CHINA Continued from page 13 other in a style sometimes compared to UK barristers. Their Spartan offices closely resembled the government departments in which these firms had their roots. Veteran China-based Western lawyers recall the Chinese firms’ “poorly furnished buildings” and the “scruffy, civil servant-style clothing” of the lawyers of the day. But the opening up of China to foreign investment – which in 1992 saw international law firms granted permission to set up in China officially (although not permitted to practise Chinese law) – marked the beginning of a process that would see the country’s domestic firms evolve dramatically. “When China opened up it didn’t have a credible legal community, so for foreign direct investment and large-scale fundraising, international law firms filled the void,” recalls King & Wood’s Rupert Li, who worked under Nee at Coudert Brothers. “But Chinese firms quickly became an indispensable intermediary, interfacing with not only the international law firms but international investment banks. Basically what you had was a nascent profession that just happened to be dropped into the extremely fast-moving process of international fundraising, with a consequent huge transfer of knowledge taking place.” Before long the top Chinese law firms had moved to smart new offices in the buildings springing up in the centres of Beijing and Shanghai, their lawyers
now clad in designer suits. Meanwhile, firms’ structures evolved to increasingly resemble those of their international peers – albeit via lockstep pay models characterised by heavy elements of ‘eat what you kill’ payouts for the bestconnected business generators. And they have been growing at a startling rate. In 2005 Jun He had around 150 lawyers; it now boasts around 400 working out of offices in Beijing, Shanghai, Shenzhen, Dalian, Haikou, Hong Kong and New York. There has been similar growth at King & Wood, which now employs over 800 lawyers across 16 offices. Statistics on Chinese firms’ revenues are notoriously hard to come by, but they are said to have risen annually by double-digit percentage rates until the global financial crisis slowed inbound investment into China in 2008. Last year the leading Chinese practices are believed to have turned over between YUAN300m-YUAN400m (£30m-£40m) and YUAN1bn (£101m). And some firms have bucked the slowdown altogether, with Dacheng Law Offices reportedly doubling its revenue between 2008 and
Before long the top Chinese law firms had moved to smart new offices in the buildings springing up in the centres of Beijing and Shanghai, their lawyers now clad in designer suits
2009. Despite possessing a lower profile internationally than firms like King & Wood and Jun He, the fast-growing Dacheng now has more lawyers than both, with a total of around 900 fee earners and approximately 400 partners operating out of 27 offices. Last year alone the firm opened 14 offices, the majority through the acquisition of local firms, though Dacheng is seen as having far less clout for high-end corporate work than China’s more established outfits. Salaries, meanwhile, are fast approaching Western levels, though not on par with packages available for commercial lawyers in markets like New York and London. Annual associate earnings at leading Chinese law firms start at around $15,000 (£9,00) and reach $100,000 (£63,000) plus bonuses, which can add another 40%-50%. Equity partners take home between $250,000 (£157,000) and $750,000 (£472,000) a year. Individual high flyers can earn as much as $1m-$2m (£629,000-£1.26m) after tax. Given the much lower cost of living in China, these sums go a long way. Dan Harris, a partner at Seattle-based law firm Harris & Moure and co-author of the China Law Blog, comments: “At partner level many of these guys are rolling in it, because they’re charging near-Western rates but paying Chinese costs. It is not at all uncommon for partners at China’s top law firms to own condo after condo, car after car.”
INTERNATIONAL LAW FIRMS IN CHINA While international law firms have been permitted to operate in China since 1992, under Chinese Bar rules they are not permitted to practise local law. In addition, the Chinese-qualified lawyers they employ must surrender their practising certificates, taking the role of ‘consultants’. In practice though, the restrictions are not particularly tightly policed. “Actually, the Ministry of Justice is pretty accommodating to foreign firms, enforcing the restrictions far from rigidly,” says ex- Lovells (now Hogan Lovells) Beijing managing partner Robert Lewis, now a partner at Chinese law firm AllBright. He gives an example of a meeting of international law firm managing partners and Chinese Government officials he attended four years ago while at Lovells: “I remember one managing partner of an extremely high-profile New York law firm turning to the senior Ministry of Justice official and saying, ‘You do know that if you enforced your rules properly, you’d have to kick us out’.” But there is little doubt that the ban - which lawyers say they do not expect to be lifted anytime soon - has substantially held back the near 200 foreign law firms operating in China, putting a ceiling on their ability to expand. “Foreign firms do well in China, with a business model that sees them represent international clients investing in the country and offering foreign products to Chinese corporations going
14 Legal Week Student Spring 2010
abroad, but this restriction means there will always be an awkwardness in the way the Chinese law service is rendered,” says King & Wood partner Rupert Li. The ban has also curbed expansion outside China’s two major business centres, says Lewis. “While it has been possible for many of the foreign firms to open up a third office outside Beijing and Shanghai for almost five years now, nobody has done it - mainly because it’s an extremely hard sell to central management back in London or the US.” The result is that as Chinese firms keep growing, the international law firms with the largest presence in mainland China like Baker &
McKenzie and Clifford Chance rumble along at around the 50-100 lawyer mark, limiting their ability to provide career paths to their native Chinese lawyers. Keen to play a part in their country’s economic renaissance, these lawyers - who have been targeted by international firms in China for some years for their language skills and understanding of the way business works in the country - increasingly view Chinese law firms as the best bet for furthering their careers. “In a Chinese law firm, people like me can make partner earlier and have more flexibility in developing their own business,” says former Skadden Arps Slate Meagher & Flom associate Kirk Tong, now a partner at Jun He. www.legalweek.com/students