Growth and Change: The Diverse Challenges Facing Chinese Law Firms

Generalizations about the growth of the Chinese legal profession should not be overstated. In this article we survey the challenges facing the elite domestic commercial law firms in China, which comprise only a very small fraction of the total number of Chinese law firms. The overwhelming majority of local firms have no international orientation and never come into contact with foreign investors or businesses. Additionally, the dramatic growth of commercial law firms has not been matched in the criminal law area, where firms and lawyers face much tougher challenges. We will focus on the privately run elite firms in the coastal cities that have seen high levels of foreign investment over the years. The legal profession in these cities has grown dramatically as foreign investment has risen over the years. Today in Shanghai for example there are an estimated 500 law firms employing upwards of 5,000 lawyers.

Chinese law firms have made great strides in the past two decades during the reform period, but what lies ahead? The main challenges to the growth of the elite PRC law firms can be classified into four main areas: technical; managerial and organizational; competitive, or market, challenges; and institutional challenges.

Of course, these challenges occur in any legal jurisdiction in the world, not just in China. But the challenges in China are more obvious because of the rapid growth of the economy in a short time, and the accompanying rapid changes in the legal framework.

Skills and Know-how: The Technical Challenge

Throughout the reform period in China, foreign direct investment (FDI) has been a key pillar of economic growth and the backbone of legal work for both domestic and foreign law firms. FDI continues to account for a large share of gross domestic product growth and of exports. Although it remains a fast growing area, legal advisory work for FDI projects has become largely routinized. In the past few years, elite law firms have been trying to tackle increasingly complicated investment structures and company formations that reflect the maturation of certain Chinese industries, the continued integration of China into the world economy and the rationalization of the China operations of international companies into their global businesses.

In some areas, especially the more advanced and highly regulated sectors, like banking, insurance and capital markets, Chinese law has become much more sophisticated in recent years (and has represented internationally accepted practices and rules heretofore lacking in China) in an attempt to create greater regulatory clarity. Putting the financial industry on a sounder footing is also of crucial importance for economic growth and to meet China's WTO requirements. An example of a newly issued technical law can be found in the Administration of Capital Adequacy Ratios of Commercial Banks Procedures(商业银行资本充足率管理办法), which the China Banking Regulatory Commission issued in February 2004. The Procedures are based on the Basel Capital Accord, and impose strict, international-standard requirements on PRC commercial banks in an attempt to strengthen the commercial banking industry, which is the major source of funding for China's growth.

Are Chinese law firms up to the challenge of interpreting increasingly sophisticated PRC law? How do the elite law firms keep up with the challenges in this area? How do attorneys educate themselves about recent developments?

Training Young Lawyers

All leading Chinese law firms vaunt their commitment to keeping themselves up to date with, for example, WTO-inspired regulatory changes and developments in international law and practice. And firms also pledge their strong commitment to training their younger lawyers to participate in an international legal environment.

These are largely expected positions. It needs to be kept in mind that not until 2001 (the same year that China joined the WTO), when the government revised the PRC Lawyers Law(中华人民共和国律师法), were PRC lawyers required to have a college law degree (or even a college degree of any kind) to be able to take the bar examination.

The difficulties of the training issue are compounded by the fact that China's legal education system has largely lagged behind developments in the wider economy. "There is still a much different attitude to education in Chinese legal studies than in the West. In China, the education is largely theoretically oriented, and professors by and large are not practitioners. There is a lack of emphasis on legal reasoning, legal drafting, and negotiations. For the most part, the lecturers are from a contentious background; to them that is the law. Most law professors don't discuss how the market works, or how a law firm is administered. There is seldom any reference to judicial interpretations or cases," explains Charles Qin, a partner at Llinks Law Office in Shanghai.

Martin Hu, managing partner at Boss & Young in Shanghai, echoes these comments: "For most modern parts of the economy, like banking, insurance and complicated M&A transactions, legal education has lagged behind economic development. Most law schools teach very traditional subjects, like contract law and company law. They don't address the challenges of economic development."

This situation is changing as younger professors with a more international orientation come into senior faculty positions at Chinese law schools. Qin Yu, a youthful partner of Junyi Law Office in Beijing notes, for example, that a colleague of his (and one year senior to him at university) is now an associate dean at Beijing University Law School. "A new, younger generation is coming into the faculty of the law schools and changing the way the law is taught. The younger faculty tends to teach and research in a more analytical, critical and empirical way," Qin says. Still, as Qin notes, institutional obstacles remain to changing legal education in universities. One example, in Qin's opinion, is that there is a lack of effective communication between practitioners and the faculty and students at law schools. As such, neither side benefits much from the other's experience. "There should be an active and constant interaction between legal practices and legal education," Qin says.

