“Shanghai is the financial capital of China, and Shenzhen is the capital of entrepreneurship." So says Peter Fuhrman, chairman of boutique investment bank China First Capital, giving a good reason why his firm is based in Shenzhen instead of Shanghai. "Shenzhen is an original entrepreneurial success story for China, and remains the most open and flexible place in the country. It also has an established market economy, so it's a good place for us to be," says Fuhrman, whose bank focuses on serving China's privately-owned small and medium enterprises (SMEs). 

Built by entrepreneurs, Shenzhen continues to produce multinational corporations like Huawei, ZTE and Ping An, and national industrial leaders such as China Merchant Bank, Tencent and Vanke. The boom town's vibrant market and dynamic SME sector continues to attract more investors, and private equity funds too are currently pouring in.

The city's entrepreneurial spirit has also been witnessed in its law firms. RayYin & Partners' founder and managing partner Zhou Yi is an entrepreneur himself. Previously a lawyer with Shenzhen firm Jingtian, Zhou returned to the city and founded RayYin in 2005 after having obtained an LLM from the University of London.

A few years later, the firm extended its national and international reach by merging with a Beijing firm and joining the international independent network of law firms, Lawyers Associated Worldwide, as the first PRC member. In 2008, RayYin set up its own IP agency to meet the increasing demand for IP services in Shenzhen. This year, the firm established a Shanghai branch to tap the opportunities in the Yangtze River Delta Region.

In May, Zhou became a registered foreign lawyer with Hong Kong firm Christine M Koo & Ip to better advise clients on Hong Kong-related matters.The firm primarily focuses on counselling clients and investors from these industries in business, transactional and intellectual property matters.

"Shenzhen has been transformed from a manufacturing hub to a high-tech innovation centre. The shift has led a number of other industries such as finance, IT, real estate and funds to flourish," Zhou says. "Opportunities arising out of these important industries lay the foundation of growth and success for Shenzhen law firms."

On the rise
The growth of Shenzhen's legal industry is best illustrated by the industry's revenue figures in the past five years. In 2004, revenues of Shenzhen firms totaled RMB1.1bn and by 2008 this figure had doubled to RMB2.2bn. Ideally placed in Shenzhen, Guanghe law firm took the top spot in ALB China's 2008 Fast Growing Firms ranking, with an impressive growth of 98%.

However, the opportunities emerging in Shenzhen are not exclusive to local law firms. On the contrary, local firms are facing increasing competition from Beijing and Shanghai rivals - particularly in the high-end segment - work on major public offerings and large M&A transactions, for example.

A recent transaction involving two Shenzhen-based companies shows Beijing and Shanghai firms' strength in the market. In Ping An Insurance Group's US$3.2bn acquisition of Shenzhen Development Bank, three non-local PRC firms were involved. Beijing's DeHeng Law Offices worked alongside DLA Piper advising Ping An, Haiwen acted for Shenzhen, and Shanghai's Fangda and Freshfields represented the seller, TPG's Newbridge capital.

 The vast pool of potential clients and its strategic location has increasingly driven firms to set up shop. Beijing firms Dacheng, Jingtian & Gongcheng, Zhongyin and Zhongtian are some of the newcomers, while US-based JD Global is soon to open an office in Shenzhen. "The demand for legal services in Shenzhen is burgeoning, but the major challenge for local firms lies in competing against big brands from Beijing and Shanghai that are well-established and have proven track records in working on major deals," says Lai Weiwen, the managing partner of China Commercial Law, with more than 142 lawyers and 41 partners one of Shenzhen's largest firms.

Over the past year, the impact of the financial crisis has intensified competition. Some local firms observe that large Beijing and Shanghai firms have had to lower their charge-out rates, sometimes even lower than leading local firms, to win more instructions from the mid and small-cap market and keep their business afloat.

"To win more market share, local firms really need to integrate client resources firm-wide and seek business opportunities among existing clients across all principles and practices," Lai says. "In addition, they have to leverage their local knowledge to come up with creative legal solutions and innovative services." Competition aside, China Commercial's projected 2009 revenue will post a 20%-30% growth over the previous year - not a bad result given current circumstances.

For Shenzhen Bar Association's president Li Chun, competition is part of what makes a market thrive. "Currently, more than 60% of the industry's revenue is generated by 20% of the firms. The top-notch firms will continue to dominate the market, a trend that I don't expect to change any time soon," Li says. "It's a competition pattern that resembles that of other more developed markets, such as Beijing, Shanghai and Hong Kong."

Li is also executive partner of Grandall Legal Group, who founded Grandall's Shenzhen legacy firm TangRen Law Firm. He now manages the group's Shenzhen and Hong Kong offices and expects the Shenzhen office to achieve 20-25% revenue growth by the end of 2009.

 NEXT: Vision 2020

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