If everything goes to plan, in 2001 China will succeed to the World Trade Organisation (WTO). What this means in practical terms is that markets will open up to foreign investors. Firms are gearing themselves up to benefit – the first step for many has been to apply for licences to open further offices, meaning most should have twice the coverage in China by the time the year is out.
But are they jumping the gun? Is there really going to be an explosion in work, and if so could it not be served from Hong Kong? What sort of work will it be and who are the clients? And most importantly, will Hong Kong suffer, particularly its fledgling stock exchange, as its mammoth parent country rolls onto the international stage?
Kenneth Chan, head of the China group at Allen & Overy (A&O), believes that for the time being, the stock exchange is safe.
“Chinese companies have become a potential source of work, particularly in the initial public offering (IPO) field,” he says. “There are some very large blue chip companies in China and there will be room for representing Chinese companies overseas, particularly in the US. Chinese companies will still want to get listed overseas for profile reasons – a domestic listing does not give them the profile.”
Another reason Hong Kong will be safe, adds Chan, is that few people are familiar with Chinese companies. Non-Chinese investors are therefore reluctant to get involved.
But he warns that the status quo will at some point be rocked. “The location of foreign firms in Hong Kong is still important, which has been the case for some time,” he says. “A lot of companies are coming here as a first base for China, but places like Shanghai and Beijing are definitely becoming more important.”
The growing importance of Chinese cities is on the mind of Claudio de Bedin, head of Barlow Lyde & Gilbert's Asia company commercial practice. “Shanghai is developing very fast, and since it is so far from Hong Kong one needs a presence there,” he says. “Shanghai will be the dominant commercial and economic centre. People used to think it was better being in Beijing because it is the centre of government, at the front of what was happening, but Shanghai has really overtaken Beijing. Most of our clients now prefer Shanghai.”
De Bedin also thinks there will still be a lot of work in Hong Kong, but for two specific reasons. The first one, he says, is because “Hong Kong has always been looked at as the starting-off point [for China]. There is still a great service industry here – the accountants, the bankers and, of course, the lawyers. It is the supermarket for China”.
The second reason is that he believes it will take people years to fully understand the Chinese market. “The first time you go to China, you can write a book on it; the second time a chapter; and the third time you write nothing, because you realise how little you know about it.”
Owen Nee, managing partner of Coudert Brothers' Hong Kong and Beijing offices, believes that China will initially be a source of new work in three areas. The first is small medium enterprises. He says: “Membership of the WTO will in-crease the willingness of foreign companies, particularly med-ium and small ones, to invest in China.” The larger companies have been “able to afford years of suffering with Chinese bureaucracy” and are already established.
He also thinks that the Chinese textile industry will pick up. Quotas will be abolished by 2005, meaning “investment in the Asia textile industry will flow back into China” rather than Pakistan or Malaysia.
The final key area will be trade-related disputes. Nee says: “The WTO is quite strict on what a member country is supposed to do in relation to restriction of goods and trade between countries. If China does not adhere to that, there are procedures to bring this to the government's attention, and I think lawyers will be involved with that.”
But Nee believes all this is good news for Hong Kong. “As legal work picks up in China, legal work picks up in Hong Kong,” he says. “Hong Kong has a good head start on international work and China is Hong Kong's biggest customer for legal services.”