Legal business in China: article by Sergey Slagoda for the Legal Insight Magazine
“The state practices socialist market economy” - how ample is this statement in Article 15 of the Chinese Constitution and how sharp is it in reflecting the current situation with business in China, including the legal industry. However, one can hardly characterize the Chinese way to be ineffective, especially during the last 20 years.
So, how does the machine of the Chinese legal business look from the inside?
As opposed to many other jurisdictions, China restricts free access of foreign attorneys to the full-scale practice within its territory.
This however does not mean that there are no international law firms on the market. Quite the opposite: there are probably even more of them in China than in Russia, and it therefore would be pointless to enumerate them one by one.
An important difference is that all of them are functioning through representative offices that can carry out limited practice not connected with the Chinese law and enter into long-term agreements with the Chinese national law firms.
The main law governing the legal business in China is the Chinese law on lawyers and legal practice; it consists of eight chapters devoted to the conditions of legal practice and to the law firms, as well as to the rights and duties of practicing attorneys, professional responsibility etc. In order to receive the certificate of admission to practice, a Chinese citizen is required to possess a qualification of a lawyer (advocate), i.e. to pass the National Legal Exam administered by the Ministry of Justice and finish a one-year internship in a law firm and be a respectable person.
In China, the main bodies controlling the area of legal business are the Ministry of Justice and the All-China Lawyers Association (ACLA). ACLA is in a sense analogous to the Federal Chamber of Advocates of the Russian Federation. Chinese lawyers may also create local associations on the levels of provinces, autonomous regions and even municipalities. Every practicing lawyer (advocate) in China must be a member of a local lawyers association and, consequently, of the All-China Lawyers Association.
The functions of lawyers associations in China include as follows: monitoring the law practice and protecting the rights and interests of lawyers (advocates); collecting and exchanging legal experience; organizing professional training for lawyers (advocates); controlling compliance by lawyers (advocates) with disciplinary and ethical standards; arranging the experience exchange with foreign colleagues; settling the disputes arising out of the law practice, imposing disciplinary measures upon lawyers (advocates).
Thus, based on how the legal services are regulated in China, we can conclude that "the problem of advocate monopoly" there is solved in favor of qualified and certified attorneys, and that the state protects the interests of national law firms and the same time effectively "opens the door wide" for foreign/international law firms. The result is that everyone is happy and all practice law together.
As to the special administrative regions of Hong Kong and Macau, as well as the island of Taiwan, there the regulation of legal services is utterly different from that in the mainland China. In general, it can be stated that certified lawyers practicing in mainland China, will not be admitted to practice in Hong Kong and Macau. However, if a law firm from mainland China has an office in Hong Kong or Macau, its lawyers may apply for the admission to practice in these special jurisdictions.
Despite the wide expansion that foreign law firms are carrying out in China, the Chinese national law firms grow successfully and are taking part in competition not only on the national, but also on the international legal market. Such Chinese national law firms as Dacheng, Yingke and Grandall can serve as an example thereof.
In regards to the Russian lawyers practicing in China and vice versa, it must be noted that there are very few Russian law firms on the Chinese market. Moreover, Chinese law firms had been completely absent on the Russian market before 2013. One reason for this mutual "absence" (even despite the immense trade between the two countries) is probably the above-mentioned long-term activity of international law firms both in China and in Russia. Most Chinese clients prefer to contact the Chinese office of an international law firm to solve their legal issues in Russia, since the firm would most likely have a Russian office. Nevertheless, the legal world is not standing still, and the situation is changing - we will look at what will be happening in future...
According to The Lawyer, British weekly magazine, currently there are about 180 offices of international law firms in China. Ministry of Justice of China announced that since 2003 to 2012 the number of representative offices of foreign law firms has increased from 114 to 228 and continues to grow.
The combined profits of fifteen largest international law firms in China constitute 10 to 20 million dollars, and per partner - 625 thousand dollars, which is far less than the worldwide average for the firms in the top-10 globally. Chinese clients are not willing to pay for their expensive services when the services of the leading national firms cost much less. The hourly rate of a fifth-year senior associate at Allen & Overy amounts to $ 800, which is 20-25 % higher than the rate of a partner at a top Chinese firm. This forces the international players to cut their rates in order to bring them closer to those of local law firms. Another problem for international law firms in China is national specificity. European and American strategies do not show efficiency here, since clients prefer individual approach (as to the rates too). Most important strategic decisions taken in head offices do not consider this specificity. In case of a conflict of interest between a Chinese and, say, an American client, a global firm would choose the latter, which would provide a bigger contract and, at the same time, problems for the firm’s Chinese representative offices. And still, international law firms are waiting for the Chinese legal market to become open for foreigners.
First private law firms started emerging in China as early as in 1988. Most leading national law firms, such as King & Wood MAllesons, Zhong lun, Commerce & Finance, Dacheng, DeHeng Law, Offices и Jingtian & Gongcheng, opened in 1992–1993 — Editor’s Note.