Of course, the best Chinese law firms (and the best international firms working in China) attract the best young lawyers. So an elite Chinese law firm isn't entirely dependent on the graduates of Chinese law schools. Thousands of young PRC nationals who have studied law overseas and practiced in foreign jurisdictions are returning each year to work in PRC law firms.

Hu sees the educational and training issue, including the role of returned lawyers, in terms of technical skills: "The technical challenge issue is a staff issue at all firms, both local and international. (A lawyer) must understand the intent of legislators or policymakers, and must have resources to clarify uncertainties in legislation. We see examples of this all the time. In staff issues, (a firm) has to balance cost and quality issues; for example in hiring returned, overseas-educated lawyers; how many should you have? And how expensive is it going to be? The cost there has to be balanced against training locals."

Vague Laws, Complicated Issues

Although elite law firms in China take the training of young lawyers seriously, largely this issue centres on maintaining continuity in the firm's practice over the medium term. Of more immediate concern for experienced lawyers is meeting the considerable challenge of finding solutions to complex client issues where the regulatory environment is vague, ambiguous, or irrelevant to the opinions on key issues formed by local authorities.

"Chinese law is not highly technical," comments John Huang, a founding partner of Allbright Law Offices in Shanghai. "In banking law, for example, if you have the industry background and knowledge you will understand it. In China, ironically, the law is complicated because it is overly vague or too general."

Examples of this can be found in the problem of creating uniform company structures. Elite law firms increasingly have to devise nation-wide legal strategies for their international clients who are investing in many parts of China at the same time and seek to rationalize their company structures and operations around the country. In recent years, the government has enabled more rational group organizations through legislation governing holding companies and companies limited by shares. But although laws have been promulgated, clients and their lawyers come up against the varying interpretations of the law on the part of local authorities, for example in the legality of an acquisition or merger and the resulting corporate structure.

Another example is in understanding the issue of land use rights at the local level. In one client case, Huang's team contacted different local authorities to try and form a comprehensive opinion for a client on a land use issue that could be applied around the country consistently. "We contacted the Beijing land bureau, the Tianjin authorities, the Guangdong bureau and Shanghai. The answers were totally different. And their interpretations were not even consistent with what the law says. We have to try and understand their positions and points because the black and white letter of the law doesn't stand for much sometimes, as there is no case precedent or court cases that are binding. How do you advise your client in such a case? This is the real challenge."

The Challenge of Economic Growth

Another problem in understanding Chinese law is less based on experience in understanding the local level interpretations. As was mentioned above, economic growth has accelerated beyond the capability of the law in some areas to interpret new technologies and businesses.

In 2001, the government issued two sets of regulations governing topographic designs (three-dimensional, layered "hill and valley" configurations that embody the miniature electronic circuits of an integrated circuit; the layout of an integrated circuit will include one or more cross-sectional drawings that are superimposed upon each other and that together represent the complete integrated circuit) and their protection under law. The laws were issued mainly to meet the requirements of the Agreement on Trade-related Aspects of Intellectual Property Rights (Trips).

Although aimed at intellectual property protection, understanding the laws rested on understanding computer chip engineering and design. Huang, whose firm does a lot of advisory work on IT, software design and development and related China-based investments, describes the challenges: "We asked some judges to help us interpret the new laws, but they weren't familiar with the technical terms governing computer chip design." Lawyers also must understand the complexities of advanced technology to meet the needs of clients and help them understand China's legislation in a particular area. "I'm not a technician, but we have to learn these things in a very short period of time," Huang adds. He describes returning to California's Silicon Valley each year, where he used to practice, and returning to China laden with new material on the evolution and development of new technology and businesses in an attempt to keep up.

David Liu, a partner at Pu Dong Law Office in Shanghai elaborates on the issue of economic changes running ahead of legislative developments. A recurring theme over the past decade of Chinese legislative development has been the fact that business and contractual arrangements are first devised in particular cases, from which later a very general regulatory framework evolves, first through regulations and then national laws. "Automotive finance is an example. Two years ago, there were no regulations in this area. In the absence of any legal framework, we set up a structure for a client in a joint venture auto finance company on our own and had it approved. This is often the way in China; first you can set up a practical structure, and later the regulatory environment evolves," Liu says. The automotive finance regulations and their implementing regulations were only issued subsequent to different deals being done, and are still drafted very generally to allow for differing interpretations.

