Chance on China

Reflecting burgeoning business opportunities in China, Ark Group is to hold its first ‘Building a profitable legal business in China’ conference in Shanghai on 1-2 December 2005. Caroline Poynton talks to one of the event’s key speakers Simon Black, managing partner of Allen & Overy’s Shanghai office, about his experiences in the Chinese market.

Can you tell me a little more about the Chinese legal market?
China ranks very highly in the priorities of all our major clients in terms of trade and investments. To an extent, we mirror those major international clients in needing well-manned effective resource on the ground in China.
For us, it also represents an opportunity to work for major Chinese companies, largely in their activities overseas, including mainly M&A, but also helping them in their dispute resolution and general contract work. China as a whole is quite an exciting, dynamic, but slightly idiosyncratic market, both in terms of inward and outward investment. I say idiosyncratic because the scale of potential opportunities generally outweighs the reality in terms of the challenge all businesses face here in doing business.

What restrictions still exist to practising law in China and how far do you think this will change in future?
Our licence allows us to practice international law, but there is also general understanding that international firms will give their clients guidance on business and regulatory conditions in the People’s Republic of China (PRC), but are not licensed to issue formal legal opinions. Where that is required, we work with Chinese counsel. If we employ qualified PRC lawyers, then they temporarily give up their licence while they work with us.
Whether this will change in future is anybody’s guess and my view is that it’ll change very slowly, with maybe tentative steps taken by the government to look at forming alliances or joint-venture relationships over time. It is noteworthy that the government has experimented with this, by allowing Hong Kong law firms – under the Closer Economic Partnership Agreement (CEPA) – to have informal alliances with the mainland. There are others that think, during the current Doha round of World Trade Organisation negotiations, that the Chinese government will offer some deregulation as part of a general trade agreement, so I think it’s something to watch out for. But I would certainly be cautious.

What are the challenges you have faced in doing business in China?
We need a mix of personnel here that cater for what our clients are trying to do. This is multifaceted so our major international/corporates require indepth knowledge of the China regulatory system and how business is done here, along with a range of corporate M&A, IP, financing and dispute-resolution skills.
When one looks to our Chinese clients, they need varying skill sets in terms of knowledge of overseas markets, the ability to liaise effectively with our colleagues overseas in transactions that they are doing that are different to a major international corporate investing in China.
Resource is the first major hurdle and recruiting, retaining and training effective resource is challenging because it’s a fast growing market that needs a breadth of experienced lawyers – the demand outstrips supply.
We also have to make sure that we don’t get over exuberant about the opportunities here and expand headlong into a huge problem. We’re quite vigorous and disciplined about the pace at which we are building up.
Part of this is making sure that the expansion proceeds in line with our other offices in Beijing and Hong Kong, and that we remain one integrated China practice group. These activities also need to integrate into the general strategy of the firm.

Can you tell me more about your role as managing partner of the Shanghai office?
It’s quite exciting because there is an interesting array of transactions – both for Chinese and overseas clients – and this involves managing the team both in Shanghai and across other offices.
In addition, there is the business-development activity that you would expect of a relatively immature office. This comprises building profile, with targeted marketing to clients whose business needs we think we could fit because we have produced the requisite legal work for other clients. We also actively promote our name and our China practice across our international offices and ensure that they are doing the same thing across their client base.
Then there is an area of management that relates to ensuring that we engage the Ministry of Justice and the government and that we keep within our licence.
Finally, there is a lot of work in gelling the team through proper training to ensure the office is fully integrated.
We also spend a lot of time planning where we are going to be in three to five years’ time. So the management aspect is fairly wide ranging and we never have enough time to do all of it justice.

Which of the above demands on your time would you prioritise?
Making sure we are really heading in the general direction that we want to be in three-five years, because it’s a very fast-changing market and even the best strategists will have to evolve their plan as time goes on. So it’s challenging to have a firm idea of where we’re heading but that we also evolve the plan and react to events as they arise.
The second major thing is effectively training and integrating the team because we are growing rapidly. I’ve seen other firms in the market who have expanded very rapidly and are being challenged by these issues.

What plans do you have for the Shanghai office in the coming years?
Currently we have two partners and 18 lawyers and we want to build out the team so we have effective resource at every level, from partner downwards to undertake complex and relatively large corporate and financing transactions both inside and outside China.
The scale of investment and the complexity of transactions increases almost daily, particularly if you look at the activities in the financial sector where there are very significant investments by foreign banks and financial institutions in the Chinese counterparts, either by way of acquisitions or joint ventures. We need critical mass on the ground and we need a relevant level of expertise. In the next two years, we need to be pushing to a total staff of around 30 with about four or five partners. n

Simon Black is managing partner of Allen & Overy’s Shanghai office. He can be contacted at simon.black@allenovery