International practices clear hurdles to gain China foothold
Reports by Arun Sudhaman
More than 100 foreign firms now have offices registered across the mainland
For law firms, China's status as a land of unparalleled opportunity has persisted for many years. Given Hong Kong's strategic proximity to the mainland, it is not surprising that local firms, or local offices of international firms, have taken the lead in establishing offices across the border.
The first wave of foreign law firms obtained licences to practise in the mainland during the late 70s and early 80s. More than 100 foreign law firms now practise there, with many recently snapping up licences to open a second representative office.
Opening an office in the mainland, however, can be tricky, not least because of the unique cultural and political sensibilities that must be navigated.
Local mainland lawyers are not allowed to practise in a foreign law firm unless they give up their mainland practising certificates.
But increasing numbers of overseas-educated mainland nationals are returning to the country, notes Baker & McKenzie managing partner David Fleming.
'A number of [mainland] law graduates spend time and qualify overseas, and these candidates represent an attractive opportunity for foreign law firms,' says Mr Fleming.
Deacons managing partner Lindsay Esler says: 'In the past, we tended to rely on Mandarin-speaking overseas practitioners. Our current practice is to recruit mainland lawyers who have obtained a second legal qualification in a foreign jurisdiction.'
Two other factors are crucial for law firms staffing their mainland offices: language and networking abilities.
'There is no doubt the China market has a number of particular requirements - language skills, given the strong first-language preference for Mandarin, is essential and business and peer group relationships are significant,' says Robert Milliner of Mallesons Stephen Jaques.
Sidley Austin Brown & Wood partner Timothy Huanting Li says a wider appreciation of the local culture is also relevant for certain transactions.
'In securities transactions, accurate disclosure and effective due diligence will require such knowledge,' says Mr Li. 'In FDI [foreign direct investment] transactions, such knowledge will also be necessary to tailor the various agreements for the deal.'
A good insight into the local business culture can prove useful in completing complex deals, says Mr Fleming. 'As in any business environment, an overall understanding of the local way of life goes a long way in successfully negotiating transactions,' he says.
Networking is considered essential, and many firms expect their mainland offices to take an active role in this capacity.
'Because mainland offices are generally small compared with offices in Hong Kong and elsewhere, their networking role has become more conspicuous,' Mr Li says.
This requirement has been underscored by the emergence of domestic law firms, with the relationship between international and local firms being more symbiotic than antagonistic, says Mr Milliner.
'In our dealings in China, we have typically worked closely with one of the major China firms and we see there are real roles for both to play - the international firms can provide expertise and experience, particularly in sophisticated transactions to which the local China firms have not yet been exposed, and the mainland firms can help with the nuances and particular details of the local law and business practices, particularly the government approval process,' he says.
The Closer Economic Partnership Arrangement (Cepa) is expected to offer significant concessions for Hong Kong firms wishing to practise in the mainland.
The main concession appears to be that mainland law firms can now employ Hong Kong lawyers, but the jury is still out as to how effective Cepa will be for Hong Kong's legal sector.
'Like firms from other jurisdictions, Hong Kong law firms still cannot do the more important things in China, such as practising Chinese law and employing locally registered lawyers,' says Mr Li.
'Although Cepa permits mainland firms to employ Hong Kong lawyers, thus providing employment opportunities to qualified lawyers, it will not help Hong Kong firms gain a foothold in China.'