"In M&A deals, project finance, and other commercial transactions, how to structure a deal is the issue, as in these areas the law isn't well developed. We have to include protection clauses in contracts, and use international legal tactics in local deals. In projects, for example, the revenue depends on future cash flow. Doing project finance structures under Hong Kong law is easy; it is relatively straightforward to structure a project and align the rights of the bank or financier to the long-term contract. In China, no provision for such a structure based on future cash flows exists under its continental law-influenced code. Instead, we did a trust structure, using the framework provided in very general terms by the PRC Trust Law(中华人民共和国信托法) ,"Liu explains.

Liu describes interpretation of the bank capital adequacy ratio regulations as similarly a task of developing local practices based on international practices. Although, as mentioned above, banking law in China is quite detailed and the sector is highly regulated, interpreting different laws in the local context is still a challenge. As Liu explains, not only do Chinese banks face a non-performing loan problem, but their equity resources are very limited. Under the Basel agreement; subordinated debt can be recognized as equity contributions. For many years, there was no such recognition under Chinese law. At the end of 2003, the China Banking Regulatory Commission issued a simple notice saying that local banks could issue subordinated debt. Now, many banks are trying to do this to boost their capital, but there is no regulatory guidance on the structure of subordinated debt issues. Liu states: "This maybe isn't so important for the legislator, but it is important for the client. It becomes then not a regulatory issue, but a contractual issue."

The provisions of the bank adequacy ratio rules and their incorporation of the Basel agreements, while an undoubtedly progressive step for Chinese law, isn't the issue for China lawyers. Issuing of subordinated debt is of great interest to Chinese banks, but it is a local legal issue as it is based on bankruptcy law, which is much different in China than in Hong Kong, for example. As Liu explains: "In a common law system like Hong Kong, if you have cash flow problems, you can be liquidated. This is not so in China; in China assets are the trigger of bankruptcy, not cash flow. Only with negative assets can you be declared bankrupt. So we have to understand how to fit a subordinated debt issue in the frame of this."

Creating a Modern Law Firm: The Managerial Challenge

Both foreign and Chinese observers have commented on the organizational problems at Chinese law firms. To some critics, firms are not run as true partnerships, partners don't work together as a team, but are more akin to barristers' chambers, and many lack a vision of how the firm will develop. In part, the reason for this is evolutionary: many law firms and practitioners have moved very quickly from being state-sponsored actors to independent legal professionals, and have had to learn by themselves on the job simultaneously how to practice law and organize law firms.

Another reason is ascribed by some Chinese lawyers to cultural factors. "Traditionally, Chinese lawyers are not trained to work as team members with other lawyers and professionals. This phenomenon might be related to a Chinese business culture that has been built primarily on personal relationships among relatives or friends rather than on contracts," says Song Huang, an attorney at Haiwen & Partners in Shanghai.

Further, the immaturity of the legal profession in China has meant that structuring a model for law firms to grow into has had no precedent in China. "A fair and merit-based compensation system has had to be developed from scratch since there are no workable models available. The partnership structure has not been widely adopted and tested in other industries, and information and knowledge in how to operate a successful partnership is sorely lacking in China," Huang explains.

To some Chinese commercial lawyers, booming economic times have meant that many firms haven't really had to address these problems. "Firms are very busy chasing after deals, are busy with the actual business, and haven't really had the time or inclination to conduct training to modernize their skills, or create a better team environment. So far, it hasn't mattered that much, as if a client is lost, there are many others that might be gained," says Roy Zhang, a partner at Llinks Law Office in Shanghai.

Charles Qin, Zhang's colleague at Llinks, adds that partners at almost all Chinese law firms still pursue an "eat what you kill" approach. In this practice, lawyers don't necessarily cooperate on deals, but gain business and enhance their reputation by their individual practices. But Qin asks: "In three or five years, will this approach still be valid and allowable? As clients demand more particular services, a more cooperative or institutional approach at law firms will be needed in providing services if they are to survive."

