What you should know about foreign lawyer in China (1)

Published on August 29, 2014

A legal evolution

Following Deng Xiaoping’s reforms China became a land of opportunities for many foreigners wishing to establish businesses and challenge themselves in a new country. Among those pioneers were lawyers whose role was assisting foreign entrepreneurs entering a completely different economic, political and legal system. In this article Carlo D’Andrea, Founding Partner of D’Andrea & Partners, and Chair of the Chamber’s Legal and Competition Working Group in Shanghai, reviews the current operating environment of China’s legal services industry and strongly advocates the changes necessary to make it more accessible to foreign law firms.

Despite China’s rapid development foreign businesses here continue to face new challenges, such as the regulatory environment, restricted market access or even issues relating to the environment or general living conditions. Foreign lawyers in China face a particularly significant obstacle—the freedom to actually practice law.

Over the years, the European Chamber’s Legal and Competition Working Group has stressed these issues in its Position Paper and continues to register the dissatisfaction of the European legal community in China.

How Chinese law has changed

The post-Mao era

The legal profession in modern China is barely 30 years old. The law faculties reopened in 1980 and the first qualification exam was held in 1986. At that time, lawyers were considered as workers of the State, representing and protecting State interests. They lacked experience in managing international legal issues and also were unable to speak foreign languages, including English, which is essential for learning and comprehending international law.

As soon as western companies began to establish branches in China, legal experts came from abroad to help their clients deal with local authorities. Gradually more foreign law firms established on the Mainland and took the lead in commercial and corporate affairs, as well as the foreign investments sector.

An unequal footing

In the European Chamber’s Business Confidence Survey 2014, it was revealed that 90 per cent of European law firms operating in China feel they are treated unfairly by the government compared to domestic Chinese companies.

Historically, the main problems have been that they can’t be admitted to the bar or provide legal advice on Chinese laws and regulations, as they are not Chinese citizens.

In the event of disputes foreign law firms have to find a Chinese lawyer to represent their clients’ interests before the court. This situation forces cooperation between foreign and Chinese lawyers. While undoubtedly fruitful for both parties, it is more so for the Chinese lawyers, who are able to learn more about international law.

The Lawyers Law (律师法), issued in 1996 by the Ministry of Justice and most recently reviewed on 26 October, 2012, did little to advance things. It states that foreign law firms can hire qualified Chinese lawyers, but can only practice foreign or international law. It further stipulated that if a qualified Chinese lawyer is hired by a foreign firm, his/her license shall be suspended, and they cannot practice as an attorney at law in China while working for that office.

In Europe, Chinese lawyers have equal opportunities. In fact any foreigner aspiring to practice law in any European country will be admitted to the bar. There are no limitations based on nationality.

Chinese firms to conquer the West?

Over the past decade many Chinese companies have taken advantage of the economic downturn to ‘go global’ and the number of Chinese companies investing abroad is increasing each year. This has had an effect on the activities of foreign law firms who are increasingly employed by Chinese entrepreneurs to give advice on outbound investments to Europe, the USA or Australia.

It is now a common occurrence to read that a Chinese company has acquired an important foreign brand in the automotive industry or in the IT sector, but this wave of acquisitions raises concerns for European lawyers as the trend also includes the expansion of Chinese law firms in Europe.

These mergers allow for an easier approach to new markets by avoiding challenges related to relocation or language. However, in many cases a merger can hide an acquisition set up by a stronger Chinese law firm to help another suffering from economic problems. In this situation the ‘acquired’ firm can lose its independence and personality.

In the last few years many mergers between Chinese law firms and those from Europe has led to the creation of new ‘super’ firms with more than 3,000 lawyers. This creates extremely tough competition for the small- and medium-sized firms that form the backbone of the legal society on the Old Continent.