Read our latest coverage on the scramble to get American law firms � and lawyers � into China.
The reality, U.S. lawyers say, is that work for global clients in China often requires them to offer opinions on Chinese law.
Instead of forsaking that work � and the billings it brings in � many Western firms rely on Chinese lawyers brought in under the title “legal consultant.”
“They’re like super paralegals,” said Walker Wallace, an O’Melveny & Myers partner based in Shanghai. “It’s very sensitive. We’re not supposed to hire Chinese lawyers, but officially they’re not: to be a lawyer you have to work for a Chinese firm.”
O’Melveny has about 10 of these legal consultants in its China offices at any given time, Wallace said.
At Jones Day, about half the people in its China offices were trained in Chinese law schools, said Peter Wang, a partner leading the litigation team in Shanghai. The firm has several organizational tiers, with U.S.-trained attorneys at the senior levels and Chinese law school graduates in a junior role.
“It’s complicated,” he explained. “They’re lawyers, but they practice as legal consultants.”
WORKING IN THE GRAY
From a conference room on the 25th floor of the Jin Mao tower, overlooking Shanghai and the Huangpu River that divides its new and old sections, AllBright’s Huang and Qian are eager to talk about the future of firms in China. Inside their modern-art adorned offices, racks of Chinese magazines are displayed amidst the Financial Times and the English-language China Daily.
Huang says he hopes talk of a crackdown will create an opportunity for further cooperation between U.S. and Chinese firms. Because, he said, “if you eliminate all the gray areas, all the foreign firms will go home.”
But the use of Chinese lawyers isn’t the only cause of friction between foreign and Chinese firms.
Despite the official count of foreign firms hovering around 100, Qian says many more operate illegally, without a license. The application process can be time-consuming and opaque. While they are waiting for approval, they still practice, minus the official office space: “They hide out in hotels,” Qian says.
Adam Li, a partner at the Chinese firm Jun He, said he’s conflicted when it comes to the practices of foreign firms in China: “No violation is good, but on the other hand, I embrace fair competition. I am a believer in the free market and playing on equal footing.”
By denying foreign firms the right to practice, you’re denying yourself the jurisdiction to regulate them, he said.
“On one hand, they’re practicing PRC law de facto � you can’t close your eyes and say, ‘I don’t see it,’” he said. “If you include them in the market regulations, you give them standards, something that they’re bound to.”
Li points to other problems he sees with foreign firms’ gray-area operations. Because they rely on novice Chinese lawyers lacking seasoned supervision, foreign firms are likely to offer poor advice.
Li also believes U.S. firms demean their Chinese “legal consultants” by paying them far less than their U.S.-trained counterparts. And he says opportunities for professional growth may prove illusory.
“Local lawyers want to move to an international firm because they could be better paid and can get international exposure,” Li said. “Then, they find they’re less paid with an inferior job and not necessarily getting better training.”
But leaders at U.S. firms see nothing exploitative about putting Chinese trained lawyers on a smart career path.
“They’re very young, very green, and they’re often hoping to get international experience for their career track,” said O’Melveny’s Wallace. “They will often go abroad, get experience and come back to O’Melveny & Myers.”
Many lawyers here see friction as the inevitable result of increasing competitive pressures.
HOLD ONTO YOUR BRIEFCASES
By all accounts, there’s going to be adjustments as the legal market matures and competition heightens. Many predict a shake-out that will result in several tiers of firms doing different types of work, much like in the United States.
Foreign firms’ bread-and-butter work has tended to be foreign direct investments, but there is now movement to more complex cross-border transactions, where foreign firms can boast a value that’s worth their higher billing rates.
“I think the competition is temporary, illusory � the market is moving very fast,” said Landon Prieur, who headed Coudert Brothers’ Shanghai office and is now with Orrick, Herrington & Sutcliffe. “We have an extra 10 years of expertise to do something more sophisticated. They’re moving into our old digs and we’re rubbing elbows.”
Xia, whose office at Littler is on the 20th floor of a high-rise that houses Google and Elizabeth Arden as well as monthly happy hours, is among those welcoming all those rubbing elbows.
She is hopeful the influx of foreign firms will quicken China’s development, helping it smooth some of the country’s cumbersome red tape on issues such as obtaining foreign work permits.
“By working in an international environment, we get advanced information from overseas and it helps China as well,” she explained. “China is very open. But it has been waking up very slowly.”