Managing Growth

"How are you going to manage growth?" asks Martin Hu, the managing partner at Boss & Young, adding that this is the main challenge at all elite PRC law firms. Hu explains that Boss & Young recently equitized their partnership structure, and uses a combination of the US-style eat what you kill approach, and the more generally European lock-step system. In Hu's opinion, the European model is more suitable for mature markets, whereas the US model may be more suitable for a developing economy where business opportunities perhaps rely more on the personal connections of market players and their ability to attract clients, than on a firm's reputation as a whole. The applicability of the US model to a developing market like China is not unqualifiedly applicable, however, as can be seen from the problems many Chinese firms face in managing their growth.

All Chinese lawyers at the elite firms would say that the market is definitely moving towards cultivation of the firm's reputation, professional skills, and a need for a teamwork approach to client work that are the international norms. John Huang of Allbright sees the main management problem in Chinese firms as a failure to catch on quickly enough to this change: "Still among Chinese law firms the main problem is the lack of branding and a lack of institutionalization of legal management. Many firms dissolve because of this, and there isn't enough continuity," he says.

Still, as Huang says, most elite law firms in China are not big enough to really face the management challenges that he describes. "100 lawyers is probably a critical size," he says, which means that only two Chinese full service law firms, King and Wood and Jun He, are of a size to institutionalize their practices. To the credit of both of these Beijing-based firms, their colleagues in the profession have praised their success in managing their size effectively.

Facing the Competition

Both of the topics discussed above relate to the main business problem facing elite Chinese law firms: how they will compete in an increasingly competitive market. The challenge comes from local firms and also the big international firms whose opportunities will grow as the legal market liberalizes.

Cooperation and Competition

Domestic lawyers for the most part don't see a direct challenge to their growth from international firms working in China. In part, the reason is that the Ministry of Justice prohibits foreign law firms from practising Chinese law. Although the legal environment for foreign law firms in China is not as restrictive as it is for foreign firms in neighbouring countries like South Korea and Japan, theoretically foreign firms cannot advise their clients on any aspect of Chinese law, and are limited to giving advice on the law of their own jurisdictions.

Another difference, as most Chinese lawyers will tell you, is that foreign law firms still have a different orientation from domestic firms, and are too expensive for most potential local clients. The environment is changing of course, and as Chinese companies become richer and continue to expand overseas the opportunities will grow for both domestic and international law firms to work on outbound investment. Also, there have been some high-profile Sino-foreign joint ventures in which the local party chose foreign law firms to represent them.

So far, though, much more legal work is still generated by the localization of international companies. Although generally speaking Chinese law firms cannot yet compete on big cross-border transactions, the localization of international companies that have been investing in China throughout the reform period has given much more work to skilled local firms familiar with Chinese legal culture. Western lawyers from much more developed legal jurisdictions used to clear judicial decisions and comprehensive laws also might be lost when faced with China's laws and practices, as described above. "Local lawyers understand better the psychology of the legislative actors," David Liu says.

What is the future of PRC-foreign law firm cooperation? Already, local lawyers in China would say that they cooperate with international firms more than they compete with them, for example in structuring complicated international finance deals for local clients, or in a case where an international firm needs local expertise in a particular area of Chinese law to help an international client. And, despite the fact that Sino-foreign joint venture law firms are not allowed, there are reportedly a number of disguised joint ventures in this area and de facto local-international law firm affiliations.

An important aspect of the competition issue is the marketization of law firms. In the coastal cities where economic growth has been fastest, there has been a near complete disappearance of the state-run law firms that once were the only players. In one way this has been a conscious decision by the government to divest themselves of the burden of paying the salaries and other costs of state-run law firms as much as possible, and let the firms try and compete on their own. An important exception to this general trend is the predominant role of state-run law firms in patent and trademark registration. One of China's oldest law firms, CCPIT, remains among the dominant players in intellectual property.

Beijing and Shanghai

Another interesting dimension to domestic legal competition among the elite firms is the different legal cultures in Beijing and Shanghai, two of China's three leading cities. Beijing is the political and regulatory capital of China. All ministries are headquartered in Beijing, as is the Supreme People's Court. The most important court cases and the biggest commercial transactions are approved in Beijing. Unsurprisingly the largest law firms in China have their origins there. Beijing firms are older, and have a headstart on tackling the organizational and management issues that have come with the rapid growth of the legal profession. Leading Beijing firms, like Jun He, King and Wood and Haiwen & Partners, have all expanded into Shanghai, but few Shanghai firms have much of a presence in Beijing. Many Beijing lawyers began their careers at state-owned enterprises or in the government. Beijing lawyers in general are much better connected to policymakers. Beijing boasts more law schools than Shanghai, has the greatest concentration of legal scholars in China, and produces more of the young lawyers entering the profession in China.

