In 2006 the
Shanghai Bar Association
issued a now-infamous memo accusing foreign law firms of conducting “illegal business activities” by fudging regulations that prohibit them from practicing Chinese law. The group called upon the Chinese Ministry of Justice to crack down on foreign firms and “put in order, regularize, and purify the Shanghai foreign legal services market.”
What a difference six years make.
In June the group that once railed against foreign lawyers in China decided to begin admitting them as special members, becoming the first bar association in China to do so. Invitations went out to 22 individual foreign lawyers as well as 14 international firms, including
Baker & McKenzie
O’Melveny & Myers
White & Case
Allen & Overy
Freshfields Bruckhaus Deringer
, French firms
Gide Loyrette Nouel
, and Japanese firm
Oh Ebashi LPC & Partners
Lawyers on the ground say the move is indicative of the more easygoing relationship that now exists between international and local firms in China.
“I think the mutual dislike is not there anymore,” says Li Qiang, Shanghai managing partner at O’Melveny & Myers. “Chinese firms realize that international firms are not going to come to the mainland and set up offices with 1,000 lawyers, so they don’t feel as threatened.”
Though not allowed to practice Chinese law, international firms are permitted to advise foreign clients on the “Chinese legal environment,” language they’ve taken to mean virtually anything short of appearing in court. Back in 2006, foreign firms seemed to dominate foreign investment-related work, and it was this state of affairs the Shanghai Bar protested.
Foreign firms can still push the envelope advising on China’s legal environment; the justice ministry ultimately did nothing. But the global economic crisis came down hard on foreign firms in China. The downturn in the West led to a sharp drop in inbound foreign investment into China, and a new emphasis on lower costs favored Chinese firms, many of which had also taken steps to improve the quality of their work and their staffs. In recent years, many foreign firms have given up trying to compete and now deemphasize China inbound work in favor of outbound. At the same time, Western partners that focused mainly on foreign investment work have been moving to Chinese firms.
“Chinese firms have internationalized, increased in size, and are providing better-quality legal services,” says Fan Jiannian, a Shanghai partner at Paris-based Gide, which accepted its invitation. “Their strength and ability to compete are more equal to foreign firms now.”
But joining the Shanghai Bar isn’t exactly like joining bar groups in, say, the United States, where the legal profession is self-governing. In China, all bar groups are controlled by the state, and are often required to enforce discipline in their ranks. As such, bar groups occasionally participate in official persecution of human rights lawyers, who can be denied licenses to continue practicing. Many bar leadership positions are actually occupied by officials from the Ministry of Justice.
Zhang Danian, the head of Baker & McKenzie’s Shanghai office, says the firm had some concerns about voluntarily choosing to be a member of a government-run association but ultimately decided to participate.
“If you want to continue doing business here, how can one be comfortable in saying no to such an invitation?” says Zhang.
Foreign lawyers’ special membership is limited. It does not give them any more practice rights than they had before; foreign lawyers and firms that belong to the Shanghai Bar are still banned from practicing Chinese law. For the most part, the membership is about socializing and exchanging knowledge. Foreign lawyers can participate in training sessions, conferences, and networking events with local lawyers and government officials. They can also participate in talks about issues related to the legal market in Shanghai.
But foreigners won’t be participating in deliberations about bar policy and administration.
“We definitely won’t have the molding rights to change the articles of the Shanghai Bar,” says Zhang. “After all, we are considered guests.”
On the other hand, given the Shanghai Bar’s past actions, firms didn’t want to take any chances. At their request, new rules were drafted specifying the Shanghai Bar will not have supervision rights over their international members’ practices, and that foreign firms will continue to be governed by the Ministry of Justice.
Fan says there are fears among some foreign lawyers that joining the Shanghai Bar may, in some way, lead to greater government constraint. But he disagrees.
“I don’t think that’s the case here,” says Fan. “In fact, it may become an effective channel for feedback on policies and the issues affecting the Shanghai market.”
Li says O’Melveny also accepted. Lawyers in the firm’s Shanghai office can now apply for individual membership, an option that costs about $240 annually. The firm’s membership included one for an individual lawyer, which Li accepted as office head.*
“The first stage is always experimental, so the firms invited are larger representatives of different countries,” says Li. “But eventually, I think the goal is to recruit all international firms as members.”
Zhang thinks international firms’ participation in the Shanghai Bar could lead to more cooperation with Chinese firms in other areas.
“This could be the first step to pushing for more partnerships and joint ventures between international and Chinese firms, like
King & Wood Mallesons
,” he says.
An earlier version of this article incorrectly stated that O’Melveny’s Li Qiang accepted a discounted individual membership in the Shanghai Bar. We regret the error.