Working to home rules

Foreign law firms in China face a government bureaucracy notable for its bare-faced cheek, reports Richard Tyler.

On the face of it British lawyers working in China are well prepared for a new life when their plane touches down in the world's most populous country.

Most arrive at one of the 13 UK firms granted a licence by the Chinese ministry of justice having studied the country, its language and its culture for many years.

So apart from the odd incident – such as finding out that 28 people were executed after being held responsible for the production and distribution of a particularly strong alcoholic brew of “baijiu” which killed 20 people and left more than 100 in hospital in the wake of Chinese new year celebrations in Shaanxi province – daily life holds few surprises.

A typical day can include joining clients for a nip of snakes blood, a starter of fried scorpion on prawns, finishing off with duck gizzard balls.

Or waiting for hours in airports, avoiding public transport and staying in local hotels that “remind one of one's year off before university”.

But when it comes to describing the practical implications of running an office in either Beijing or Shanghai there is hesitation and lawyers lose their relaxed attitude to a unique country.

Foreign firms in China are administered by the ministry of justice and are in almost daily contact with the ministry's local representative departments.

Foreign firms can open one office in the country in a limited choice of cities and can (officially) staff the office with partners, assistants and support staff only once working visas has been approved.

Firms are forbidden to set up in partnership or form alliances or associations with Chinese lawyers; cannot employ locally trained and qualified lawyers to advise on local law; and are limited in their choice of their own lawyers to those with more than three to five years' experience.

Yet while these restrictions often infuriate foreign lawyers, they only share their concerns on an unattributed basis for fear of upsetting their hosts.

The main concern is the ministry of justice itself. While the new divisional head in Beijing, Madame He Min, is praised by lawyers based in the city for being very capable, the general feeling is that the ministry is on a steep learning curve.

It has to balance the benefits that the presence of foreign lawyers bring to the country – encouraging foreign investment and passing on expertise to Chinese lawyers through training programmes – with the interests of the local Bar associations and the threat of a brain drain of the best Chinese lawyers from local firms to their foreign counterparts.

Foreign lawyers are generally sympathetic to the ministry's position on these issues. But concern is expressed by some at the activities of the ministry's Beijing and Shanghai bureaux that go beyond the letter of the law.

One foreign lawyer with more than 10 years' experience of working in China recently had to renew his firm's five-year licence. He says the

Beijing bureau used the opportunity of the renewal process to extract agreements from his and other foreign firms in the same situation.

The first was to agree to a “voluntary” training programme to allow Chinese lawyers to gain experience of working outside of the country. The cost of the training was to be borne by the firms and the trainees could not return to work in the China office of the participating firms.

While the lawyer accepted that training was a good idea, he asked the bureau if it was voluntary or part of a new requirement for the renewal of the licence. He says the bureau's response was: “That's hard to say. We would like to see it as voluntary.” And when he asked for a written explanation of the programme, one was not forthcoming.

The second “voluntary” programme attached to the renewal process was the joint funding of an annual visit by ministry officials to different countries to learn how firms operate in their home countries.

The country to be visited this year is the US and the bureau expected the 10 US firms in Beijing to cover the estimated US$30,000 travel costs. Next year's visit is to the UK.

The lawyer says he was labelled “unco-operative” by the bureau for questioning the “voluntary” nature of these programmes and found that the renewal of his working visa became uncertain until he agreed to the proposals.

“Foreign law firms don't work as philanthropic organisations,” he says. “The world functions in an economic reality – but the ministry of justice appears not to.”

Another lawyer at a different firm interprets the cost of the official visits differently. He says: “It is not considered to be a burden and if it is shared by all the firms then all for the better.”

And other firms that have had to renew their licence report that, while the licences took up to six months to be issued, the process was relatively trouble free.

But the point remains that lawyers of foreign firms operating in China are very aware that the officials monitoring their activities are driven as much by political expediency as by the word and the spirit of the law.

And this does little to discourage these firms from exploring the flexibility of the rules themselves. Even the Law Society of England and Wales admits that a number of firms are operating unofficial second offices in Beijing or Shanghai and are employing Chinese-qualified lawyers as paralegals to advise on Chinese law.

Clarification of the rules is on the cards with the ongoing World Trade Organisation negotiations with China (see box) offering some hope for a relaxation of the restrictions faced by foreign firms.

However, an official statement from the Shanghai bureau of Justice, made at a recent meeting of firms in the city, indicated that a “clampdown” on those firms stretching the spirit of the law would soon begin.

Reform: the key to chinese membership of the World trade organisation

China is in negotiations with the main trading blocks of the World Trade Organisation (WTO) over the extent of the reforms it needs to make before it can join the club.

As The Lawyer reported in December last year, China has said it will lift all quantitative and geographical restrictions on foreign firms a year after it joins the WTO. There is the possibility of further reforms, with lawyers busily outlining their concerns with the European Union (EU) negotiators who are taking part in the WTO negations.

The Law Society has also been busy on behalf of solicitors. It has produced a wish-list which includes the ability to employ or form partnerships with the People's Republic of China's lawyers, the removal of the requirement to have three to five years' experience to practise law in China, and the imbalance in the number of licences granted to US and UK firms – in the latest round in February, only Linklaters gained a licence while four US firms were granted licences.

The Law Society's lobbying takes a number of forms. The first is the presence of the Brussels office – run jointly by the Law Society of England and Wales and the Law Society of Scotland – that gives lawyers direct access to the EU's chief negotiators.

Patrick Oliver, the Law Society's eyes and ears in Brussels, says the word from the EU is that it is working to conclude the negotiations with China by the end of this year.

The society's London-based international division, headed by Jonathan Goldsmith, and the joint China working party, chaired by Adrian Hughes of 4 Pump Court and Colin Passmore of Simmons & Simmons, are also busy collating the views of lawyers and transmitting them to Brussels.

One project Hughes thinks has warmed the Chinese delegation to the requests of EU negotiators for further reform is the programme run by English firms and chambers, now in its 10th year, whereby 15 Chinese lawyers are seconded for training in England and Wales (see page 20).

So the message from the Law Society is an optimistic one. But lawyers in the field are more pessimistic. They are adopting a wait-and-see approach to the verbal, but as yet unwritten, promises of liberalisation.

One indication that they may be right to adopt this cautious approach comes from the US.

Richard Brecher, vice-president of the Washington-based US-China Business Counsel, and responsible for the WTO negotiations, told the Lawyer that he recently heard “interesting language” from the Chinese on the issue of foreign firms based in the republic employing locally trained lawyers.

But when The Lawyer put this to a senior Chinese official involved in the negotiations, he replied: “I think in the current situation it is difficult for China to change its position – we cannot allow Chinese lawyers to move to foreign firms.”

With the situation so uncertain many lawyers working in China appear happy to put their heads down and do the best with what they have.

As one lawyer based in China put it: “I am incredibly happy with the work I am doing. It's all going brilliantly.”