Shanghai, on the other hand, is a commercial capital. Because of Shanghai's history as a commercial centre and focus of entrepreneurial activity, Shanghai lawyers seem generally more aggressive in meeting client's needs in the areas that fund economic growth, like banking, finance and capital markets. But Shanghai lawyers by and large are limited to solving Shanghai issues for their clients, and the city practice remains insulated in many ways.

The Institutional Challenge: Creating a Legal Culture

In any country, there is an interactive and dynamic relationship between the law, the political system, and changing social values. In Western countries, there is a strong tradition of institutionalized legal decision-making, and legal traditions and practices have strongly influenced the development of North American and European political systems. In Western countries, especially in the US, there has been a long-cherished belief that the law is sacred and an impartial arbitrator of disputes among all citizens. The reality of the interaction between the legal and political spheres in any Western society is of course much more ambiguous, but the aloofness of the legal sphere from political pressure remains a foundational myth of Western liberal democracy.

The legal profession in China has followed a much different, and rapid, path of development than in the Western democracies. Foreign and local observers of China often comment that China has "weak" legal institutions, and that legal professionalism is poorly developed.

Practitioners at the elite local law firms are embedded observers of the evolutionary changes in the practice of law in China. Many offer blunt assessments of the state of legal development in China. Their comments focus on three issues: the above-mentioned institutionalization of legal practices, the independence of the legal practice, and the influence of legal practitioners' opinions on the law-making process.

The Court Challenge

Among the important topics in the institutionalization of legal practices (and a key challenge for lawyers) is reducing the influence of personal connections and the arbitrary nature of judicial decisions. In part the problem is common to any developing legal jurisdiction, says Song Huang of Haiwen & Partners. "This problem is also tied to an institutional problem in China, where case law developed in courts has not been a gap-filling rule to interpret the general and vague statutes prepared by the legislature and the executive branch," he explains.

This observation echoes the point made above, in relation to technical challenges, of the problem of giving sound advice to clients when interpretations of the law by different authorities contradict each other. As Allbright's John Huang explains: "Judges just make judgements sometimes without reflection, and don't have to give any reasons for their decisions. If you give a reasoned argument based on legal theory, there is a fair chance that you will fail and the judge won't be impressed with your efforts." Huang offers a bluntly realistic assessment of PRC court practices: "Often, a court won't give you an advisory opinion. PRC courts have a lot of power in this way. It is hard to predict how they will rule or decide in a particular case. And even sometimes they act contrary to the law. For example, we have been involved in cases where an arbitration clause was included in a contract as to be handled in a foreign jurisdiction, like Stockholm or Hong Kong, but the court said that this wasn't possible as the company in question was a Chinese company. This is ridiculous and contrary to the stipulations of contract law. This makes it very difficult to protect a client's interest."

The court system, with the exception of intellectual property, is generally seen as the weakest link in an evolving institutional framework governing legal practices in China. But in other areas governing the legal system, PRC lawyers are more optimistic about efforts to create a transparent and predictable regulatory and legal system governing commercial law and transactions.

Less Guanxi, More Technocrats

The modernization of the bureaucracies that oversee the advanced areas of the economy (like banking and finance) have impressed many observers. "Among the important changes to the environment in which we practice is the growing international outlook of the key regulatory and government bodies that we deal with in the practice. Many government officials today in the relevant ministries (e.g., the central bank, the banking regulatory commission, the insurance regulatory commission and the securities regulatory commission) are overseas educated, have worked in other countries and have come back to China with a much broader outlook than previous generations of bureaucrats," observes Roy Zhang of Llinks in Shanghai.

The growing importance of technocrats in government has changed the meaning of what was the mantra of China business for many years: the overused and frequently misunderstood influence of guanxi, or connections. "Today, (connection with government people) is more about communication and obtaining information about legislation, than personal guanxi. Connections are important, but now they are more like one skill or asset among many others for lawyers. You can claim to have connections, but it doesn't guarantee anything. Claiming connections raises expectations, but it can backfire badly. Also, it isn't really possible to affect pending administrative decisions this way. For example, from July 1, the Administrative Licensing Law is expected to regularize government practices. This will also minimizes the influence of connections. Of course, it won't happen immediately, and local influence and interpretations of law have been a problem. This law in a way is formulated to end these practices," explains Charles Qin of Llinks.

