U.S. professional services regulatory bodies take greater interest in members’ China practices

Posted by Reading Time: 3 minutes

By Chris Devonshire-Ellis 

I spoke yesterday at the Beijing American Club to the Association of Legal Administrators (ALA) and it struck me how much has changed – for the better – in American engagement in China. It used to be that law firms would just turn up here and arrange their own sweet deals, or set up shop and then practice willy nilly without any real adherence to China’s regulatory regime governing the activities of foreign law firms in China. The Ministry of Justice was also admittedly weak in administering its own backyard.

But the development of China’s own legal services industry – a mere fledging at a little over ten years old – has seen a marked improvement in the quality of Chinese firms and the legal education within the Chinese system, and domestic firms are now being more aggressive in their own lobbying attempts to curtail the scope of the foreign firms entering the market and to keep them within the regulatory guidelines. While the usual moans and groans about “freedom of practice” are to be heard from various international firms, the fact is China does, in common with many countries, employ a regulatory system designed to curb the activities of non-domestic firms. In my opinion, when compared with India’s regulatory restrictions governing the activities of foreign professional services firms there, the Chinese regulatory system governing the same international practices is positively benign.

Accordingly, it is good to see associations such as the ALA taking an active interest in China, issuing guidelines to their members and taking the heat for this responsibility from the senior partners, who have other issues, such as profitability and billable hours to focus on, and may not always be as diligent or aware as to what an international practice can actually do here.

A handful of issues were debated yesterday afternoon, with special interest paid to a debate over the role of Chinese lawyers in China and Foreign lawyers in China. With Dezan Shira & Associates’ Beijing legal colleague Richard Hoffmann also in attendance, our view was that Chinese lawyers are best advising on Chinese law, not foreign lawyers. The premise being that growing up in China, going through the Chinese legal education system and being fluent in the language and the structure of the law was a pre-requisite very few, if any, foreign lawyers possess. Richard went on to explain that although the Chinese legal system and administration was relatively easy to understand, it can be notoriously difficult to put into practice, and that this is where Chinese hands are defter than foreign ones. His own role, he mentioned, at Dezan Shira & Associates was to understand the international clients own requirements from an international legal and tax perspective and to work with his Chinese team to facilitate this.

I would agree with this statement. It is essential in China, if you are a foreign law firm, to have a strong support team of staff, and increasingly important to have this on a national basis and not just confined to say Beijing, Shanghai and Guangzhou. Regional provinces vary tremendously, and that additional knowledge is now becoming an in-house requirement.

Indeed, with the rush to get into Beijing and Shanghai, I am amazed by the numbers of foreign lawyers with no understanding or concept at all of the LLJG (processing factory) regulations that are so popular a form of foreign investment in South China, yet almost unheard of beyond Guangdong. Missing that out means clients are not being advised of all the available options. Yet a Chinese lawyer will (or should be) well aware of this structure, and in Guangdong province, home to much of China’s manufacturing industry, most definitely so. Shanghai is more ‘sexy’ for foreign firms, but the value manufacturing is still in the south. Our own South China offices (we have three: Shenzhen, Guangzhou and Zhongshan) collectively bill more than our Shanghai office.

All this said, bringing over advisory and educational bodies such as the ALA, and publications like Professional Legal Management Week to help their members get a feel for the implications of being in China is a step in the right direction. The days of setting up shop here and just getting on with it are long gone because now in China, foreign law firms have to play by the rules. Good practice management starts at home and the likes of the ALA are to be applauded for their common sense in spreading that gospel to their member firms own playing fields in China.