The China legal services market has entered an important new stage. Twenty years ago there were only a handful of foreign law firms providing China foreign direct investment (FDI) legal services out of Hong Kong.
Ten years ago local Chinese law firms based in Beijing and Shanghai began to play a more important role in the market for Chinese FDI-related legal work, and foreign firms started moving a limited number of professional resources into their Beijing or Shanghai offices.
In the last five years, the game has started to change dramatically. Chinese deals are more sophisticated and complex, and as the economy continues to flourish and the regulatory environment develops, the nature of legal issues expands.
A nationwide approach
Many foreign companies have established nationwide operations and require support for legal problems across all regions of China. At the same time, Chinese companies from all parts of China are aggressively expanding into international markets.
Legal matters involving Chinese parties and interests are just as likely to arise in Chongqing, Wuhan, Qingdao or even Chicago, Singapore or Dusseldorf as they are in the orginal centres of Hong Kong, Beijing and Shanghai.
As new investment projects reach well beyond Beijing and Shanghai, a local on-the-ground legal services capability will become ever more important. The same is true for the legal services requirements of China subsidiaries of foreign multi-national corporations.
There are certain categories of legal services that are by nature local. However, it is increasingly common for major contentious and non-contentious matters in China to involve international elements. These matters typically require both international and domestic legal counsel.
The local situation
It is uniformly acknowledged in the market even today that the prevailing standard of legal practice among the top end of the domestic legal profession in China is below international standard.
The vast majority of local Chinese law firms are nothing more than a loose collection of sole practitioners operating under a shared name. Offices of the same firm are, more often than not, completely independent profit centers.
Not surprisingly, cross-selling is uncommon, quality control measures are weak, and staffing and coordination of larger transactions can be problematic in the absence of cohesive teams within the local law firms.
Looking back at the very recent origins of the modern legal profession in China, this is understandable and to be expected. In fact, it is more remarkable that the top end of the local Chinese legal profession has been able to progress so far in such a short period of time given the nature of the impediments faced by Chinese lawyers in the early stages of the re-establishment of the profession.
We are now at the stage where we can see the beginnings of a viable, vibrant and (at least in respect of commercial matters) independent Chinese legal profession. Much still needs to be improved before even the top end of the Chinese legal profession begins to approach parity with international standards, but certain key pieces are beginning to be fitted together.
The challenge for the in-house lawyer in western companies with China business operations has always been the same – how to identify the leading local law firms in the second-tier cities across China.
Robert Lewis, local managing partner, Lovells’ Beijing