SPECIAL FEATURE: Foreign Law Firms in the PRC Legal Services Market
June 02, 2001 | BY
clpstaff &clp articles &The number of foreign law firms in the PRC has grown considerably since the first branch offices were issued with licences in 1992. Economic development,…
The number of foreign law firms in the PRC has grown considerably since the first branch offices were issued with licences in 1992. Economic development, new foreign investment and China's impending WTO accession continue to drive the demand for foreign legal services. Tight restrictions on the activities of overseas law firms remain, but most are confident that the importance of foreign lawyers in China will continue to grow.
In what has become an annual event, the Ministry of Justice (MoJ) in Beijing recently issued an additional 11 licences permitting foreign law firms to open branch offices in the People's Republic of China (PRC).
Ken Gross, founding Partner of US-based law firm Purliss & Gross, attended the licence ceremony: "the other firms all seemed to be looking forward to opening their offices in the PRC. It was just as exciting for them as it was for us. We all share the same enthusiasm ¨C it's something new."
And China's impending WTO accession is only adding to the sense of excitement among foreign law firms. For some, the dream of establishing themselves in the PRC has now become reality. For others, the waiting continues. The process is not easy and foreign law firms realize that they must first fight their way through a complex approval process before they can establish a branch office.
| Foreign Law Firms Licensed on April 12 2001 Beijing 1. De Brauw Blackstone Westbroek [Dutch] Shanghai 4. Faegre & Benson LLP [USA] Chengdu 11. Perliss & Gross [USA] |
THE WAITING GAME
According to Article 7 of the Foreign Law Offices Establishing Offices in China Tentative Provisions (Tentative Provisions), jointly issued by the MoJ and the State Administration for Industry and Commerce, the MoJ is obligated to respond to a foreign law firm's application within 60 days of receiving the application. But the Ministry has effectively ignored this condition since it began to licence overseas law firms in 1992.
"We were hopeful and always believed that we presented a compelling case, but we never assumed the outcome," says George Martin, a Partner with the US- based law firm Faegre & Benson LLP.
The number of foreign firms receiving licences varies from year to year and it is never known how many the MoJ will issue until the list is announced. "We applied over a year ago. I hadn't heard anything for a while ¨C until it got approved. I wouldn't have been surprised if we weren't awarded a licence this time. I just didn't know how many other people were trying to get in at the same time, if they [the MoJ] had allotted slots and how many firms they would approve," says Gross.
There appears to be no set pattern for the time delay between submitting the application for a foreign licence to its actual approval. For some, the aproval process took less than two years, but for others the wait was much longer. "I think we had been on the waiting list for quite some time ¨C more than five years," said Faith Gan, Senior Information Manager for Singapore firm Shook Lin & Bok.
A CHANGING LANDSCAPE
Of the 11 new entrants setting up branchs offices in the PRC, seven will open an office in Shanghai, three in Beijing and one in Chengdu. The foreign legal market in the PRC (including firms from Hong Kong) now stands with 57 offices in Beijing, 50 in Shanghai, 12 in Guangzhou, and nine more covering Shenzhen, Tianjin, Qingdao, Haikou, Suzhou, Fuzhou and Chengdu.
While many have offices or alliances across the world, the home jurisdictions of the newcomers to the PRC vary. There are five from the US (Dorsey & Whitney, Faegre & Benson LLP, Perkins Coie, Perliss & Gross, and Thacher Proffitt & Wood) and one each from Belgium (Coppens Van Ommeslaghe & Faures), Brazil (Noronha-Advogados), France (Bureau Francis Lefebvre), the Netherlands (De Brauw Blackstone Westbroek), Singapore (Shook Lin & Bok) and the United Arab Emirates (Afridi & Angell Legal Consultants).
The size and specializations of the firms selected for licences in this round also varied, ranging from firms with less than 10 Partners to firms with more than 400. This emphasizes the belief that the MoJ selects firms from a broad range of jurisdictions rather than favouring a particular size or market specialization.
"It was a very good selection," comments Alex Zhang, Managing Partner of the Hong Kong and Shanghai offices of Dorsey & Whitney. "I think the Ministry is taking a very broad view in terms of considering the applications because they want to make the legal community an international one under their jurisdiction. This round of approvals represents deep thinking in terms of making this field of practice more diversified and more international."
WHERE TO SET UP SHOP
Where to set up their branch office is one of the biggest questions for foreign law firms entering the PRC. The Tentative Provisions limit foreign law firms with licences in the PRC to a single branch on the Mainland. Not surprisingly, Beijing and Shanghai remain the two primary destinations and this trend reflected in the licencees.
Beijing is the seat of central government activities and many law firms believe that an office in the capital offers certain strategic advantages when it comes to obtaining the relevant approvals required for business and investment transactions in the PRC.
Shanghai, as the PRC's financial and business centre, has its own advantages which made it the obvious choice for seven of the new licencees.
"We continue to view the Shanghai area as the epicentre of economic activity in China," says Martin. "Shanghai's growing financial services sector, and its strong trading and industrial base, have attracted many of our clients."
Zhang agrees that the financial character of Shanghai attracts many of his firm's clients. "We have a good client base in Shanghai. Quite a few clients have set up operations in the area, so it was natural for us to consider Shanghai as being the location of our office in the PRC."
Owen Nee, Partner with the Belgian firm Coppens Van Ommeslaghe & Faures cites an additional reason for his firm¡¯s choice of Shanghai. "There is no Belgian firm in the PRC. For that reason, we thought an EU firm in Shanghai would do well," he said. "With WTO entry towards the end of the year there should be a substantial increase in foreign direct investment and financial transactions in Shanghai."
The PRC government's recent 'go west' campaign, designed to encourage more foreign investment in China's western and central regions, appears to have had an impact on at least one of the new licencees. US firm Purliss & Gross (which will operate as Purliss, Gross & Sellier in the PRC) has chosen to set up its office in Chengdu, capital of the western province of Sichuan. "I guess a lot of firms may have been reluctant to go into the [western] area," says Partner Ken Gross. "It's quite a different place to Shanghai or Beijing."
According to Gross, locating in a city other than the "big two" has its advantages. "We're the only game in town," says Gross. "There are no other foreign lawyers in western China. The foreign lawyers for companies in Sichuan are usually in Hong Kong. With a local presence we can establish ourselves in the market; the rents are cheaper, it is cheaper to hire people, and it's a growing area."
Gross is hopeful that the firm's office will be open by the end of June. "China now has a policy to develop the west, so I think it's a good place to be," he adds.
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