Shanghai to pilot China’s legal market liberalisation measures

A Shanghai Bureau of Justice official has hinted that the Shanghai Pilot Free Trade Zone’s (FTZ) experiment on allowing associations between Chinese and foreign firms will lead to further opening up of the country’s legal services sector.

The FTZ was launched in September 2013 to test-run an opening up of China’s financial system, easing restrictions in foreign and private investment and loosening controls on its currency.

It also outlines 18 different service sectors to be opened up to foreign investment, including the legal services sector. The FTZ promises to explore cooperative mechanisms between Chinese and foreign law firms and its proposal has recently been approved by the Ministry of Justice (MoJ).

The Shanghai Bureau of Justice is currently in the process of drafting the detailed procedures and implementation measures for the pilot scheme. The process is expected to complete at the end of this month.

In essence, the policy will allow deeper collaborations between Chinese and foreign firms in two main ways.

If a foreign firm has a representative office in the FTZ, it is allowed to enter into an agreement with a Chinese firm to second lawyers to each other’s offices. PRC lawyers working in the foreign firms’ FTZ representative office can provide PRC legal advice, while foreign counsel working in Chinese firms can provide legal advice on foreign law. However, they remain employed by their respective firms.

Secondly, within the FTZ, foreign firms and Chinese firms are allowed to enter into an association on a contractual basis. In this way, the two firms remain financially independent and separate entities, but can join force to provide legal services to clients. PRC legal advice can only be provided by the Chinese firm in the association.

In an interview with the FTZ Post earlier this week, Shanghai Bureau of Justice official Ma Yi provided an interpretation of the new policy and its approval by the MoJ.

Ma indicated that the ultimate goal of the FTZ experiment is to lead to a MoJ decision to allow foreign and domestic firms to set up joint ventures, through which they can provide one-stop international and local legal services under one brand.

“We’ve studied the opening-up measures taken by countries such as Singapore, Japan and South Korea. They all have the same approach which is to liberalise the market gradually and step by step,” Ma told the local press. “If we open the market all at once, it’ll have an adverse impact on the domestic legal industry, which is only 30 years old.”

He also added that firms have to set up offices in the FTZ before they are eligible to benefit from the new policy, and firms in association can share the same office premises inside the FTZ.

In terms of the scope of business for the associate firms, Ma noted that generally, associated firms would not be able to advise on administrative or criminal law, but should be able to advise on commercial, corporate and dispute resolution matters, including matters that occurred outside of the FTZ.

He also confirmed that there is already interest from local firms which have expressed their interest in setting up offices in the special zone.

China currently allows Hong Kong firms with mainland representative offices to enter into association with domestic firms under the Mainland and Hong Kong Closer Economic Partnership Arrangement. The FTZ is to broaden the policy to cover foreign law firms within its boundary.