firm here in China. I like to illustrate this by telling the following story: I have a Fortune 50 high-tech client that called up early on after I joined Zhong Lun asking if we had someone who was an expert on software registration issues. I said “yes” on faith and then went to talk to Jihong Chen, who heads up our IP practice (and is one of only six lawyers in China who was designated by the government as a national-level IP expert), to find out who was our expert. Jihong replied that he was the expert. So we set up the meeting.

I didn’t know in advance what questions the client would pose, and I didn’t know how deep Jihong’s claimed expertise in fact was – after all, the common stereotype of a Chinese lawyer, at least as of 10 to 15 years ago, was as a ‘jack of all trades and master of none’, so I suspect some of my friends in foreign law firms here may not have accepted his assertion of expertise at face value without further enquiry, but I had worked with Jihong on other matters, so I had confidence he would not embarrass himself, or me. I needn’t have worried. For 45 minutes, the client’s in-house legal team peppered Jihong with scores of detailed questions, and he responded point by point, talking without notes and citing not only to chapter and verse of every applicable law, regulation and official notice on the subject but also to various public statements of relevant officials over time together with further court decisions adopting a different gloss on the interpretation of the black letter legal requirements. I was impressed. The client was impressed.

A final advantage I have at a Chinese law firm is that we have a much lower cost base so we are able to quote more reasonable rates and still maintain reasonable levels of profitability. For 99 per cent of the matters we worked on in China I had found it increasingly uncomfortable over the years to quote rates almost comparable to rates in London or New York, so I am more content now to quote rates that are a full third lower than my prior rack rates. I am not the only person who feels this way in the market. Almost every senior lateral moving from a foreign law firm to a Chinese law firm over the last several years has made a similar observation when quoted in the legal media about the move. The challenge for the foreign law firms is that their cost base, even in China, is so much higher than for the Chinese firms that it makes it unprofitable to offer discounts down to the levels of the rack rates of the local firms. The same staff can cost two to three times more at a foreign law firm for no reason other than historical anomalies in the market, and the basic office infrastructure and operation costs for foreign firms are similarly marked up several fold in comparison with the local law firms.

One might think that this would leave partners in local firms feeling under-supported in terms of office administration etc – and sometimes that is the case. There is a business case for investing more in support staff and infrastructure than many local firms do. But when you don’t have the same level of office infrastructure as in a typical foreign law firm and are still able to service demanding clients at a high standard, it does make you wonder if you really needed all of the additional infrastructure enjoyed at a top international law firm.

Much depends on your frame of reference and expectations. Every time I see Carl Cheng, who joined us a few months back after 25 years in top foreign law firms, including 17 years in the Shanghai office of Freshfields, he is effusive in his praise of the administrative structure and support in the Zhong Lun Shanghai office. I suspect it is a matter of under-promising (in the form of lower expectations) and over-delivery, but it also reflects the fact that Zhong Lun, like several of the other top Chinese firms, has invested in the common infrastructure of the firm, so we get good value for money, and we can still pass on appropriate levels of savings to our clients through our lower rates (at least as compared with our international law firm counterparts in China).

One particular aspect of the above description of life in a Chinese law firm is likely to be met with some skepticism by my friends in foreign law firms here, namely the fact that I regularly work with other partners in the firm on a cross-group, cross-office basis. Most foreign lawyers in China are of the view that partners in Chinese law firms are all sole practitioners on a shared-cost platform with no cross-pollination or cross-support, and that would be true in the case of more than 95 per cent of Chinese law firms. In fact, the main reason I left AllBright after only a short time there was that it became apparent that that was the model there, which meant I was going to be a lone white guy marketing myself as a foreign lawyer at a Chinese law firm but without the ability to draw upon the resources of the firm in a collaborative manner. There were quite a number of other bizarre things that happened there at AllBright (which would make for a very interesting chapter if I were to write a book), but that was the nub of it, and that would be typical at the vast majority of Chinese law firms.

Zhong Lun certainly is not perfect – it just seems that way in comparison with AllBright. (I hasten to add that AllBright has a lot of really terrific lawyers, and I am sure my experience there would have been different if I had joined the firm in the Shanghai office, where I would have been able to work more closely with them. The original attraction of the Beijing office of AllBright was the opportunity to help build a new international corporate/commercial practice platform in Beijing from scratch, but ultimately the structural challenges and weakness of the firm as a whole could not be overcome).

Zhong Lun has its problems and challenges as well. We are still working to achieve the standard set by the leading international law firms, and there is still a significant gap that will take some time to close in terms of overall management systems. But the key observation to be made here is that even with these challenges, the system does support and promote teamwork among partners and offices. For me, that is the rule rather than the exception. For the great majority of my client matters, I am working side-by-side with other partners that I have brought into the project so as to take advantage of their expertise, or I have been brought into the project by other partners who think I can play a particular role given my international background.

To sum up, the system at Zhong Lun actually works, which is a win-win-win proposition for me, for my Zhong Lun partners and, most importantly, for our clients. So my short response to the question “what is it like to work in a Chinese law firm?” is that it’s never dull and getting better all the time.

Robert Lewis, is international managing partner at Zhong Lun Law Firm, based in Beijing