David Liu of Pu Dong further circumscribes the effectiveness of connections in terms of commercial pressure: "Guanxi is still important, but not like it was 10 years ago. In the high-end legal market, the prime determinant of success is talent and expertise. Even among long-time clients or relationships, we have to compete constantly with others to win deals."

Self-regulation and Discipline: The Role of the Bars

The effectiveness of self-regulation in the legal profession and the growth of lawyers' groups, like the municipal bar associations and the All China Lawyers Association, have grown rapidly in recent years. The key development that made the bar associations more responsive to its members was the devolution of management to practicing lawyers in the late 1990s; previously all management personnel at the bar associations were government appointees. Also, now annual inspections of law firms are conducted by the local bar associations; formerly this responsibility rested with the Ministry of Justice.

Today, most disciplinary actions aimed at bar association members are undertaken by the municipal bars, with the key exception being disbarment, which power still rests with the Ministry of Justice. In addition, the bar associations in the major cities have become effective avenues by which the general public can seek redress in cases of legal malpractice, or even as a strategy to get cheaper legal advice. "Consumers (of legal services) are increasingly market savvy. They use the bar as a complaint mechanism, and as a way to get lawyers to reduce their fees," says Liu Borong, a partner at Global Law Office in Beijing.

Many Chinese lawyers feel that the bar associations have done an effective job of raising the standard of ethics in legal practice, at least in the coastal cities. The bar associations have also become professional forums for lawyers to discuss problems in their practices and the evolution of commercial law in China. The city bar associations publish the leading disciplinary cases in their monthly journals, and also present detailed case studies and reviews of regulatory issues on the range of issues from banking to WTO compliance.

Aside from discipline, a big part of the work at both the Beijing and Shanghai bars is the ongoing education of lawyers. David Liu explains that the Shanghai bar now sponsors and organizes international speakers to give seminars on key topics in international law to members. The bar in Shanghai also gives mandatory training seminars in banking, M&A, criminal litigation and IP law, among other areas. "It has taken a much more assertive role in mandating continual training. Although they can't disbar a lawyer from the practice, they can work to improve the skills and professionalism of lawyers under their administration," he says.

Qin Yu of Junyi Law Office gives the Beijing bar credit for maintaining good educational programmes for lawyers. But some lawyers think that greater systematic professional training is required, and as Song Huang of Haiwen & Partners notes, Continuing Legal Education programmes are not uniformly conducted throughout China. Shanghai and Beijing are far ahead of the rest of the country in this regard.

Participants and Lobbies

Participation in bar association activities and agendas is uneven. Some practitioners say that ironically, younger lawyers, who stand to gain the most from a more evolved institutional framework that can lobby the government on their behalf, seem to have the least interest in participating in bar activities and programmes. "Younger lawyers are not that interested in participating. And the bar still doesn't have that much relevance for many lawyers who are focused on their practice and are busy with their commercial work," says Qin Yu. He adds that although the bar has done a good job on education, "it could be more pro-active, and take more of an initiative to promote communication among law firms." Qin puts some of the onus for creating a more participatory environment on the lawyers themselves, saying that "lawyers themselves would benefit from more active participation in good bar activities".

Qin adds that effective lobbying by the Beijing bar on behalf of lawyers and their interests to change government policy is still a challenge. "I think that the bar should be more assertive as an association that represents all lawyers here, and distinguish itself from government organizations," he says.

The institutionalization of legal practices is stronger in reactive, disciplinary issues and not so developed in areas like pro-active lobbying to defend lawyers' rights. As is noted frequently in the international news media, and as lawyers at PRC law firms openly acknowledge, the problem of protecting lawyers' rights in China is particularly acute in criminal law.

Even in commercial law, some lawyers are not so optimistic about their ability to get their concerns across to the government. "The bar is good at regulation, and at implementing the Ministry of Justice's directives and at managing law firms, but it is not assertive in lobbying the government to represent lawyers' interests. An example is taxes on law firms; if they are raised or a new tax introduced, law firms just have to pay. The bar has no real power to challenge government policy. There is no meaningful way to advocate your rights," opines John Huang.

The Drafting Process: Listening to the Lawyers

Another problematic area is lawyers' ability to have their opinions considered in pending legislation. Although the circulation of drafts for comment is now an established practice in some government ministries and departments, in general PRC lawyers don't see their legal opinions reflected in final drafts. Lawyers in both Beijing and Shanghai say that they have some success in participating in a meaningful way in the drafting of municipal legislation, but practically none at the national level.

As Charles Qin of Llinks notes: "Often the law drafters aren't thinking as practitioners; and hence a key challenge for lawyers is interpretation of the law." Presumably, then, if lawyers could raise more practical issues in discussions with the legal branch of government, then the outcome would be more specifically worded and precise legislation. But this development hasn't gotten very far. As David Yu, Qin's colleague at Llinks notes: "Lawyers' input into the legislative drafting process isn't that influential, unlike in some Western countries. Although ministries sometimes seek lawyers' opinions on different issues, the general attitude among the government is not that solicitous of lawyers' input. They don't really appreciate the value of lawyers' contributions."

Many China legal watchers have commented that the outcome of any piece of national legislation is a compromise between diverse groups and interests in the different bureaus and ministries of government. In addition, pressure is put on the legislators and drafters by the key economic actors in any given area, as well as, to a degree, overseas interests and governments. (The best example of the latter is in intellectual property law.) Also, the government is always conscious of the potential wider social impact of new legislation, especially given the dislocation brought on in the reform period (unemployment being a prime example). The result then is less reflective of a conscious watering-down process, than it is an attempt to balance sometimes seemingly irreconcilable differences. In this multi-polar legislative process, it shouldn't come as much of a surprise that lawyers' opinions are not reflected much more than other groups. This is especially so given the nascent stage of development of the legal profession in China. As Allbright's Huang notes: "Sometimes we give very detailed advice and opinions (on pending legislation), and it does have an effect on the outcome. But the whole process is such a compromise of so many interests and groups that it is hard to see our contribution clearly."

Looking Ahead

The practice of law in China is getting better all the time. Technical skills are improving, legal education is getting better, and lawyers are asserting their role more in society. The latter is evidenced, as Song Huang notes, by the fact that many more lawyers are willing to get involved in the political process at the local level than was the case 10 years ago, and are standing for office in local elections. Also, there is keen and open debate among practitioners, legal academics and in government about the role of law in Chinese society, and how to enhance the efficacy and responsiveness of the law to the problems of ordinary citizens in many areas of practical concern.

Probably the slowest area to evolve will be in the institutional sphere discussed above. But equally here, as in the legal and commercial spheres of Chinese society, a younger generation is coming to staff the courts, the legislature, the ministries and bureaucracies. As with lawyers at the most sophisticated law firms, young professionals in government and other public institutions will take on the challenges of redefining legal practices and attitudes in China.

In terms of commercial law, practically all PRC lawyers at the elite firms will say that the coming few years will be a make or break period for many law firms. The opening of many sectors of the economy under China's WTO agreements will largely be completed by 2006, giving foreign investors unprecedented opportunities in China. State-owned enterprise reform and privatization continue to be major policy goals of the government. Financial sector reform is a crucial issue that will largely determine the success of economic reforms in general in the coming years. Chinese companies will increasingly become international players and will require solutions to complex cross-border commercial issues. At the same time, foreign-invested enterprises will increasingly become domestic in nature, and foreign investors will create bigger and more complicated group structures in China that tie in to their worldwide operations. In addition, the participation of international law firms in China might be expanded to heretofore prohibited areas of PRC law, and joint ventures between mainland and international firms might be allowed. Also, international firms will have to become increasingly local to survive, which includes both the client base and the senior practitioners. Young PRC lawyers are the future of the elite firms, and of many international firms as well.

"It's not going to be people like me, in their 40's, who determine what will happen in Chinese law. The future is in the younger generation. It is the lawyers who are in their 20's, that will change the way law is practiced here. Although the growth of local firms has been explosive, the country still needs more lawyers. This growth will change China," comments Ed Lehman, the managing director of Lehman, Lee & Xu. Lehman is one of the few foreigners managing a domestic law firm, and belongs to the generation that first came to China at the beginning of the reform period.

The future of Chinese law firms is a microcosm of the future of China. Amid keen competition and economic changes, a young generation will determine how the law will be treated in Chinese public life, and how meaningful are the contributions they make to creation of a more predictable and fair legal system, and how the legal system reflects aspirations in a complicated and fast-changing society.